Globalization and the U.S. Economy: An Analysis of Outsourcing and Labor Market Restructuring

Abstract

This paper analyzes globalization and its impact on the United States economy. In particular, it focuses on the impact of increased outsourcing from the US on the share of skilled employed workers, a highly debated issue since the Great Recession. The issue is examined for the period 1992 - 2008 using the Vector Error Correction Model. The impulse response functions show a positive relationship between outsourcing and the share of skilled workers in the United States. This suggests that outsourcing leads to a higher proportion of jobs going to educated workers in the United States. The variance decompositions, however, suggest the majority of the change in the share of employed skilled workers is due to the supply side changes, namely an increase in the educated labor force, and not because of outsourcing. The findings are important from the policy perspective as the Trump administration adopts new trade and immigration policy regulations. (F16; F66; C32)