Hourly wage data from 1990 to 2011 show a narrowing gap between the median wage and the 10th percentile wage, but an increasing gap between the median and 90th percentile wages. In this paper, I investigate the impact of offshoring on the employment and wage distributions to determine whether it has contributed to this convexification. I use a task-based framework of the labor market with three inputs and model what happens when the world price for the middle task input declines. The model predicts both a decline in domestic employment and a reduction in the wage paid to workers in this task, resulting in a rise in upper tail unemployment. However, I demonstrate that observed wages within an industry can rise due to selection. I construct a proxy measure of offshoring for both service and material inputs, and use industry level production and trade data
from the US Census Bureau’s Census of Manufactures, and individual level wage data from the US Census and the American Community Survey to test the implications of the model. Offshoring has the anticipated effects on employment and convexification. I find a negative effect of offshoring on employment and a positive effect of offshoring on upper tail wage inequality. Moreover, current levels of industry offshoring are significantly correlated with an industry’s lagged occupational composition. In particular, both forms of offshoring decrease with the share of manual occupations and service offshoring increases with the share of routine occupations."