Offshoring of medium-skill jobs, polarization, and productivity effect: Implications for wages and low-skill unemployment

We examine the effects of endogenous offshoring on cost-efficiency,
wages and unemployment in a task assignment model with skill
heterogeneity. Exact conditions for the following insights are derived.
The distributional effect of offshoring (high-) low-skill-intensive
tasks is similar to (unskilled-) skill-biased technology changes, while
offshoring medium-skill-intensive tasks induces wage polarization.
Offshoring improves cost-efficiency through international task
reallocation and puts a downward pressure on all wages through domestic
skill-task reallocation. If elasticities of task substitution are low
(high), the downward pressure on wages in neighbouring skill segments is
low (high) with a net effect of higher (lower) wages and employment.