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Federal Reserve Bank of Atlanta
FRB Atlanta Working Paper
Offshoring, low-skilled immigration, and labor market polarization
Federico S. Mandelman
Andrei Zlate
Abstract

During the last three decades, jobs in the middle of the skill distribution disappeared, and employment expanded for high- and low-skill occupations. Real wages did not follow the same pattern. Although earnings for the high-skill occupations increased robustly, wages for both low- and middle-skill workers remained subdued. We attribute this outcome to the rise in offshoring and low-skilled immigration, and we develop a three-country stochastic growth model to rationalize this outcome. In the model, the increase in offshoring negatively affects the middle-skill occupations but benefits the high-skill ones, which in turn boosts aggregate productivity. As the income of high-skill occupations rises, so does the demand for services provided by low-skill workers. However, low-skill wages remain depressed as a result of the surge in unskilled immigration. Native workers react to immigration by upgrading the skill content of their labor tasks as they invest in training.


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Federico S. Mandelman & Andrei Zlate, Offshoring, low-skilled immigration, and labor market polarization, Federal Reserve Bank of Atlanta, FRB Atlanta Working Paper 2014-28, 01 Dec 2014.
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Keywords: labor market polarization; task upgrading; offshoring; labor migration; heterogeneous agents; international business cycles
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