Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142412
Authors: 
Bandyopadhyay, Subhayu
Basu, Arnab K.
Chau, Nancy
Mitra, Devashish
Year of Publication: 
2016
Series/Report no.: 
IZA Discussion Papers 9973
Abstract: 
The various channels through which a reduction in the cost of offshoring can improve wages in a developed country are by now well understood. But does a similar reduction in the offshoring cost also benefit workers in the world's factories in developing countries? Using a parsimonious two-country model of offshoring we find very nuanced results. These include cases where wages monotonically improve or worsen as well as those where wages exhibit an inverted U-shaped relationship in response to parametric reductions in the cost of offshoring. We identify qualitative conditions under which wages and welfare increase or decrease in the developing world as a result of a reduction in offshoring costs. Since global welfare always rises with an improvement in offshoring technology, we find that there is a role for a wage tax or a minimum wage in the developing country. We derive the optimal levels of such policies.
Subjects: 
wages
international offshoring
wage tax
minimum wage
JEL: 
F11
F13
F16
F66
O19
O24
Document Type: 
Working Paper

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