Wage stickiness, offshoring and unemployment

Aloi, Marta; Hoefele, Andreas

Abstract

This note investigates how the effect of offshoring on unemployment is influenced by the wage setting process. We assume staggered wage contracts in an otherwise standard search and matching model. In this setup, the contract wage depends also on expected future conditions. We show that more flexibility in the wage contracting process induces greater offshoring, a decrease in the worker’s job-finding probability and higher worker’s wage within job spells. Notably, less stickiness leads to a fall in the rents that firms can extract by producing domestically.

Citation

Aloi, M., & Hoefele, A. (2019). Wage stickiness, offshoring and unemployment. Economics Letters, 177, 56-59. https://doi.org/10.1016/j.econlet.2019.01.025

• Journal Article Type: Article
• Acceptance Date: Jan 27, 2019
• Online Publication Date: Feb 1, 2019
• Publication Date: 2019-04
• Deposit Date: Feb 5, 2019
• Publicly Available Date: Aug 2, 2020
• Journal: Economics Letters
• Print ISSN: 0165-1765
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 177
• Pages: 56-59
• DOI: https://doi.org/10.1016/j.econlet.2019.01.025
• Keywords: Offshoring; Unemployment; Wage stickiness
• Public URL: https://nottingham-repository.worktribe.com/output/1518820
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0165176519300333?via%3Dihub