We develop a theoretical framework to explain firms' offshoring decisions in the presence of uncertainty. This model highlights the role of labor market institutions in shaping a firm's ability to effectively react upon future shocks, yielding a sharp prediction of the prevalence of offshoring...

We revisit Grossman and Rossi-Hansberg's (2008) famous result, that under certain conditions offshoring of low-skilled labor tasks raises the domestic wage for low-skilled workers. Our re-examination features a less benign environment where Rybczynski-type reallocation of factors to absorb...