Offshoring and Industry Wages in the U.S.

Abstract

It has become an increasingly prevalent strategy for U.S. firms to locate production offshore in order to minimize production costs and maximize profits. Although this may benefit the firm, it is unclear how offshoring production stands to impact the domestic labor market. In my thesis I explore the affect of offshoring on wages in the United States. Using industry-level data from the Bureau of Economic Analysis over the period 2009-2015, my thesis examines the effect of different proxies for offshoring, including foreign direct investment (FDI), on industry level wages. I also explore whether the destination of industry-level outward FDI plays a role in affecting domestic wages. Results indicate that offshoring is associated with an increase in wages in all industries, although statistical significance varies by the model. Regionally, I find that the FDI measure of offshoring into Latin American and the Middle East is associated with lower wages, while FDI outflows from the U.S. into Europe and Asia/Pacific are correlated with higher domestic wages.