Tradable And Non-Level Offshoring Theory

Introduction:

According to the economic theory, world’s goods and services can be separated in two big sectors: Tradable and non-tradable. In the old days, any item that could be shipped was characterized as a tradable good and anything that couldn’t be shipped, like services or heavy goods was considered as non-tradable. However, technology and global communications have seen a sharp growth the last years and that led to a different perspective of that theory. Nowadays, with the help of that development, not only goods can be delivered but also services electronically. Thus, this old assumption is now discarded because information can be electronically delivered and many services are tradable and many other services will become so. Those
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Thus, the importance of offshoring is a largely prospective phenomenon.
In the 1980s and 1990s the magnitude of offshoring was minimal, so the first outcome of that topic was that the effects in wages were minimal. However, upcoming researches changed that view. Feenstra and Hanson (1995,1999) argued that the previously used measure of offshoring was limited and the result was not representative. Thus, they used US industry-level offshoring and wages data to end up with a sequence that shows an increase in relative skilled wages by 12-27 per cent.
More recent researches were improved dramatically and could provide more targeted and focused results. The improvements that made in order to achieve that, was first the individual-level data that was used in order to track workers and second the focus on high and low skilled workers.
A decisive study in the specific topic was done by Ebenstein et al. (2011). They measure offshoring by using data on total employment of foreign affiliates of US multi-national firms which are active in both manufacturing and services. The result of that research showed that the workers who relocate to other jobs within manufacturing had a 2-4 per cent decrease in income. In addition, the workers who switched to the service sector and experience a significant reduction of 4-11 per cent wage
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Workers who take place in expanding export firms may enjoy wage gains, in addition with those who are engaged in tasks that are offshored. Commonly used offshoring models shows that offshoring is likely to increase income inequality and decrease low-skilled workers wages.
Likewise, the direction of people today is the education in order to ensure higher income and be competitive in this high-skilled labor market.
A great example of how many low-skilled jobs were lost because of offshoring is the U.S. between 1990 and 2011. As china grew to become the world’s dominant export power, the U.S. lost over 2 million manufacturing jobs between 1999 and 2001. But new American jobs were created during those years, in a slower pace. The American firms build factories abroad to take advantage of the cheaper labor. This number seems to be staggering but in reality, cheap Chinese imports helped American companies to become more efficient and hire new workers in the service sector because of the cheaper goods that were avaliabe as

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