The Wage Effects of Offshoring: Evidence from Danish Matched Worker-Firm Data

TLDR

The study documents new stylized facts about offshoring and develops instruments for offshoring and exporting. Using matched Danish worker–firm data and product‑level trade flows, the authors construct pre‑offshoring worker cohorts and track their income over time to estimate offshoring’s effects. Offshoring raises high‑skilled wages but lowers low‑skilled wages, while exporting raises wages across all skill levels; the net trade wage effect varies within skill types and depends on task characteristics. JEL codes: F14, F16, J24, J31, L24.

Abstract

We employ data that match the population of Danish workers to the universe of private-sector Danish firms, with product-level trade flows by origin- and destination-countries. We document new stylized facts about offshoring and instrument for offshoring and exporting. Within job spells, offshoring increases (decreases) the high-skilled ( low-skilled) wage; exporting increases the wages of all skill-types; the net wage-effect of trade varies substantially within the same skill-type; conditional on skill, the wage-effect of offshoring varies across task characteristics. We estimate the overall effects of offshoring on workers' present and future income streams by constructing pre- offshoring-shock worker-cohorts and tracking them over time. (JEL F14, F16, J24, J31, L24)