ResearcH on Imperfectly Competitive Labour Markets
Exporting and Offshoring with Monopsonistic Competition
Reference
|
Exporting and Offshoring with Monopsonistic Competition (with Egger, H., Kreickemeier, U. and Moser, C.), Economic Journal 132(644), 2022, pp. 1449-88, https://doi.org/10.1093/ej/ueab078.
|
Abstract
|
We develop a model of international trade with a monopsonistically competitive labour marketin which firms employ skilled labour for headquarter tasks and unskilled workers to conduct a continuum of production tasks. Firms can enter foreign markets through exporting and through offshoring, and we show that due to monopsonistic competition our model makes sharply different predictions, both at the firm level and at the aggregate level, about the respective effects of the export of goods and the offshoring of tasks. At the firm-level, exporting leads to higher wages and employment, while offshoring of production tasks reduces the wages paid to unskilled workers as well as their domestic employment. At the aggregate level, trade in goods is unambiguously welfare increasing since domestic resources are reallocated to large firms with high productivity, and firms with low productivities exit the market. This reduces the monopsony distortion present in autarky, where firms restrict employment to keep wages low, resulting in too many firms that are on average too small. Offshoring on the other hand gives firms additional scope for exercising their monopsony power by reducing their domestic size, and as a consequence the resources spent on it can be wasteful from a social planner’s point of view, leading to a welfare loss.
|
ResearcH on Offshoring
Trade in Tasks: Revisiting the Wage and Employment Effects of Offshoring
Reference
|
Trade in tasks: Revisiting the wage and employment effects of offshoring (with Kohler, W.), Canadian Journal of Economics 54(2), 2021 pp. 648-76, https://doi.org/10.1111/caje.12507.
|
Abstract
|
We examine conditions under which offshoring of labour tasks raises domestic wages and employment. Existing literature emphasizes that absorption of job displacement through intersectoral reallocation of factors is a key requirement for this outcome, mostly assuming full employment. We develop a model featuring a less benign environment that rules out such reallocation and allows for equilibrium unemployment due to costly search and matching. Assuming offshoring of both high-skilled and low-skill ed labour tasks, we derive conditions under which offshoring benefits all workers in terms of both, wages and employment.
|
Offshoring and Job Polarisation between Firms
Reference
|
Hartmut Egger, Udo Kreickemeier, Christoph Moser, and Jens Wrona "Offshoring and Job Polarisation between Firms," CESifo Working Paper No. 6142, October 2016.
|
Abstract
|
We set up a general equilibrium model, in which offshoring to a low-wage country can lead to job polarisation in the high-wage country. Job polarisation is the result of a reallocation of labour across firms that differ in productivity and pay wages that are positively linked to their profits by a rent-sharing mechanism. Offshoring involves fixed and task-specific variable costs, and as a consequence it is chosen only by the most productive firms, and only for those tasks with the lowest variable offshoring costs. A reduction in those variable costs increases offshoring at the intensive and at the extensive margin, with domestic employment shifted from the newly offshoring firms in the middle of the productivity distribution to firms at the tails of this distribution, paying either very low or very high wages. We also study how the reallocation of labour across firms affects economy-wide unemployment. Offshoring reduces unemployment when it is confined to high-productivity firms, while this outcome is not guaranteed when offshoring is also chosen by low-productivity firms.
|
Offshoring Domestic Jobs
Reference
|
Offshoring domestic jobs (with Egger, H. and Kreickemeier, U.), Journal of International Economics 97(1), 2015, pp. 112-25, https://doi.org/10.1016/j.jinteco.2015.03.010.
|
Abstract
|
We develop a two-country general equilibrium model, in which heterogeneous firms offshore routine tasks to a low-wage host country. In the presence of fixed costs for offshoring the most productive firms self-select into offshoring, which leads to a reallocation of domestic labor towards less productive uses if offshoring costs are high. As a consequence domestic welfare may fall. The reallocation effect is reversed and domestic welfare rises if offshoring costs are low. The aggregate income distribution, comprising wages and entrepreneurial incomes, becomes more unequal with offshoring.
|
Trade, Tasks, and Training: The Effect of Offshoring on Individual Skill Upgrading
Reference
|
Trade, tasks, and training: The effect of offshoring on individual skill upgrading (with Hogrefe, J.), Canadian Journal of Economics 48(4), 2015, pp. 1537-60, https://doi.org/10.1111/caje.12156.
