Skilled–unskilled wage inequality and offshore outsourcing with asymmetric adjustment costs

We present a model that can capture the effects of offshore outsourcing on the wedge between the wages of skilled and unskilled workers when costs of adjustment are asymmetric. We identify conditions under which offshore outsourcing activities widen the skilled–unskilled wage inequality in the presence of asymmetric adjustment costs. We show how a higher cost of adjustment in the import-competing sector can magnify the offshore outsourcing induced gap between the wages of the skilled and unskilled workers. We also demonstrate the sensitivity of the effects of offshore outsourcing, on the skilled–unskilled wage gap, to asymmetries in the costs of adjustment.