Offshoring, wages, and heterogeneity

•Offshoring has benefited the skilled workers but detrimental for the unskilled.•Service offshoring has a greater impact on wage gap than material offshoring.•For offshoring, occupational skill groups can be more relevant than schooling variables.

Considering heterogeneous responses by skill group to material and service offshoring, we examine the relationship between offshoring and the individual wages of workers in the U.S. labor market. We find that offshoring has been beneficial for high-skill workers but detrimental for middle- and low-skill workers. In particular, service offshoring, which has been widespread since 2000, has severely affected the labor market, compared to material offshoring.