What can we learn from trade-theoretic research on offshoring and social insurance?

Abstract

The argument that social welfare systems are becoming too costly to sustain in a more integrated world is not new to the political debate. Lately, it has been reinforced by the apprehension that jobs are moved offshore as producers relocate more job tasks to low-wage countries. Although it is common knowledge in the political discussion that social welfare systems contribute to offshoring by adding to domestic labour costs, little is known about other economic mechanisms that link social insurance to the relocation of production parts. This is perhaps not surprising given the scarce research-based evidence on the topic. Yet, the few trade-theoretic studies that investigate the issue provide interesting implications that could be useful to spread to a wider audience.