Chapter in book

Advances on International Economics (Edited by Carmen Díaz-Roldán and Javier Perote)
Date: September 2015
Publisher: Cambridge Scholars Publishing

Advances on International Economics offers a broad overview of recent developments in international economics, both theoretical and empirical, adapted from contributions to the XV Conference on International Economics, organized by the Spanish Association of International Economics and Finance (AEEFI), and the University of Salamanca, Spain.

Offshoring in the Global Economy

Offshoring in the Global Economy: Management Practices and Welfare Implications (with Joan Enric Ricart, Niccolò Pisani, and Adetunji Adegbesan)
Date: February 2011
Publisher: BBVA Foundation

This book presents both the economic and management-oriented perspectives on offshoring. It reviews the latest literature in both fields, assesses the impact on labor markets, and describes the new wave of services offshoring and how managers are dealing with it. The book is directed to researchers in the field, managers, and government officials who want to understand the benefits of this business practice in the light of the recent developments.

Publications (peer reviewed)

Globalization, Welfare, and the Attitudes toward Higher Education (with J. Hromcova)
This draft: April 2018 (pdf)
Published: Economic Modelling, forthcoming
In this paper we study how the attitudes toward higher education may affect labor market outcomes in the context of globalization. In particular, we show that different educational attitudes are responsible for differences in the wage differential among countries. Using a matching model with two types of workers and firms, we find that there is a trade-off between the wage differential and the workers' welfare, namely, that an economy that is less willing to educate itself will display a lower wage differential but will lose in terms of welfare. Moreover, from a policy perspective, we show that the negative effects on welfare due to this disinclination to study can be offset by increased labor market flexibility. All things considered, policy makers ought to keep in mind that both a positive attitude toward higher education and labor market flexibility, can lead to improved overall performance in this increasingly globalized world.
Keywords: globalization, welfare, skills, education.
JEL Classification: F66, I25, J24, J64

Bubble Economics and Structural Change: The Cases of Spain and France Compared (with J. Hromcova)
This draft: March 2015 (pdf)
Published: Journal of Economic Policy Reform, 21 (1), February 2018 (published online August 2016), 59–79
This paper delves into the recent events that led to the formation of the housing bubble in Spain and the resulting structural change that is arguably needed to put the economy back into the right track. For this purpose we calibrate a model with different equilibria descriptive of the labor markets in Spain and France, where the unemployment rates went from the same initial spot to very different levels. In addition to this, we run a counterfactual analysis that throws some more light on the performance of the Spanish labor market and the housing bubble. Our results suggest that the unemployment rate in Spain has jumped to much higher levels while switching between equilibria or, what is the same, because of structural change. Moreover, our counterfactuals indicate that, first, there has been an important misdirection of resources into the construction industry mainly fueled by excessively low real interest rates and, second, the Spanish labor reform has fallen short of its own goals.
Keywords: structural change, bubble, unemployment, interest rate, productivity.
JEL Classification: J64, O57

Low-Skill Offshoring and Welfare Compensation Policies (with J. Hromcova)
This draft: June 2015 (pdf)
Published: Economic Modelling, 52, part B, January 2016, 408–426
We analyze the effects of low-skill offshoring on welfare. In the context of a matching model with different possible equilibria we discuss three alternative policies that could potentially outweigh the negative welfare effects of offshoring, namely, a change of the unemployment benefits, labor market flexibility, and a progressive tax structure. Our calibrations for the German economy suggest that increased flexibility can bring low-skill workers to pre-offshoring welfare levels, something that cannot be accomplished by meddling with the unemployment benefits scheme or a more progressive tax structure. In addition, we find that a full compensation can be achieved by an upgrading of low-skill workers, its size depending on the type of equilibrium involved. In sum, our analysis gives support to labor market flexibility and upgrading by education as best therapies for offshoring.
Keywords: offshoring, welfare, unemployment benefits, labor market flexibility, upgrading.
JEL Classification: F66, J68

More alike than different: The Spanish and Irish labour markets before and after the crisis (with Pablo Salvador)
This draft: June 2012 (pdf)
Published: IZA Journal of European Labor Studies, December 2012, 1:9
Spain and Ireland might seem at first to feature very different labour markets, which go from very tight to very flexible labour conditions. Our analysis, however, goes beyond this simplistic argument and brings to light some important similarities. For this purpose, we estimate a dynamic multi-equation structural model for each country and offer two sets of dynamic simulations that account for the swings of the unemployment rates before and after the 2007 crisis. Our results suggest looking beyond the degree of flexibility in both labour markets and focusing instead on other variables usually neglected by more conventional approaches. In particular, such variables as the growth of capital stock, the growth of labour productivity, and demographics, succeed in explaining a great part of the changes in unemployment in both countries.
Keywords: unemployment dynamics, structural multi-equation models, chain reaction theory, simulations, PIGS.
JEL Classification: E24, J21, E22, C32

