Skilled immigration, offshoring, and trade

Abstract

We develop a dynamic general equilibrium model with skilled immigration, offshore labor hiring, and intermediate input trade to study the impact of skilled immigration policy changes in the US. Consistent with the data, the model accounts for a small subset of large firms that adjust offshore labor hiring in response to skilled immigration policy changes. Our calibrated model that matches the US economy shows that if we ignore the offshoring channel, we would overstate welfare gains to skilled domestic wage earners by approximately 20 percent following a 10 percent immigration cap reduction. The paper highlights the importance of considering the interactions between immigration, offshoring, and trade when studying the impacts of skilled immigration policy on domestic labor markets and trade.