We gratefully acknowledge helpful comments and suggestions from Alan S. Blinder and anonymous referees. The research of Chen and Yu was financially supported by the Social Sciences and Humanities Research Council of Canada.
Article first published online: 22 DEC 2012
© 2012 Blackwell Publishing Ltd
The World Economy
Volume 36, Issue 1, pages 1–11, January 2013
How to Cite
Brecher, R. A., Chen, Z. and Yu, Z. (2013), The Trouble with Offshoring: Static and Dynamic Losses in the Presence of Unemployment. World Economy, 36: 1–11. doi: 10.1111/twec.12015
- Issue published online: 16 JAN 2013
- Article first published online: 22 DEC 2012
This study provides theoretical support for the popular objection to offshoring, whereby firms at home employ services of labour located abroad. In the presence of unemployment, our analysis highlights welfare losses from offshoring – not only for the static case of a fixed stock of capital, but also for the dynamic one of optimal saving and investment. We compare these static and dynamic losses to the gains that would instead arise under full-employment conditions, assumed by most of the theoretical literature on offshoring. Our results suggest that public concerns over offshoring are justified when unemployment is taken explicitly into account.