The Effects of Offshoring on Post-displacement Wages: Evidence from the United States

Abstract

This paper studies the effects of offshoring on post-displacement wages using a large and nationally representative sample of US workers displaced from a manufacturing industry during the 1990s. The empirical results based on Mincerian regressions of individual re-employment earnings on industry-level offshoring proxies, show that the effects of offshoring on post-displacement wages are negative, although not economically large. The preferred specifications suggest, in fact, that a one percentage point increase in offshoring in the pre-displacement industry reduces earnings on the new job by approximately 0.3–0.6 per cent. These figures imply that the cumulative rise in offshoring over the sample period may have led to a drop of between US$110 and US$330 in the yearly re-employment wages of US displaced workers. While the magnitude of the effect is largely independent of individual characteristics such as gender, age, occupation and educational level, it does depend on the duration of non-employment and on workers’ industrial reallocation after displacement. In particular, the effects are relatively stronger for individuals who stay longer before finding a new job, as well as for those who leave the pre-displacement industry after the job loss.