Unintended Signals: Why Companies with a History of Offshoring Have to Pay Wage Penalties for New Hires

Alina Grecu*, Wolfgang Sofka, Marcus Møller Larsen, Torben Pedersen

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We explore how companies with a history of offshoring attract their future employees. We reason that offshoring decisions send unintended signals about job insecurity to companies’ onshore labor markets. This signaling effect implies that offshoring companies must pay higher salaries for new hires than non-offshoring companies. We tested our predictions on a sample of 7971 matched managers and professionals recently hired by offshoring and non-offshoring companies. Our results indicate a 3–7% wage penalty for offshoring companies. Thus, we conclude that not only is offshoring challenging to implement, but it can also entail a number of general ramifications for the domestic labor market.
Original languageEnglish
JournalJournal of International Business Studies
Volume53
Issue number3
Pages (from-to)534-549
Number of pages16
ISSN0047-2506
DOIs
Publication statusPublished - Apr 2022

Bibliographical note

Published online: 16 January 2022.

Keywords

  • Offshoring
  • Hiring
  • Wage penalty
  • Hidden costs
  • Signaling theory

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