Employment effects of offshoring across sectors and occupations in Japan
This draft: February 2012 (pdf)
Published: Asian Economic Journal, 26 (4), December 2012, 289-311
In the case of Japan, the studies conducted so far focus alone on firm-level data and delve into the productivity effects and the skill upgrading between skilled and unskilled workers. Here, we carry out an empirical analysis of the employment effects of offshoring for Japanese industries on a broader classification of skills or occupations, while considering the three major sectors of the economy and taking account of both services and materials offshoring. The results suggest that various types of offshoring affect occupations differently. In particular, services offshoring tends to benefit highly skilled occupations more, while materials offshoring tends to benefit production workers instead.
Keywords: offshoring, employment, sectors, occupations.
JEL Classification: F16, J23

The driving forces behind the falling labor share and persistent unemployment in Japan
(with Hector Sala)
This draft: March 2011 (pdf)
Published: Pacific Economic Review, 16 (5), December 2011, 577-603
Like in most advanced countries the labor income share in Japan has been falling since the mid 1970s. However, in contrast to other advanced economies, Japan has experienced an exceptional recessive period during the 1990s and 2000s in which the rate of unemployment rose to a historical maximum of 5.5% in 2002, to persist above 4% in subsequent years. In this paper we examine the main causes behind the paths followed by the labor income share and the unemployment rate during the post-1997 crisis period (1997-2002) and the transition years that followed (2002-2009). We do so by estimating a multi-equation macro model that allows us to look separately at the various components of this particular labor market -wages, output and employment. Our main finding is that the fall in the labor share can be attributed to the changes that took place within the labor relations system -the weakening of unions mainly- and that the surge in unemployment can be altogether ascribed to the distorting effects of the sizeable and increasing public debt.
Keywords: labor income share, unemployment rate, labor-management relations, labor market, Japan.
JEL Classification: E25, J50, E24

The fading 1990s in Japan: Driving forces behind the unemployment upsurge
(with Hector Sala)
This draft: March 2008 (pdf)
Published: International Review of Economics and Finance, 18 (3), June 2009, 428-439
This paper sheds new light on the causes of the unemployment upsurge in Japan during the “fading 1990s”, an unprecedented period of structural crisis. We estimate a labor market model and identify the main macroeconomic determinants of labor demand and labor supply decisions in the last decades. We then conduct dynamic simulations and assess the relative contribution of these determinants to the evolution of unemployment from 1990 to 2002. Beyond the leading role exerted by the decline in productivity growth, we find the active and expansionary measures undertaken by the government had an overall negative effect on the labor market.
Keywords: Japan, unemployment, productivity, macroeconomic policies, chain reaction theory.
JEL Classification: E24, E60, J01

Unemployment in Japan: A look at the lost decade (with Hector Sala)
This draft: September 2008 (pdf)
Published: Asia Pacific Journal of Economics and Business, 12 (1), June 2008, 16-35
The ‘lost decade’ in Japan was a period of steep surge in unemployment. It started in 1991 with the unemployment rate at 2.1%, and ended in 2002 when it reached a historical maximum of 5.5%. To assess the main causes of this rise we take a macroeconomic perspective and estimate a reduced-form unemployment model. This model, containing a rich set of variables, yields an interesting picture. The fall of private investment played the main role, while private consumption and the boost in government spending partially offset this recessive effect. In turn, the initial rise in participation rates and the East Asian crisis after 1997 added new burdens to the labor market. We conclude that a crucial issue in the medium-run is to avoid the consequences of the prolonged decline in investment in terms of reduced productivity growth and a weaker international trade performance.
Keywords: Unemployment, reduced-form models, investment, economic policy, East Asian crisis.
JEL Classification: E24, F16, J01

Working papers uhmfff!

Offshoring, Endogenous Skill Decision, and Labor Market Outcomes (with Jana Hromcova)
This draft: February 2017, (pdf)
We discuss the effects of low-skill offshoring on the endogenous schooling decision of workers along with the potential changes in the labor market. The analysis is performed in the context of a matching model with different possible equilibria. Our exercise suggests that the endogenous upgrading of low-skill workers can only partially offset the welfare-deteriorating effects of offshoring. As a result, we aim at restoring pre-offshoring welfare levels by increasing the opportunity cost of staying low-skill. In addition to this, we also consider labor flexibility as an effective policy to deal with the adverse welfare effects of offshoring that befall those in the lowest end of the skill ladder.
Keywords: offshoring, welfare, skills, education, flexibility.
JEL Classification: F66, I25, J64

Older working papers

Low-skill offshoring: Labor market policies and welfare effects (with Jana Hromcova)
This draft: May 2014, IZA DP-8164
We analyze the effects of low-skill workers offshoring on the welfare of the economy. In the context of a matching model with different possible equilibria, we discuss two policies that could potentially outweigh the negative welfare effects of offshoring, namely, an increase of the unemployment benefits and the flexibilization of the labor market. Our results suggest that, while both policy instruments can theoretically bring the economy back to previous welfare levels, careful thought should be given to the practicability of either measure. In particular, it would take a major increase of the unemployment benefits but only a small reduction in the vacancy cost to compensate for the negative welfare effects of offshoring. In addition, we also find that the compensation can be achieved by an upgrading of the low-skill workers that varies with the equilibria.
Keywords: offshoring, welfare, unemployment benefits, labor market flexibility, upgrading
JEL Classification: F66, J68

