A model of occupational choice, offshoring and immigration

Abstract

This paper develops a two-country model of offshoring and immigration with occupational choice and endogenous firm productivity. Individuals in Home choose to become entrepreneurs or workers, whereas those in Foreign can only be employed as workers. Entrepreneurs produce output using a fixed set of tasks that can be performed locally or abroad. The model predicts that pro-immigration policies increase the number of entrepreneurs, raise productivity, and improve the aggregate welfare. It also predicts that lowering offshoring costs generates job polarization and welfare polarization, but improves the aggregate welfare.