Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/200748
Authors: 
Egger, Hartmut
Kreickemeier, Udo
Moser, Christoph
Wrona, Jens
Year of Publication: 
2019
Series/Report no.: 
cege Discussion Papers No. 376
Publisher: 
University of Göttingen, Center for European, Governance and Economic Development Research (cege), Göttingen
Abstract: 
We develop a model of international trade with a monopsonistically competitive labour market in 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.
Subjects: 
Monopsonistic labour markets
Exporting
Two-way offshoring
Tasks
Heterogeneous firms
Wages
Employment
JEL: 
F12
F16
F23
Document Type: 
Working Paper

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