Offshoring and non-monotonic employment effects across industries in general equilibrium

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How does addressing the mismatch between theory and practice in offshoring analysis reveal non-monotonic employment effects across industries, as evidenced by post-Iron Curtain Germany?

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Institution: Universität Paderborn

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How does addressing the mismatch between theory and practice in offshoring analysis reveal non-monotonic employment effects across industries, as evidenced by post-Iron Curtain Germany?

Image courtesy of interviewee. November 14, 2024

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The study addresses two key contexts: a real-world context marked by a significant increase in offshoring—defined as the international fragmentation of production—and an academic context where existing research on the labor market effects of offshoring shows no clear consensus. Offshoring has been linked to cost savings for firms but raises concerns about potential negative impacts on domestic workers.

Despite a substantial body of theoretical and empirical research, findings have often been ambiguous, with many empirical results appearing small compared to public concerns. The authors argue that traditional models, which rely on one or two sector frameworks, may yield misleading conclusions due to the interconnected nature of industries in general equilibrium.

They introduce a theoretical model—the general oligopolistic equilibrium (GOLE) model—to analyze employment effects across many interconnected industries that vary in their offshoring potential. The study finds that industries with low and high offshoring intensity tend to lose employment, while those with an intermediate range gain. This video creates a hump-shaped employment pattern influenced by direct displacement effects and positive productivity effects associated with offshoring.

The research emphasizes the need for refined empirical models that account for non-monotonic relationships between offshoring and employment. It suggests that adjustment assistance should be broadly available to workers affected by offshoring, rather than narrowly targeted, as many impacted individuals may not directly experience job loss but still suffer from broader economic shifts. Overall, the study calls for a deeper understanding of how offshoring impacts labor markets beyond straightforward predictions.

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Here are five key points from the video:

1. **Convideo of Offshoring**: The study addresses offshoring, which refers to the international fragmentation of production where various activities in the production chain are located across different countries. The process has been increasingly common since the 1980s, although it has slowed down recently, raising concerns about its impact on domestic workers.

2. **Empirical Analysis and Theoretical Misalignment**: The existing research on offshoring and its effects on domestic workers shows ambiguous and often minimal results, contradicting public concerns. The authors note a mismatch between the theoretical frameworks, which often assume linear relationships, and actual empirical practices that might overlook the complexities of labor market interconnections among industries.

3. **General Equilibrium Effects**: The study proposes a new theoretical framework that incorporates a general equilibrium model, acknowledging that industries are interconnected within the labor and capital markets. This interconnectedness can lead to non-monotonic employment patterns where both low and high offshoring industries may lose jobs, while those in the middle gain employment.

4. **Hump-Shaped Employment Patterns**: The authors observe that industries with intermediate levels of offshoring gain employment, while low and high offshoring-intensive industries see job losses. This result is attributed to the interplay between displacement effects (jobs moving abroad) and productivity effects (cost savings enabling firms to expand production).

5. **Implications for Policy and Empirical Research**: The findings suggest that empirical analyses should refine their methods to account for non-linear relationships in the effects of offshoring on employment. The research also implies that adjustment assistance for workers affected by offshoring needs to consider the broader impacts on industries that do not directly engage in offshoring. This highlights the importance of understanding the varying adjustment burdens across different sectors.

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Here are some key quotes and concepts extracted from the video:

1. **Convideo of the Study**:
- "The convideo for this study was twofold... a remarkable increase in offshoring... the international fragmentation of production."

2. **Concerns of Offshoring**:
- "On the one hand, has been associated with cost savings from the perspective of firms... potentially negative effects for domestic workers... offshoring has always been a high priority, both for academics, but also for policy makers."

3. **Existing Research**:
- "There was already a large body of research... that analyzed the effects of offshoring on domestic workers... empirical results were fairly ambiguous and also mostly fairly small, contrary to public concerns."

4. **Theoretical and Empirical Mismatch**:
- "We noted... a certain mismatch between the main theories that people use and relied on, and common empirical practice."

