Foreign Investment, Outsourcing and Relative Wages / Robert C. Feenstra, Gordon H. Hanson.

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Feenstra, Robert C

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w5121.Publication details: Cambridge, Mass. National Bureau of Economic Research 1995.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: In this paper we examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's. We argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities. In a theoretical model, we show that any increase in the Southern capital stock relative to that of the North, or neutral technological progress in the South, will increase the relative wage of skilled workers in both countries due to a shift in production activities to the South. Corresponding to this change in the relative wage is an increase in the price index of Northern activities within each industry, relative to that of the South. We confirm that this change in relative prices occurred for the U.S. and other industrialized countries relative to their trading partners. We also estimate that 15-33% of the increase in the relative wage of nonproduction (or skilled) workers in the U.S. during the 1980's is explained by rising imports.

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Previous	nber w5118 Effects of Air Quality Regulation /	nber w5119 The Effect of Prison Population Size on Crime Rates: Evidence From Prison Overcrowding Litigation /	nber w5120 Capital Mobility, Fiscal Policy and Growth under Self-Financing of Human Capital Formation /	nber w5121 Foreign Investment, Outsourcing and Relative Wages /	nber w5122 Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras /	nber w5123 Employment, Unemployment, and Problem Drinking /	nber w5124 The Role of Pre-Market Factors in Black-White Wage Differences /	Next

May 1995.

In this paper we examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's. We argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities. In a theoretical model, we show that any increase in the Southern capital stock relative to that of the North, or neutral technological progress in the South, will increase the relative wage of skilled workers in both countries due to a shift in production activities to the South. Corresponding to this change in the relative wage is an increase in the price index of Northern activities within each industry, relative to that of the South. We confirm that this change in relative prices occurred for the U.S. and other industrialized countries relative to their trading partners. We also estimate that 15-33% of the increase in the relative wage of nonproduction (or skilled) workers in the U.S. during the 1980's is explained by rising imports.