Offshoring, Technological Change, and Between-Firm Inequality: Theory and Evidence

Abstract

This paper studies how offshoring and technological change jointly reshape worker-firm matching and between-firm wage inequality. Using Danish administrative manufacturing data, we show that firms employing workers in occupations exposed to both forces became more similar in their domestic workforce's skill composition despite changes in sorting. To explain these empirical patterns, we develop a Becker-type matching model in a global economy, allowing firms to match with domestic and foreign workers. Counterfactuals show opposing effects: offshoring compresses differences across firms in worker skills and wages, reducing between-firm inequality, whereas technological change strengthens skill-firm complementarity, increases assortative matching, and amplifies between-firm inequality. Joint paper with Gueyon Kim, University of California Santa Cruz and Dohyeon Lee, Amazon.