Outsourcing/offshoring: Regional Variation in Wage Inequality in the United States
The increase inwage inequalitydue to outsourcing has not been uniform across the United States. Bernard and Jensen (2000) find that the changing composition of employment in regional economies is strongly correlated with changes in wage inequality in the United States. Somewhat surprisingly, they find thatwhilemany regions in the United States experienced increasing wage inequality, some regions experienced decreasing wage inequality over the 1970 90 period.
Figure 2 shows the variation across states in changes in residual wage inequality for 1970 80 (upper map) and 1980 90 (lower map). States with large increases in wage inequality are in the traditional ‘‘Rust Belt,’’ and states with decreases in wage inequality are in the Southeast. Bernard and Jensen find that decreases (increases) in the share of manufacturing sector employment in the durable goods sector is strongly correlated with increasing (decreasing) wage inequality.
One specific example of how these heterogeneous responses to trade pressures can affect regions differentially is the case of Appalachianmanufacturing. Appalachian manufacturing is concentrated in lowwage, labor-intensive industries, and Appalachian manufacturers within those industries tend to be lower wage and lower productivity than plants in those industries elsewhere in the United States. This combination of industrialmix and plant production technology leaves the region particularly susceptible to import competition fromlow-wage countries. For example, low-wage competition shows a more pronounced effect on Appalachian plants in terms of employment growth and plant failure than elsewhere in the United States. Plants in the Appalachian region have higher shutdown probabilities and lower employment growth when facing low-wage imports than do firms in the rest of the United States.