Offshoring and productivity revisited: A time-series analysis
This draft: March 2013, IZA DP-7323
Published: in Advances on International Economics, Cambridge Scholars Publishing, forthcoming 2015.
The subject of offshoring and productivity has not yet received the attention it deserves. Here I propose a simple framework for estimating the contribution of these strategies to the growth rate of labor productivity from a time-series perspective. This framework is then used to assess the impact of offshoring on skill upgrading and the labor share. For both empirical questions I take up the study of a group of Japanese industries during the recent years of slow growth. The results should be interpreted with caution yet clearly suggest that offshoring can improve labor productivity in the Semiconductors industry. Moreover, offshoring is found to be the source of important changes among industries with different skills (skill upgrading) and an important factor behind the fall of the labor share.
Keywords: offshoring, labor productivity, skill upgrading, labor share
JEL Classification: J23, J24, E25

Japan and her dealings with offshoring: An empirical analysis with aggregate data
This draft: February 2011, IZA DP-5517
and IESE working paper 793 (earlier draft)
First moves towards a real understanding of offshoring date back to very recent times, with employment and productivity effects occupying much of the literature around the subject. In particular for Japan, the studies conducted so far focus on the disaggregate level and put the stress on the productivity side alone. Here I carry out both the analyses of the employment and productivity effects at the aggregate level of the industry, covering the years 1980-2005. Moreover, I consider all industries within the economy and take account of both materials and services offshoring. My results suggest that we should expect, on average, a positive effect of services offshoring and a negative effect of materials offshoring on employment. However, the effects are rather negligible and only amount to a 1.5 to 2 percent loss of the change in employment. On the other hand, positive effects on the growth rate of productivity are found as a result of both types of offshoring, with larger effects from services. In particular, the average offshoring industry has higher productivity growth rates: 1.4 to 1.98 additional percentage points for services and 0.48 to 0.64 for materials.
Keywords: offshoring, Japan, employment, productivity
JEL Classification: F16, J23, O47

The Japanese lost decade and beyond: A chain reaction theory approach
This draft:
January 2011, IZA DP-5463
The Japanese lost decade has become an intriguing puzzle for both economists and policy-makers alike, as the unemployment rate climbed to unprecedented levels and the growth rate of productivity decreased considerably. More recent times seem to present with a more optimistic outlook, but this is not yet the last word in the matter. In this paper we estimate two alternative multi-equation structural models descriptive of the Japanese labor market, that are then used to conduct dynamic simulations both for the lost decade period (1990-2002) and beyond (2002-2007). Our results point, primarily, to the damaging effects of the ever-increasing public debt as a major source of labor market inefficiencies. In addition, we find the fall in labor union power to have a significant easing effect on the unemployment rate, but also to be a major driver in the apparently eroding pattern of the labor income share in recent years.
labor market dynamics, structural multi-equation models, chain reaction theory, simulations
JEL Classification:
C32, E17, E24, J08

Employment effects of offshoring. An application to Japanese industries, 1980-2005
This draft: September 2009 (pdf)
This paper estimates the direct effects of materials and services offshoring on Japanese employment. My main finding is that the net amount of jobs lost to offshoring during the past two and a half decades is negligible, as it was the role of offshoring as a source of sector-bias change in an era of major structural changes for Japan. I argue that, as a natural result of trade and profit-seeking, the positive and negative forces entailed in the relocation of activities worldwide tend to compensate each other. My estimations indicate a total net loss of approximately 25,000 jobs during 1980-2005. This is a rather non-significant figure when compared to the 9.5 million jobs created in the same period. Further, the evidence presented here hints at the possibility of skill upgrading only as a result of services offshoring.
Keywords: offshoring, employment, Japan, deindustrialization
JEL Classification: F16, J23

Offshoring: Facts and numbers at the country level (with Joan Enric Ricart)
This draft: September 2009 (pdf)
and IESE working paper 792 (earlier draft)
Offshoring has lately received wide attention. Its potential effects, mainly to be materialized in employment and productivity dislocations, are yet to be fully assessed. However, some consensus has been attained as to how to proxy its theoretical definition at an aggregate level. Here we review the most conventional indices the economic literature has so far produced, and employ them to provide an overview of the extent of the phenomenon for a group of countries. Contrary to common beliefs, our data reveal that offshoring is not exclusive of large developed economies. Further, we highlight the continuing prominence of the manufacturing over the services sector, and observe that while services offshoring is on the rise, it still represents a small fraction of total offshoring.
Keywords: offshoring, intermediate trade, aggregate data
JEL Classification: F14, F40