Offshoring, Immigration, and the Native Wage Distribution

While workers in developed countries have become increasingly concerned about the impact offshoring and immigration have on their wages, the available evidence on the link between offshoring, immigration, and wages remains mixed. This paper presents a simple model that examines the impact of offshoring and immigration on wages and tests these predictions using U.S. state-industry level data. According to the model, the productivity effect causes offshoring to have a more positive impact on low skilled wages than immigration, but this gap is decreasing with the workers’ skill level. The empirical results confirm these predictions and thus provide the first evidence of the productivity effect. Furthermore, the impact of offshoring and immigration on wages differs depending on the income level of the foreign country, which may explain the mixed results in the literature.