TY  - JOUR
AU  - Feenstra,Robert C.
AU  - Hanson,Gordon H.
TI  - Foreign Investment, Outsourcing and Relative Wages
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5121
PY  - 1995
Y2  - May 1995
UR  - http://www.nber.org/papers/w5121
L1  - http://www.nber.org/papers/w5121.pdf
N1  - Author contact info:
Robert C. Feenstra
Department of Economics
University of California, Davis
One Shields Avenue
Davis, CA  95616
Tel: 530/752-7022
Fax: 530/752-9382
E-Mail: rcfeenstra@ucdavis.edu

Gordon H. Hanson
IR/PS 0519
University of California, San Diego
9500 Gilman Drive
La Jolla, CA  92093-0519
Tel: 858/822-5087
Fax: 858/534-3939
E-Mail: gohanson@ucsd.edu
AB  - In this paper we examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's.  We argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities.  In a theoretical model, we show that any increase in the Southern capital stock relative to that of the North, or neutral technological progress in the South, will increase the relative wage of skilled workers in both countries due to a shift in production activities to the South. Corresponding to this change in the relative wage is an increase in the price index of Northern activities within each industry, relative to that of the South.  We confirm that this change in relative prices occurred for the U.S. and other industrialized countries relative to their trading partners.  We also estimate that 15-33% of the increase in the relative wage of nonproduction (or skilled) workers in the U.S. during the 1980's is explained by rising imports.
ER  -