Offshoring and Immigrant Employment:

Abstract: In an Italian dataset with firm-level information on the share of foreign production in total sales and that of immigrant workers in domestic employment, we document a negative and significant relationship between those two variables across firms within each province and industry. We propose and solve a simple model where firms may relocate abroad only productions stages that in domestic plants would be disproportionately performed by immigrant workers. In the model, such offshoring is profitable only if variable cost savings more than offset the fixed cost of delocation. In the data, instrumental variable regressions indicate that firm-specific productivity and managerial structure indicators are important determinants of firm-level propensities to offshore and, through that channel, of the size and composition of domestic employment