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Unintended signals: Why companies with a history of offshoring have to pay wage penalties for new hires

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Abstract

We explore how companies with a history of offshoring attract their future employees. We reason that offshoring decisions send unintended signals about job insecurity to companies’ onshore labor markets. This signaling effect implies that offshoring companies must pay higher salaries for new hires than non-offshoring companies. We tested our predictions on a sample of 7971 matched managers and professionals recently hired by offshoring and non-offshoring companies. Our results indicate a 3–7% wage penalty for offshoring companies. Thus, we conclude that not only is offshoring challenging to implement, but it can also entail a number of general ramifications for the domestic labor market.

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ACKNOWLEDGEMENTS

The authors are grateful to the Editor and the two anonymous reviewers for their constructive comments during the reviewing process, but also to Ingo Weller and Ali Mohammadi for the generous feedback on a previous version of the paper, to Toke Reichstein for early empirical suggestions, and to the people who attended and shared their thoughts on earlier versions of this paper at Academy of International Business 2020, Academy of Management 2020, Aalto University (Dep. of Management Studies, International Business Unit), Copenhagen Business School (Dep. of Strategy and Innovation), and at a NORD-IB (Nordic Research School in International Business) session.

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Authors and Affiliations

  1. Department of Strategy and Innovation, Copenhagen Business School, Kilevej 14A, 2000, Frederiksberg, Denmark

    Alina Grecu, Wolfgang Sofka & Marcus M. Larsen

  2. Strategy, International Business and Entrepreneurship Group (SIBE), University of Liverpool, Management School, Chatham Street, Liverpool, L69 7ZH, UK

    Wolfgang Sofka

  3. Department of Strategy and Entrepreneurship, BI Norwegian Business School, Nydalsveien 37, 0484, Oslo, Norway

    Marcus M. Larsen

  4. Department of Management and Technology, Bocconi University, Via Roberto Sarfatti, 25, 20100, Milan, Italy

    Torben Pedersen

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  1. Alina Grecu
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Correspondence to Alina Grecu.

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Accepted by Arjen van Witteloostuijn, Area Editor, 26 September 2021. This article has been with the authors for three revisions.

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Grecu, A., Sofka, W., Larsen, M.M. et al. Unintended signals: Why companies with a history of offshoring have to pay wage penalties for new hires. J Int Bus Stud 53, 534–549 (2022). https://doi.org/10.1057/s41267-021-00486-3

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