Neoclassical theory explains the global decline of the labor income share by capital-labor substitution due to the affordable relative price of capital. Based on the Morishima elasticities of substitution among capital, labor disaggregated into high-, medium-, and low-skill groups, and imported and domestic intermediate inputs, offshoring appears to disproportionately affect job polarization globally and in developed economies. These findings in favor of the globalization hypothesis are buttressed by multivariate panel regressions. Lastly, offshoring might reinforce technological changes, a double-edged sword that can boost productivity growth but exacerbate wage inequality.
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Special thanks are due to Tiago Cavalcanti (the Editor) and an anonymous referee. We also thank Seung-woo Chin, Joung Hwa Choi, Chune Young Chung, Jinook Jeong, Tae-Hwan Kim, Dong Cheon Shin, Jay Min Lee, Byung Sam Yoo and the participants of Western Economic Association 2015 (Honolulu, Hawaii). This research is based on Seo’s (2016) M.A. thesis approved at Yonsei University. This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2018S1A5A2A01029148). Standard disclaimer rules apply and all errors are of our own.
© 2019 Walter de Gruyter GmbH, Berlin/Boston.
- job polarization
- labor income share
- morishima elasticity of substitution
- technological changes