5. **Assumptions in Empirical Studies**:
- "You treat all of these different industries as separate and independent units of analysis... if you just include a linear term that there should be a linear monotonic relationship."

6. **Introduction of New Framework**:
- "We argue... that this approach might lead to misleading conclusions... there is a hump-shaped and non-monotonic employment pattern across industries."

7. **Effects of Offshoring**:
- "Offshoring always induces two main effects... the direct displacement effect... the positive productivity effect."

8. **Empirical Analysis Focus**:
- "We analyze employment effects across aggregated industries after the fall of the Iron Curtain."

9. **Shock and Offshoring Potential**:
- "We characterize this offshoring potential... using an indicator variable of offshore ability... we get this hump-shaped employment."

10. **Impact on Different Industries**:
- "Industries with an intermediate range of offshore tasks gain employment... most offshoring intensive industries lose employment."

11. **General Equilibrium Effects**:
- "These low offshoring intensive industries... suffer from an increase in domestic production costs... increase in domestic wages means production costs go up."

12. **Policy Implications**:
- "A big part of the adjustment burden is borne by those industries where you do not see any direct offshoring taking place."

These quotes reflect the main ideas and findings presented in the video regarding offshoring, its effects on employment across industries, and the implications for research and policy.

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The context for this study was twofold.

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I mean, there was a real world context, I would say,

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and there was an academic context, okay?

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So the real world context is that there was a remarkable

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increase in offshoring.

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And by offshoring we mean essentially the international

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fragmentation of production, right?

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That more and more activities of the production chain

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are located in different countries

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and in different parts of the world, right?

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And this process, I mean, has been increasing

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for a fairly long period of time.

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So let's say at least since the 1980s until more

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or less, the financial crisis in the year 2009, 2010,

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around this year, then it has been slow,

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has slowed down a bit,

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but for a fairly long time,

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there's really an incredible increase in this

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fragmentation of production.

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And then this process, on the one hand, has been associated

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with cost savings from the perspective of firms, right?

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Which is good, right?

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Otherwise probably they wouldn't do it.

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But on the other hand,

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they have always been this concerns about potentially

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negative effects for domestic workers, right?

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And, so

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therefore, analyzing these labor market effects

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of offering has always been a high priority, both

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for academics, but also for policy makers.

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So that's essentially one part of the context.

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Now, the more academic context is that when we,

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when our study started, started,

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there was already a large body of research, right?

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That analyzed the, these questions, the effects

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of offshoring on domestic workers, both theoretical studies

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and empirical studies, yet, I mean,

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there was no clear consensus, right?

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So the results were, I mean, at,

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at least the empirical results were fairly ambiguous

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and also mostly fairly small, contrary

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to public concerns.

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So, however, now we noted, right, when we really had

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to look at these empirical size

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and theoretical size, that there was a certain mismatch

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between the main theories that people use and relied on,

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and common empirical practice, right?

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And more specifically, so most of these theoretical modes,

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they were developed in one sector frameworks

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or two sector frameworks,

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and explain the labor market effects.

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And these settings, however,

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in the empirical studies is you need a lot

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of variation, right?

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You need differences.

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And then common setup was

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to use variation across a large number of industries, right?

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And then do what we call a reduced form regression.

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We have some labor market outcome,

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let's say the change in employment, for example,

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as your outcome variable.

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And then you regress this on measures

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of offshoring intensity as your main explanatory variables.

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And the common reduced form approach was

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to have a linear offshoring term on the right hand side.

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And this approach essentially has a

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few implicit assumptions.

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So first of all, you treat all of these different industries

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as separate and independent units of analysis.

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So that's essentially one implicit assumption.

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And on top, you implicitly assume if you just include a

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linear term that there should be a linear monotonic

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relationship, right?

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So the, depending on the coefficient that you obtain,

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you would reduce either

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that more off showing always is positive,

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always leads to more employment.

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Or if the coefficient is negative,

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you would reduce more options, is always bad, always leads

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to less employment, or you get zero confusion than you

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would deduce, okay?

