Offshoring, employment, and aggregate demand

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Abstract

The article uses a demand-constrained small-open-economy model in the tradition of Keynes and Kalecki to study the effects of offshoring on aggregate demand and domestic employment. Offshoring is represented as labor-saving import-using technical change. The results depend on the behavior of the markup on unit costs. If higher markups absorb the competitiveness gain, the scale effect of labor demand is negative, and offshoring unambiguously reduces domestic demand and employment. If the markup remains constant, the net effect of offshoring on domestic demand and employment is ambiguous; it depends crucially on the price elasticity of exports.

Original languageEnglish
Pages (from-to)1-26
Number of pages26
JournalJournal of Evolutionary Economics
DOIs
Publication statusAccepted/In press - 11 Jul 2018

Keywords

  • Aggregate demand
  • Germany
  • Global value chains
  • Labor demand
  • Offshoring
  • Trade flows
  • Unemployment

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