An increase in offshoring will raise the relative wage of skilled labor in both the home and offshored nations because:
A) the home nation will shift resources from lower-skilled to higher-skilled domestic workers, and the offshored nation will see a shift in in demand from lower-skilled to higher-skilled workers.
B) the home nation will shift resources from higher-skilled to lower-skilled domestic workers, and the offshored nation will see a shift in demand from higher-skilled to lower-skilled workers.
C) activities that used higher-priced, higher-skilled workers in the home nation now use lower-priced, lower-skilled workers in the offshored nation.
D) the home nation will shift resources from lower-skilled to higher-skilled domestic workers, while activities that used higher-priced, higher-skilled workers in the offshored nation will now use lower-priced, lower-skilled workers.

Question

Quizplus · Accepted Answer

With an increase in offshoring, activities that require lower-skilled workers will be shifted to the offshored nation, while activities that require higher-skilled workers will remain in the home nation. This will cause a shift in resources from lower-skilled to higher-skilled workers in the home nation, raising the relative wage of skilled labor. Similarly, in the offshored nation, there will be a shift in demand from lower-skilled to higher-skilled workers, which will also raise the relative wage of skilled labor.

An Increase in Offshoring Will Raise the Relative Wage of Skilled