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Doesn't matter at all. And that's essentially where we

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come in and say, okay, we argue in this paper, right?

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That we are currently talking about that this approach,

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we might lead to misleading conclusions, right?

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In particular, if these industries are connected

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to each other in, in general equilibrium,

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because then our key results will be,

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and we will talk about it surely,

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that there is an hump shaped

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and non monotonic employment pattern across industries

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that differ in their offering industries.

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So employment use,

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both in the low i intense offshoring intensive industries

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and the high offshoring intensive industries.

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And the industries with an intermediate range

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of these offshore tasks, they gain employment.

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The theoretical part.

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So the study consists of the theoretical part

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and empirical parts.

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And the, the part, our aim was

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to have a model theoretical model that speaks

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to this common empirical setup, right?

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That, that informs the common empirical setup.

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So where we have large number of industries, not just one

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or two, but really a large number of industries

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that are connected to each other in, in general equilibrium.

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And that differ.

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So these industries, they should differ in their

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scope for offshoring.

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Okay? So this was our aim.

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Now, more precisely what we do is we incorporate offshoring

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in the, so-called general oligo

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oligopolistic equilibrium model.

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So that's abbreviate as the goal model GOLE model

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that was introduced by the late Peter Neri, okay?

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And what we have in this,

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in this framework is we have essentially a

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continuum of industries.

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These industries, we index them by the letter Z, right?

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And these industries are defined over the unit intervals.

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So they range from zero to one, okay?

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And this letter z,

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this running variable at the same time also corresponds

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to the share of offshore world tasks in each industry.

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Okay? So we assume that these,

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all these different industries, they differ in the share

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of activities that can move abroad, right?

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Be it, because some industries they rely very heavily on,

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on face-to-face contact on geographic proximity.

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Let's say if you work in a bar

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or restaurant that these activities

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that you cannot really offshore,

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and in other industries, maybe most of the activities,

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they can move abroad, right?

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So now in the theory, this chair

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of task can range from zero 0% to 100%, right?

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Which of course is extreme, but that's the setup.

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And, and now these industries are also,

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they're connected to each other in generic Librium

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because they, all of them rely on the same labor market.

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All of them rely on the same capital market.

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So that's where these feedback effects come into play. Okay?

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So that's essentially the framework that we use.

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It's important maybe to note that, I mean,

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it's not really necessary

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to have this specific framework, right?

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We have, I mean, other frameworks could also have worked

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as long as the conditions that are just outlined,

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having many industries differences in offering potential.

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These in, genetically linkages, as long

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as this is fulfilled, other, setups would also work.

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We have chosen this gold setup

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because it's fairly tractable.

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Um, I mean it's fairly Parsons.

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It allows us to derive closed form

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solutions that are fairly elegant.

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So that's essentially why, why we use this model.

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We focus on the West German experience in the fall of,

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in the aftermath of the fall of the iron Kern.

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So essentially what we do is we analyze employment effects

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across this aggregated industries

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after the fall of the iron Kern.

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And we argue that that's an attractive

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and the fitting setup for, for our model, for our purposes.

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Because first of all, it's essentially this,

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it's a shock, right?

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That a shock that came, I mean, unexpected

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and also fairly sudden, okay?

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So it's barefoot centric for, qualifies

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as a quasi exogenous shock.

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Has that has also been used in, in for similar type

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of questions, right?

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And, and it also, I mean, it matters for offshoring

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because arguably it greatly improved the opportunities

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of German firms to engage in

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production fragmentation, right?

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Because most of these now formally socialist countries

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that are just the Germany's dose doorstep,

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so they're very close by.

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Um, they also had much lower wage levels than Germany.

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So therefore they were attractive horing destinations.

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And that's not only something that we think,

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but also that has been documented in, in other studies

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that really German firms offshore a lot of their activities

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to Eastern Europe.

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Um, so that's why we use it now, a key variable

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that we need, right?

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In the, in the empiric analysis

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to define this offshoring potential that varies over,

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over industries and essentially the x ante.

