Offshoring, Trade in Tasks and Occupational Specificity of Human Capital∗

This paper makes three contributions to our understanding of the impact of offshoring on ag-gregate productivity and on labour market outcomes. First, I document that workers in tradable service occupations attain more general and more specific human capital. Second, I develop a dy-namic general equilibrium model in which workers acquire human capital specific to the task they complete. Third, I calibrate the model to the U.S. economy, quantify the output effect of trade in tasks, and describe the occupational reallocation of workers. The dynamic nature of the model al-lows for differentiation between short and long run effects. The welfare effects of increased offshoring are unambiguously positive; their magnitude depends on the difference between autarky and world relative prices, but not on the skill-content of offshored and inshored tasks. For reasonable terms of trade, the calibrated steady state welfare gains are found to be between 1.8 % and 4%. The distribu-tion of the gains from trade critically depends on the time horizon: in the short term, workers with human capital specific to the inshored occupations gain, while workers with human capital specific to the offshored occupations lose. In the long run, the gains from trade are equally distributed among ex-ante identical agents