A model of wage and employment effects of service offshoring

This article shows that a skill-abundant country with a relatively high productivity has larger incentives to offshore unskilled than skilled intensive tasks (services), even though no assumption on the correlation between the degree of tradability and skill-intensity of the tasks is made. Assuming putty-clay technology that locks labor into tasks in the short run, it is shown that service offshoring yields wage and employment effects in the long run. These effects switch from negative to positive as the degree of tradability declines, being the switch for a large degree of tradability in the case of the skilled intensive tasks. The results are consistent with an emerging empirical literature that studies the effects of service offshoring on wages and employment.