Do Companies Pay a Wage Penalty For Having Offshored?

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Abstract

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.
Original languageEnglish
Title of host publicationProceedings of the Eightieth Annual Meeting of the Academy of Management
EditorsGuclu Atinc
Number of pages6
Place of PublicationBriarcliff Manor, NY
PublisherAcademy of Management
Publication date2020
Article number187
DOIs
Publication statusPublished - 2020
EventThe Academy of Management Annual Meeting 2020: Broadening Our Sight - Virtual
Duration: 7 Aug 202011 Aug 2020
Conference number: 80
https://aom.org/events/annual-meeting/past-annual-meetings/2020-broadening-our-sight

Conference

ConferenceThe Academy of Management Annual Meeting 2020
Number80
LocationVirtual
Period07/08/202011/08/2020
Internet address
SeriesAcademy of Management Proceedings
ISSN2151-6561

Cite this

Grecu, A., Sofka, W., & Pedersen, T. (2020). Do Companies Pay a Wage Penalty For Having Offshored? In G. Atinc (Ed.), Proceedings of the Eightieth Annual Meeting of the Academy of Management [187] Academy of Management. Academy of Management Proceedings https://doi.org/10.5465/AMBPP.2020.187