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

We explore how companies with a history of offshoring are able to attract new employees in the future. We reason that offshoring decisions create unintended signals about job insecurity to companies’ onshore labor markets. This signaling effect implies that offshoring companies must pay higher salaries for new hires compared to non-offshoring companies. We test our predictions on a sample of 7,971 matched, newly hired managers and professionals by offshoring and non-offshoring companies. Our results indicate a 3 to 7% wage penalty for offshoring companies. We conclude that offshoring is not just a challenging implementation task but it can also entail more general ramifications on the domestic labor market.