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Do Companies Pay a Wage Penalty For Having Offshored?

Grecu, A., Sofka, W. & Pedersen, T. ORCID: 0000-0001-7541-9365 (2020). Do Companies Pay a Wage Penalty For Having Offshored? In: Academy of Management Proceedings. 80th Annual Meeting of the Academy of Management (AOM 2020), 7-11 Aug 2020, Online. doi: 10.5465/ambpp.2020.187


Like many well-intended strategies, offshoring has unintended consequences. We explore how companies with a history of offshoring are able to attract new employees in the future. We reason that companies need to pay a wage penalty to newly hired employees to compensate for the job insecurity signal they send when offshoring. Our theoretical model integrates mechanisms from the offshoring literature to models of compensating wage differentials. We test our predictions using offshoring survey data merged with employer– employee data for Denmark, resulting in a sample of 15.096 matched, newly hired employees by offshoring and non-offshoring companies. Our results suggest a 5% wage penalty in the case of offshoring companies, and show that this effect is stronger for domestic and cost differentiation oriented companies, but weaker when the newly hired employees join profitable companies. Taken together, this article advances our understanding of the adverse consequences of offshoring by emphasizing the labor market effects."

Publication Type: Conference or Workshop Item (Paper)
Subjects: H Social Sciences > HD Industries. Land use. Labor
Departments: Bayes Business School
Bayes Business School > Management
SWORD Depositor:
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