The race between offshoring and automation in explaining wage polarization

• Type: Article in International Scientific Journal
• Date: 2024-09

Authors

Pinho, M (Author) Other; Óscar Afonso (Author) FEP; Sequeira, T (Author) Other

Journal

Title: Macroeconomic Dynamics

Serial No. 28 Vol. 6

Pages: 1278-1312

ISSN: 1365-1005

Publisher: Cambridge University Press

Indexing

ISI Web of Knowledge - 2 Citations

Scopus - 2 Citations

Other information

Authenticus ID: P-00Z-BMG

DOI: 10.1017/s1365100523000470

Abstract (EN): Offshoring and automation are sources of wage polarization. We reassess these two determinants of wage polarization in a single directed technical change setup that encompasses routine and nonroutine production. We empirically establish the conditional positive relationship between automation and relocations on one side and wage polarization on the other. Theoretically, we show that wage polarization increases with automation and offshoring. In particular, wage polarization in favor of domestic (nonroutine) high(low)-skilled workers is positively affected by an increase in domestic (nonroutine) high(low)-skilled labor quantity and/or absolute productivity. Additionally, it is also positively influenced by a rise in foreign (routine) medium-skilled labor quantity and/or absolute productivity while negatively impacted by an increase in domestic (routine) medium-skilled labor quantity and/or absolute productivity. We show that the effect of offshoring on wage polarization diminishes with the degree of substitutability between routine and nonroutine sectors in the economy, with the share of machines in the production of intermediate goods, and with the scale effect. We quantitatively assess the impact through a thorough data-based calibration exercise, where the numerical results confirmed the theoretical findings.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 35