|
Abstract
|
We offer a theoretical explanation and empirical evidence for a positive link between increased offshoring and individual skill upgrading. Skill upgrading takes the form of on-the-job training, complementing the existing literature, which mainly focuses on the retraining of workers after a direct job displacement through offshoring. To establish a link between offshoring and on-the-job training, we introduce an individual skill upgrading margin into a variant of the Grossman and Rossi-Hansberg (2008) model of offshoring. By scaling up worker’s wages, offshoring in our model creates previously unexploited skill upgrading possibilities and, thus, leads to more on-the-job training. Using data from German manufacturing, we establish a causal link between the growth in industry-level offshoring and an increased on-the-job training propensity at the individual level.
|
Research on Intra-national Trade
Centrality Bias in Inter-City Trade
Reference
|
Tomoya Mori and Jens Wrona (2020). "Centrality Bias in Inter-city Trade," Ruhr Economic Papers No. 1013, April 2023.
|
Abstract
|
Large cities (central places) excessively export to smaller cities in their surrounding hinterland. Using Japanese inter-city trade data, we identify a substantial centrality bias: Shipments from central places to their hinterland are 50%-125% larger than predicted by gravity forces. This upward bias stems from aggregating across industries, which are hierarchically distributed across large and small cities, and therefore does not arise in sectoral gravity estimations. When decomposing the centrality bias along the margins of our data, we find that the by far largest part of this aggregation bias can be attributed to the extensive industry margin.
|
Border effects without Borders: What Divides japan's Internal Trade?
Reference
|
Border Effects without Borders: What Divides Japan's Internal Trade? International Economic Review 59(3), 2018 pp. 1209-62, https://doi.org/10.1111/iere.12302.
|
Abstract
|
This paper identifies a “border effect” in the absence of a border. The finding that trade between East- and West-Japan is 23.1% - 51.3% lower than trade within both country parts, is established despite the absence of an obvious east-west division due to historical borders, cultural differences or past civil wars. Post-war agglomeration processes, reflected by the contemporaneous structure of Japan’s business and social networks, rather than cultural differences, induced by long-lasting historical shocks, are identified as an explanation for the east-west bias in intra-Japanese trade.
|
Research on Migration
Two-Way Migration between Similar Countries
Refrence
|
Two-Way Migration between Similar Countries (with Kreickemeier, U.), World Economy 40(1), 2017, pp.182-206, https://doi.org/10.1111/twec.12377.
|
Abstract
|
We develop a model to explain two-way migration of high-skilled individuals between countries that are similar in their economic characteristics. High-skilled migration results from the combination of workers whose abilities are private knowledge, and a production technology that gives incentives to firms for hiring workers of similar ability. In the presence of migration cost, high-skilled workers self-select into the group of migrants. The laissez-faire equilibrium features too much migration, explained by a negative migration externality. We also show that for sufficiently low levels of migration cost the optimal level of migration, while smaller than in the laissez-faire equilibrium, is strictly positive. Finally, we extend our model into different directions to capture stylized facts in the data and show that our baseline results also hold in these more complex modelling environments.
|
Research on Poverty traps and Globalisation
Industrialisation and The Big Push in a Global Economy
Refrence
|
Udo Kreickemeier and Jens Wrona (2020). "Industrialisation and the Big Push in a Global Economy," CEGE Discussion Paper No. 388, February 2020.
|
Abstract
|
In this paper, we develop a multi-country open economy extension of the famous BigPush model for a closed economy by Murphy et al.(1989). We show under which conditionsthe global economy in our model is caught in a poverty trap, characterised by a low-income equilibrium from which an escape is possible (only) via a coordinated modernization effort across sectors and countries. We also analyze to what extent the degree of openness matters for the prospects of achieving the high-income equilibrium. We show that under monopolistic competition with CES preferences the openness to international trade does not affect the set of parameter combinations leading to a poverty trap, whereas international trade makes it more difficult to achieve industrialisation through a Big Push with continuum quadratic preferences. Responsible for this adverse outcome is the pro-competitive effect of opening up to international trade, which bites into firms’ profit margins, rendering the adoption of a superior production technology unprofitable as it becomes more difficult for firms to amortise their adoption fixed costs.
|