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So before the fall of the iron curtain, what's the potential

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of these different industries to engage in horing?

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Essentially what we do to,

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to characterize this horing potential is,

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so we adopted two step procedure.

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So first of all, we use an indicator variable

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of offshore ability.

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So that was originally proposed by Ellen Blind

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and Ellen Kruger.

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So they have defined at the occupation level, essentially,

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they have coded different occupations from zero

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as no offshore to five as completely offshore.

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Essentially, we have used this occupation level indicator

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and aggregated it to the industry level,

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essentially exploiting that the occupational compositions

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of these industries that they differ, okay?

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So in some industries they have a lot

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of offshore occupations, other industries,

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they have just a small amount of offshore occupations.

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The key result is indeed

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that we get this hump shaped employment

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pattern across industries.

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So both industries that have a low offering intensity

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and that have a high offering intensity,

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they lose employment.

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And the ones with an intermediate range they gain now in the

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theoretical model, right?

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I mean, maybe to understand this result from a point

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of view, it's worth first pointing out that, I mean,

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offshoring always induces two main effects, right?

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And that's not something that we, I mean, introduced,

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but that we also had in, in previous models.

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So the first effect is that,

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is the direct displacement effect, okay?

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So that some tasks now

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that were previously performed in the home country,

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they now move abroad.

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So this displacement displacement effect typically reduces

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domestic employment, right?

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Um, on the other hand,

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there's the positive productivity effect, okay?

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Because as firms engage in offshoring, they are able

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to lower their production costs.

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So this then allows them to produce a lower cost

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and to expand their production, okay?

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So that typically this effect typically works

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to the advantage of, of domestic workers.

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Now, the interplay between these two effects also explains

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what happens now across different industries.

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So the most offshoring intensive industries,

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they lose employment

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because of the dominating displacement effect.

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Okay? So they experience greatest cost savings, that's good,

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they're able to expand their production, that's also good.

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But anyway, if 90%

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or so of all the activities are performed overseas,

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then you still will lose domestic employment.

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So it's more tricky is why is it the case

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that even the industries where no offshoring takes place

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or only limited offering, why they do they lose employment?

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Okay? And that's where these general equilibrium

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effects come into play.

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And for two reasons in, in our framework, first of all.

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So these, these low offshoring intensive industries,

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they typically suffer from increase in domestic production

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cost-wise, this the case

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because typically the productivity effect will lead

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to an increase in domestic wages.

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Now, increase in domestic wages means

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production costs go up.

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In particular, those industries

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that rely very heavily on domestic workers, so

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that cannot offshore their production, okay?

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So therefore they essentially become more expensive,

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so this hurts them.

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Um, on the other hand, and it's also a similar channel.

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So we also think that offshoring will, lead

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to uneven profit opportunities across industries, right?

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So profit opportunities will increase the most in the

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offshoring intensive industries

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because they're, the cost savings are the greatest,

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and they will increase lease.

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So they will even decline in the industries

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with limited offshoring.

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So if there are uneven profit opportunities, then we expect,

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at least in the long run, that capital will be reallocated,

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I mean towards the, industries

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with the greatest profit opportunities

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with the greatest offshoring potential.

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So this will then lead to firm exit in the industries

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with low offshoring intensity towards industries

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with a higher offshoring intensity.

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And this channel also destroys than

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jobs in, yeah.

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In, in,

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for domestic workers in the low offshoring intensive

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industries, we need to think carefully in these settings.

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Where do we expect to find the effects? Right?

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So offshoring has certain effects.

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So we, we are quite sure that will also affect domestic

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labor markets, right?

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Domestic workers, but where do we find these effects?

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Now, our, our study provides a cautionary tale

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to some extent because it shows that part

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of the adjustment burden,

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or in, in fact a big part of the adjustment burden is born

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by those industries where you do not see any direct

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offshoring taking place, right?

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So where, where these effects are the least

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expected, maybe extent.

