Outsourcing and your Collar's Color
In order to assess the effects of increased outsourcing on the relative de- mand for skilled and unskilled labor, it is crucial to understand whether out- sourcing is a complement or a substitute for each kind of labor. Using the traditionally employed log-log framework, Amiti and Wei (2006) find that out- sourcing of goods and labor are complements. Using the same methodology but differentiating between skilled and unskilled labor, one would conclude that outsourcing acts as a complement to unskilled labor but as a substitute for skilled labor. This paper proposes an improved methodology which uses estimated prices for outsourcing instead of other proxies (such as its intensity) and a complete factor cost-share system of equations to find the completely opposite result, that is, outsourcing is a substitute for unskilled labor and a complement for skilled labor. This result is consistent with the findings of the literature on outsourcing and the wage gap.
Government Spending and Consumption-Hours Preferences
In this paper we present two extensions that have been largely omitted in the recent literature on Bayesian estimation of DSGE models. First, we pay special attention to di?erent forms of complementarity between consump- tion and hours a?ecting the households preferences. Second, we allow for the presence of a fraction of non-Ricardian households —i.e. that have limited access to financial markets—. We show that exogenous changes in government transfers are crucial to distinguish between the two sources of comovements of consumption and hours in response to government spending shocks. The main conclusion from the estimated models is that private consumption increases af- ter a government spending shock, when either nonseparability, non-Ricardian behavior, or both, are introduced in the model. In addition, allowing for consumption-hours complementarity leads to a small, and stable over time, estimated fraction of non-Ricardian households.
Inflation Differentials in a Currency Union: A DSGE Perspective
Cross country studies of infiation differentials, in particular in the EMU, have focused on three explanations: (i) the role of tradable and nontradable sector technology shocks and the Balassa-Samuelson effect, (ii) the role of the demand-side effects, and (iii) heterogeneity of infiationary processes inside the EMU. This paper estimates a two country, two sector Dynamic Stochastic General Equilibrium (DSGE) model with nominal rigidities in a currency union using data for Spain and the euro area, to understand the role of each feature in shaping infiation differentials. The paper finds that tradable sector technology shocks are the most important source of infiation differentials, while nontradable sector technology shocks help explain nontradable infiation only, and demand shocks help explain a fraction of output growth, but not of infiation dispersion. In addition, the estimated model finds evidence against infiation dynamics being different in Spain and in the rest of the euro area.
What Explains the Widening Wage Gap? Outsourcing vs. Technology
The relative rise of wages for high-skilled workers over the last three decades has been the subject of intense academic and popular scrutiny. This paper develops a new methodology for decomposing wage changes into three sources: outsourcing, biased technological change, and total biased technolog- ical change. We find that for the 1980-1999 period the change in outsourcing accounts for between 28 and 36 percent of the observed wage change, and biased technological change for another 15-19 percent in the US. Jointly these two forces (total biased technological change) explain 58 percent of the wage change. In sum, we find that outsourcing and biased technological change can account for a large share of the observed divergence in the skilled wage premium.