ResearcH on Offshoring
Offshoring and Job Polarisation between Firms
Reference
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Hartmut Egger, Udo Kreickemeier, Christoph Moser, and Jens Wrona (2016). "Offshoring and Job Polarisation between Firms," CESifo Working Paper No. 6142, October 2016.
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Abstract
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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.
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Offshoring Domestic Jobs
Reference
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Hartmut Egger, Udo Kreickemeier and Jens Wrona (2015). "Offshoring Domestic Jobs," Journal of International Economics 97(1), pp. 112-125.
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Abstract
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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.
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Trade, Tasks, and Training: The Effect of Offshoring on Individual Skill Upgrading
Reference
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Jan Hogrefe and Jens Wrona (2015). "Trade, Tasks, and Training: The Effect of Offshoring on Individual Skill Upgrading," Canadian Journal of Economics 48(4), pp. 1537-1560.
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Abstract
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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.
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Research on Intra-national Trade
Inter-City Trade
Reference
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Tomoya Mori and Jens Wrona (2018). "Inter-city Trade" CESifo Working Paper No. 7233, September 2018.
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Abstract
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We propose and apply a new theory-consistent algorithm, which uses disaggregated inter-city trade data to identify a pyramidic city system with central places and associated hinterlands. Because central places possess more industries than the cities in their hinterlands, and because industries, which are exclusive to central places, are more likely to export to the small, peripheral cities in the central place’s hinterland, we find that aggregate exports from central places to their hinterlands are two to five times larger than predicted by gravity forces. Using a simple decomposition approach, we show that this upward bias results from aggregation along the extensive industry margin, which is why the bias is much smaller and only marginally significant if estimation is conducted in a theory-consistent way at the disaggregated industry level.
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Border effects without Borders: What Divides japan's Internal Trade?
Reference
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Jens Wrona (2018). "Border Effects without Borders: What Divides Japan's Internal Trade?" International Economic Review. 59(3), pp. 1209-1262.
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Abstract
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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.
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Research on Migration
There and Back Again: A Simple Theory of Planned Return Migration
Reference
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Florian Knauth and Jens Wrona (2018). "There and Back Again: A Simple Theory of Planned Return Migration," DICE Discussion Paper No. 290, May 2018.
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Abstract
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We present supportive empirical evidence and a new theoretical explanation for the negative selection into planned return migration between similar regions in Germany. In our model costly temporary and permanent migration are used as imperfect signals to indicate workers’ high but otherwise unobservable skills. Production thereby takes place in teams with individual skills as strategic complements. Wages therefore are determined
by team performance and not by individual skill, which is why migration inflicts a wage loss on all workers, who expect the quality of their co-workers to decline. In order to internalise this negative migration externality, which leads to sub-optimally high levels of temporary and permanent migration in a laissez-faire equilibrium, we propose a mix of two policy instruments, which reduce initial outmigration while at the same time inducing later return migration. |
Two-Way Migration between Similar Countries
Refrence
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Udo Kreickemeier and Jens Wrona (2017). "Two-Way Migration between Similar Countries," World Economy 40(1), pp. 182-206.
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Abstract
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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.
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Research on Poverty traps and Globalisation
Industrialisation and The Big Push in a Global Economy
Refrence
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Udo Kreickemeier and Jens Wrona (2017). "Industrialisation and the Big Push in a Global Economy," CESifo Working Paper No. 6475, May 2017.
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Abstract
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In their famous paper on the “Big Push”, Murphy, Shleifer, and Vishny (1989) show how the combination of increasing returns to scale at the firm level and pecuniary externalities can give rise to a poverty trap, thereby formalising an old idea due to Rosenstein-Rodan (1943). We develop in this paper an oligopoly model of the Big Push that is very close in spirit to the Murphy-Shleifer-Vishny (MSV) model, but in contrast to the MSV model it
is easily extended to the case of an economy that is open to international trade. Having a workable open- economy framework allows us to address the question whether globalisation makes it easier or harder for a country to escape from a poverty trap. Our model gives a definite answer to this question: Globalisation makes it harder to escape from a poverty trap since the adoption of the modern technology at the firm level is impeded by tougher competition in the open economy. |