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So that's maybe one implication at all sorts

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of implications, for empirical work.

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Okay? Because, now, I mean we need

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to think more carefully about the

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correct empirical approach.

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Just using this linear shoring term probably doesn't do it.

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We need to account for this potential non modernity,

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at least over longer horizons.

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So now as setup, we essentially have include a squared

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shoring term or higher polynomials to account

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for this mono non monotonicity.

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And it's indeed the case that only

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with this refined empirical exercises,

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we do find an important role.

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If we erroneously just plug in the linear term,

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we would get essentially zero and insignificant coefficient.

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And finally, coming back to your policy question, I mean,

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to some extent it also speaks to the design

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of adjustment assistance.

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So in some countries, they have

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specific trade adjustment assistance in order

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to help workers that have lost their jobs in response

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to a trade shock, for example,

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if there is an increase in imports

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or if some, operations move abroad, okay?

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However, in our case, essentially, again, I am,

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I'm repeating myself, big part of the adjustment burn is

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born by those workers in industries.

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We don't see this trade shock directly, right?

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And then, so they probably wouldn't qualify for any

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of this targeted adjustment assistance,

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even though they probably

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Will need the biggest help, right?

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So this would speak in favor

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of having more general adjustment assistance for workers

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as opposed to this targeted,

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because it may be very difficult

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to really target the specific group

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that is affected the most.

Quick Answers

Understanding Offshoring: Context and Implications

00:00:00 - The context for this study was twofold. I mean, there was a real world context, I would say, and there was an academic context, okay? So the real world context is that there was a remarkable increase in offshoring. And by offshoring we mean essentially the international fragmentation of production, right? That more and more activities of the production chain are located in different countries and in different parts of the world, right? And this process, I mean, has been increasing for a fairly long period of time. So let's say at least since the 1980s until more

00:00:37 - around this year, then it has been slow, has slowed down a bit, but for a fairly long time, there's really an incredible increase in this fragmentation of production. And then this process, on the one hand, has been associated with cost savings from the perspective of firms, right? Which is good, right? Otherwise probably they wouldn't do it. But on the other hand, they have always been this concerns about potentially negative effects for domestic workers, right? And, so

00:01:05 - of offering has always been a high priority, both for academics, but also for policy makers. So that's essentially one part of the context. Now, the more academic context is that when we, when our study started, started, there was already a large body of research, right? That analyzed the, these questions, the effects of offshoring on domestic workers, both theoretical studies and empirical studies, yet, I mean,

Mismatches in Theoretical Models and Empirical Practices in Offshoring Studies

00:01:36 - So the results were, I mean, at, at least the empirical results were fairly ambiguous and also mostly fairly small, contrary to public concerns. So, however, now we noted, right, when we really had to look at these empirical size and theoretical size, that there was a certain mismatch between the main theories that people use and relied on, and common empirical practice, right? And more specifically, so most of these theoretical modes,

00:02:09 - or two sector frameworks, and explain the labor market effects. And these settings, however, in the empirical studies is you need a lot of variation, right? You need differences. And then common setup was to use variation across a large number of industries, right? And then do what we call a reduced form regression. We have some labor market outcome, let's say the change in employment, for example, as your outcome variable. And then you regress this on measures

00:02:42 - And the common reduced form approach was to have a linear offshoring term on the right hand side. And this approach essentially has a few implicit assumptions. So first of all, you treat all of these different industries as separate and independent units of analysis. So that's essentially one implicit assumption. And on top, you implicitly assume if you just include a linear term that there should be a linear monotonic relationship, right? So the, depending on the coefficient that you obtain,

Challenging Linear Assumptions in Offshoring Employment Effects

00:03:10 - that more off showing always is positive, always leads to more employment. Or if the coefficient is negative, you would reduce more options, is always bad, always leads to less employment, or you get zero confusion than you would deduce, okay? Doesn't matter at all. And that's essentially where we come in and say, okay, we argue in this paper, right? That we are currently talking about that this approach, we might lead to misleading conclusions, right? In particular, if these industries are connected to each other in, in general equilibrium,

00:03:42 - and we will talk about it surely, that there is an hump shaped and non monotonic employment pattern across industries that differ in their offering industries. So employment use, both in the low i intense offshoring intensive industries and the high offshoring intensive industries. And the industries with an intermediate range of these offshore tasks, they gain employment. The theoretical part. So the study consists of the theoretical part and empirical parts.

00:04:13 - to have a model theoretical model that speaks to this common empirical setup, right? That, that informs the common empirical setup. So where we have large number of industries, not just one or two, but really a large number of industries that are connected to each other in, in general equilibrium. And that differ. So these industries, they should differ in their scope for offshoring. Okay? So this was our aim. Now, more precisely what we do is we incorporate offshoring

Framework of the GOLE Model: Analyzing Offshoring in Connected Industries

00:04:46 - oligopolistic equilibrium model. So that's abbreviate as the goal model GOLE model that was introduced by the late Peter Neri, okay? And what we have in this, in this framework is we have essentially a continuum of industries. These industries, we index them by the letter Z, right? And these industries are defined over the unit intervals. So they range from zero to one, okay? And this letter z, this running variable at the same time also corresponds

00:05:18 - Okay? So we assume that these, all these different industries, they differ in the share of activities that can move abroad, right? Be it, because some industries they rely very heavily on, on face-to-face contact on geographic proximity. Let's say if you work in a bar or restaurant that these activities that you cannot really offshore, and in other industries, maybe most of the activities,

00:05:46 - So now in the theory, this chair of task can range from zero 0% to 100%, right? Which of course is extreme, but that's the setup. And, and now these industries are also, they're connected to each other in generic Librium because they, all of them rely on the same labor market. All of them rely on the same capital market. So that's where these feedback effects come into play. Okay? So that's essentially the framework that we use.

Framework Selection for Analyzing Employment Effects Post-Iron Curtain

00:06:19 - it's not really necessary to have this specific framework, right? We have, I mean, other frameworks could also have worked as long as the conditions that are just outlined, having many industries differences in offering potential. These in, genetically linkages, as long as this is fulfilled, other, setups would also work. We have chosen this gold setup because it's fairly tractable. I mean it's fairly Parsons. It allows us to derive closed form

00:06:48 - So that's essentially why, why we use this model. We focus on the West German experience in the fall of, in the aftermath of the fall of the iron Kern. So essentially what we do is we analyze employment effects across this aggregated industries after the fall of the iron Kern. And we argue that that's an attractive and the fitting setup for, for our model, for our purposes. Because first of all, it's essentially this, it's a shock, right?

00:07:20 - and also fairly sudden, okay? So it's barefoot centric for, qualifies as a quasi exogenous shock. Has that has also been used in, in for similar type of questions, right? And, and it also, I mean, it matters for offshoring because arguably it greatly improved the opportunities of German firms to engage in production fragmentation, right? Because most of these now formally socialist countries

Offshoring Potential and Industry Variability Post-Iron Curtain

00:07:49 - so they're very close by. they also had much lower wage levels than Germany. So therefore they were attractive horing destinations. And that's not only something that we think, but also that has been documented in, in other studies that really German firms offshore a lot of their activities to Eastern Europe. so that's why we use it now, a key variable that we need, right? In the, in the empiric analysis to define this offshoring potential that varies over,

00:08:22 - So before the fall of the iron curtain, what's the potential of these different industries to engage in horing? Essentially what we do to, to characterize this horing potential is, so we adopted two step procedure. So first of all, we use an indicator variable of offshore ability. So that was originally proposed by Ellen Blind and Ellen Kruger. So they have defined at the occupation level, essentially, they have coded different occupations from zero

00:08:57 - Essentially, we have used this occupation level indicator and aggregated it to the industry level, essentially exploiting that the occupational compositions of these industries that they differ, okay? So in some industries they have a lot of offshore occupations, other industries, they have just a small amount of offshore occupations. The key result is indeed that we get this hump shaped employment

Offshoring Dynamics: Employment Effects Across Industries

00:09:24 - So both industries that have a low offering intensity and that have a high offering intensity, they lose employment. And the ones with an intermediate range they gain now in the theoretical model, right? I mean, maybe to understand this result from a point of view, it's worth first pointing out that, I mean, offshoring always induces two main effects, right? And that's not something that we, I mean, introduced, but that we also had in, in previous models.

00:09:58 - is the direct displacement effect, okay? So that some tasks now that were previously performed in the home country, they now move abroad. So this displacement displacement effect typically reduces domestic employment, right? on the other hand, there's the positive productivity effect, okay? Because as firms engage in offshoring, they are able to lower their production costs. So this then allows them to produce a lower cost and to expand their production, okay?

00:10:29 - to the advantage of, of domestic workers. Now, the interplay between these two effects also explains what happens now across different industries. So the most offshoring intensive industries, they lose employment because of the dominating displacement effect. Okay? So they experience greatest cost savings, that's good, they're able to expand their production, that's also good. But anyway, if 90% or so of all the activities are performed overseas,

The Impact of Offshoring on Domestic Employment: General Equilibrium Effects

00:11:02 - So it's more tricky is why is it the case that even the industries where no offshoring takes place or only limited offering, why they do they lose employment? Okay? And that's where these general equilibrium effects come into play. And for two reasons in, in our framework, first of all. So these, these low offshoring intensive industries, they typically suffer from increase in domestic production cost-wise, this the case

00:11:32 - to an increase in domestic wages. Now, increase in domestic wages means production costs go up. In particular, those industries that rely very heavily on domestic workers, so that cannot offshore their production, okay? So therefore they essentially become more expensive, so this hurts them. on the other hand, and it's also a similar channel. So we also think that offshoring will, lead to uneven profit opportunities across industries, right?

00:12:03 - offshoring intensive industries because they're, the cost savings are the greatest, and they will increase lease. So they will even decline in the industries with limited offshoring. So if there are uneven profit opportunities, then we expect, at least in the long run, that capital will be reallocated, I mean towards the, industries with the greatest profit opportunities with the greatest offshoring potential. So this will then lead to firm exit in the industries

Impacts of Offshoring on Domestic Labor Markets

00:12:35 - with a higher offshoring intensity. And this channel also destroys than jobs in, yeah. In, in, for domestic workers in the low offshoring intensive industries, we need to think carefully in these settings. Where do we expect to find the effects? Right? So offshoring has certain effects. So we, we are quite sure that will also affect domestic labor markets, right? Domestic workers, but where do we find these effects?

00:13:07 - to some extent because it shows that part of the adjustment burden, or in, in fact a big part of the adjustment burden is born by those industries where you do not see any direct offshoring taking place, right? So where, where these effects are the least expected, maybe extent. So that's maybe one implication at all sorts of implications, for empirical work. Okay? Because, now, I mean we need to think more carefully about the correct empirical approach.

00:13:39 - We need to account for this potential non modernity, at least over longer horizons. So now as setup, we essentially have include a squared shoring term or higher polynomials to account for this mono non monotonicity. And it's indeed the case that only with this refined empirical exercises, we do find an important role. If we erroneously just plug in the linear term, we would get essentially zero and insignificant coefficient. And finally, coming back to your policy question, I mean,

Rethinking Trade Adjustment Assistance for Affected Workers

00:14:14 - of adjustment assistance. So in some countries, they have specific trade adjustment assistance in order to help workers that have lost their jobs in response to a trade shock, for example, if there is an increase in imports or if some, operations move abroad, okay? However, in our case, essentially, again, I am, I'm repeating myself, big part of the adjustment burn is born by those workers in industries.

00:15:05 - And then, so they probably wouldn't qualify for any of this targeted adjustment assistance, even though they probably Will need the biggest help, right? So this would speak in favor of having more general adjustment assistance for workers as opposed to this targeted, because it may be very difficult to really target the specific group that is affected the most.

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