Foreign outsourcing tends to reduce wages for low and medium-skilled workers, while wages of high-skilled workers rise. In contrast, domestic outsourcing tends to increase wages for low and medium-skilled workers, while there is no significant effect on high-skilled wages.

Does outsourcing cause income inequality?

Especially for low wages, outsourcing contributed substantially to the increase in inequality. Overall we show that about 9 percent of the increase in inequality can be accounted for by the increase in outsourcing of just these four occupations.

How does offshoring affect wages?

We find that within job spells, (1) offshoring tends to increase the high-skilled wage and decrease the low-skilled wage; (2) exporting tends to increase the wages of all skill types; (3) the net wage effect of trade varies substantially across workers of the same skill type; and (4) conditional on skill, the wage …