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On modeling task, skill and technology upgrading effects of globalization with heterogeneous labor

Author

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  • Jung, Jaewon
  • Mercenier, Jean
Abstract
We adapt Yeaple's (2005) heterogeneous agent framework to model firms in the North as making explicit offshore outsourcing decisions to cheap-labor economies. We highlight how firms' technology transformations due to globalization will induce skill upgrading in the North, increase aggregate productivity, average wages and therefore total welfare at the cost of increased wage inequalities. We analytically derive conditions under which all consumers – including lower-skilled workers – might nevertheless gain from the surge of offshore outsourcing. We also show that extending the model to the more realistic case of multi-product firms tends to boost the potential welfare gains.

Suggested Citation

  • Jung, Jaewon & Mercenier, Jean, 2014. "On modeling task, skill and technology upgrading effects of globalization with heterogeneous labor," Economic Modelling, Elsevier, vol. 39(C), pages 49-62.
    • Handle: RePEc:eee:ecmode:v:39:y:2014:i:c:p:49-62
    DOI: 10.1016/j.econmod.2014.02.019
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    References listed on IDEAS

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    Cited by:

    1. Agnese, Pablo & Hromcová, Jana, 2016. "Low-skill offshoring and welfare compensation policies," Economic Modelling, Elsevier, vol. 52(PB), pages 408-426.
    2. Philipp Harms & Jaewon Jung & Oliver Lorz, 2021. "Offshoring and sequential production chains: A general equilibrium analysis," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(2), pages 623-647, May.
    3. Agnese, Pablo & Hromcová, Jana, 2019. "Offshoring and Skill-Biased Technical Change in the Context of US Protectionism," IZA Discussion Papers 12593, Institute of Labor Economics (IZA).
    4. Jaewon Jung, 2021. "Economic Transformation and Sustainable Development through Multilateral Free Trade Agreements," Sustainability, MDPI, vol. 13(5), pages 1-17, February.
    5. Agnese, Pablo & Hromcová, Jana, 2014. "Low-Skill Offshoring: Labor Market Policies and Welfare Effects," IZA Discussion Papers 8164, Institute for the Study of Labor (IZA).
    6. Hromcová, Jana & Agnese, Pablo, 2019. "Globalization, welfare, and the attitudes toward higher education," Economic Modelling, Elsevier, vol. 81(C), pages 503-517.
    7. Shim, Myungkyu & Yang, Hee-Seung, 2016. "New stylized facts on occupational employment and their implications: Evidence from consistent employment data," Economic Modelling, Elsevier, vol. 59(C), pages 402-415.
    8. Jaewon Jung, 2018. "Introducing Roy-like Worker Assignment into Computable General Equilibrium Models," THEMA Working Papers 2018-06, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    9. Agnese, Pablo & Hromcová, Jana, 2016. "Offshoring, Endogenous Skill Decision, and Labor Market Outcomes," IZA Discussion Papers 10299, Institute of Labor Economics (IZA).
    10. Agnese, Pablo & Hromcová, Jana, 2014. "Low-Skill Offshoring: Labor Market Policies and Welfare Effects," IZA Discussion Papers 8164, Institute of Labor Economics (IZA).
    11. Wang, Tianxi & Wright, Greg C., 2020. "Increasing returns to scale within limits: A model of ICT and its effect on the income distribution and occupation choice," Journal of Economic Theory, Elsevier, vol. 189(C).

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    More about this item

    Keywords

    Globalization; Offshore outsourcing; Technology upgrading; Skill upgrading; Task upgrading; Firm heterogeneity; Multi-product firms;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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