We study the effect of globalization on the volatility of wages and worker welfare in a model in which risk is allocated through long-run employment relationships (the 'invisible handshake'). Globalization can take two forms: international integration of commodity markets (i.e., free trade) and international integration of factor markets (i.e., offshoring). In a two-country, two-good, two-factor model we show that free trade and offshoring have opposite effects on rich-country workers. Free trade hurts rich-country workers, while reducing the volatility of their wages; by contrast, offshoring benefits them, while raising the volatility of their wages. We thus formalize, but also sharply circumscribe, a common critique of globalization. (C) 2010 Elsevier B.V. All rights reserved.
Trade, offshoring, and the invisible handshake / Karabay, Bilgehan; Mclaren, John. - In: JOURNAL OF INTERNATIONAL ECONOMICS. - ISSN 0022-1996. - 82:1(2010), pp. 26-34. [10.1016/j.jinteco.2010.06.001]
Trade, offshoring, and the invisible handshake
Karabay, Bilgehan;
2010-01-01
Abstract
We study the effect of globalization on the volatility of wages and worker welfare in a model in which risk is allocated through long-run employment relationships (the 'invisible handshake'). Globalization can take two forms: international integration of commodity markets (i.e., free trade) and international integration of factor markets (i.e., offshoring). In a two-country, two-good, two-factor model we show that free trade and offshoring have opposite effects on rich-country workers. Free trade hurts rich-country workers, while reducing the volatility of their wages; by contrast, offshoring benefits them, while raising the volatility of their wages. We thus formalize, but also sharply circumscribe, a common critique of globalization. (C) 2010 Elsevier B.V. All rights reserved.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione
