Revisiting the Employment Impact of Offshoring

The productivity gains due to offshoring may, in part, accrue to workers. This paper esti-mates the magnitude of these gains and compares it to the magnitude of employment loss due to worker displacement. A model based on the production task framework from Grossman and Rossi-Hansberg (2008) is used to demonstrate that the effect of offshoring depends on the inten-sity of use of these tasks and, ultimately, impacts domestic employment through three channels: a direct displacement effect, which negatively impacts employment; an output effect generated by the productivity gains from offshoring, which reorganizes and increases aggregate production in the economy and impacts domestic employment positively; and a substitution effect among factors and tasks, which has an ambiguous effect. Using the model’s structure as a roadmap and applying it to detailed U.S. manufacturing sector data over 2001-2007, results from GMM 3SLS regressions pro-vide overall support for the structure and predictions of the tasks model of offshoring. In particular, the economic magnitude of the productivity gains is found to have been important