Work

Trade, Offshoring, and the Invisible Handshake

Year: 2009

Type: report

Abstract: We study the effect of globalization on the volatility of wages and worker welfare in a model in which risk is allocated through long-run employment relationships (the 'invisible handshake').Globalization can take two forms: International integration of commodity markets (i.e., free trade) and international integration of factor markets (i.e., offshoring).In a two-country, two-good, two-factor model we show that free trade and offshoring have opposite effects on rich-country workers.Free trade hurts rich-country workers, while reducing the volatility of their wages; by contrast, offshoring benefits them, while raising the volatility of their wages.We thus formalize, but also sharply circumscribe, a common critique of globalization.

Source: National Bureau of Economic Research

DOI: 10.3386/w15048

Authors: Bilgehan Karabay, John McLaren

Institutions: Boston University, National Bureau of Economic Research, Florida International University, Princeton University, Central Bank of the Republic of Turkey, University of Virginia

Language: English

Topic: Global trade and economics

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

OpenAlex ID: W2127467768

Cites: 50

Cited by: 11

Related to: 10