Jan Hogrefe

Trade, tasks, and training: The effect of offshoring on individual skill upgrading

We offer a theoretical explanation and empirical evidence for a positive link between increased offshoring and individual skill upgrading. Skill upgrading takes the form of on-the-job training, complementing the existing literature, which mainly focuses on the retraining of displaced workers. To establish a link between offshoring and on-the-job training, we introduce an individual skill upgrading margin into the Grossman and Rossi-Hansberg ( ) model of offshoring. By scaling up workers wages, offshoring creates previously unexploited skill upgrading possibilities, which lead to more training. Using data from German manufacturing, we establish a causal link between industry-level offshoring growth and increased individual skill upgrading.

Offshoring and Relative Labor Demand from a Task Perspective

This paper provides new evidence on how offshoring shifts relative labor demand for tasks at the industry level. A novel theoretical mechanism, based on sorting of heterogeneous workers into occupations with task dependent offshoring cost, guides estimation. Cost shares of tasks are linked to offshoring in a panel estimation using German data for 1998-2007. It is shown that offshoring shifts home country relative labor demand towards more complex tasks with higher relocation cost. This demand shift holds when controlling for an industrys skill composition and is particularly strong for offshoring to non-OECD countries.

Trade and Technology: New Evidence on the Productivity Sorting of Firms

Recent advances in trade theory suggest novel gains from trade liberalisation through technology adoption by expanding exporting firms. These theories rely on strict assumptions regarding the productivity sorting of firms with different technology use. In this paper, we test the sorting of German firms using data on actually implemented technologies. Our analysis distinguishes between manufacturing and service industries. In case of the former, we confirm the sorting pattern of the most productive firms being high-tech exporters, followed by low-tech exporters and then domestic low-tech firms. For services, the evidence is mixed and potentially depends on the tradability of the considered services.

Readdressing the Trade Effect of the Euro: Allowing for Currency Misalignment

We know that euro-area member countries have absorbed asymmetric shocks in ways that are inconsistent with a common nominal anchor. Based on a reformulation of the gravity model that allows for such bilateral misalignment, we disentangle the conventional trade cost channel and trade effects deriving from “implicit currency misalignment”. Econometric estimation reveals that the currency misalignment channel exerts a significant trade effect on bilateral exports. We retrieve country specific estimates of the euro effect on trade based on misalignment. This reveals asymmetric trade effects and heterogeneous outlooks across countries for the costs and benefits from adopting the euro.

Unemployment and Labor Reallocation in Europe

We ask whether sectoral shocks and the subsequent labor reallocation are responsible for unemployment within selected European economies. Our measure of sectoral labor reallocation is adjusted for aggregate influences and the remaining variation is linked to unemployment in country specific dynamic models. For Spain, the ADL-model estimation reveals a significant impact of sectoral reallocation on unemployment that goes beyond usual business cycle patterns. In Italy, there is weaker yet detectable evidence for this mechanism. In Ireland, Portugal and France, no significant influence of sector level shocks on unemployment is found. The results emphasize the potential structural supply side policies have for reducing unemployment in Spain.

Offshoring and Labor Income Risk

This paper analyzes the impact increased offshoring has on labor income risk. It is therefore distinct from a large number of studies explaining the level effects of globalization on the labor market in that it takes a look at effects on second moments, i.e. the variance of incomes. It provides an assessment that directly connects labor income risk and offshoring trends at the sector level. Importantly, we distinguish between transitory and permanent shocks to individual income. Permanent income risk is defined as variance of shocks to income that do not fade out over time and are assumed to be not self-insurable. It thus has a particular relevance for individual welfare. Our findings suggest that offshoring tends to lower permanent income risk. This effect is particularly strong for offshoring to low-income destinations. Hence, there could be potential welfare gains when domestic firms increasingly offshore production to foreign countries.