Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/313685 
Year of Publication: 
2024
Citation: 
[Journal:] Review of International Economics [ISSN:] 1467-9396 [Volume:] 33 [Issue:] 1 [Publisher:] Wiley Periodicals, Inc. [Place:] Hoboken, NJ [Year:] 2024 [Pages:] 78-98
Publisher: 
Wiley Periodicals, Inc., Hoboken, NJ
Abstract: 
This paper sets up a two‐country model of offshoring with monopolistically competitive product and monopsonistically competitive labor markets. In our model, an incentive for offshoring exists even between symmetric countries, because shifting part of the production abroad reduces local labor demand and allows firms to more strongly execute their monopsonistic labor market power. However, offshoring between symmetric countries has negative welfare effects and therefore calls for policy intervention. In this context, we put forward the role of a common minimum wage and show that the introduction of a moderate minimum wage increases offshoring and reduces welfare. In contrast, a sizable minimum wage reduces offshoring and increases welfare. Beyond that, we also show that a sufficiently high common minimum wage cannot only eliminate offshoring but also inefficiencies in the resource allocation due to monopsonistic labor market distortions in closed economies.
Subjects: 
minimum wage
offshoring
welfare effects
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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