Offshoring and Migration in a World with Policy Spillovers

Using a trade in task model that extends the one of Ottaviano, Peri, and Wright (2010) to three coun- tries, we study the effects of immigration and offshoring costs on employment. Tasks can be performed by migrants, offshore workers or natives, with sorting along a continuum of task determined by cost- minimization. For two alternative specifications of the model - one in which the ordering of low-end and intermediate tasks is pinned down by worker characteristic and one in which it is pinned down by country characteristics - we derive testable predictions on ‘direct’, ‘domestic spillover’ and ‘international spillover’ effects of migration and offshoring costs on the number of migrants and the number of offshore workers. Direct effects refer to the impact of own migration (offshoring) costs on number of migrant (off- shore) workers. Domestic spillovers capture the effect of own migration (offshoring) costs on the number of offshore (migrant) workers. International spillovers refer to the direct effect of country j’s migration (offshoring) costs on country i’s migration (offshoring), and to the indirect effect of country j’s migration (offshoring) costs on country i’s offshoring (migration). Overall, we find strong support of negative direct effects, mild support for domestic spillover effects and very limited support for international spillover effect, leading to conclude that the second model specification is a better fit of the data. Two broad policy implications follow. First, host countries can affect the number of migrants by acting both on bilateral migration policies and on bilateral offshoring policies. Second, dejure discriminatory policies on migration or offshoring need not be defacto so.