Introduction
There is no shortage of policy papers and consultancy reports on the movement of U.S.
manufacturing and services offshore, but “theoretical models of [offshoring] are only
starting to take hold within international economics,” Feenstra and Hanson (2001, 11)
noted just five years ago. Recent studies such as Bhagwati, Panagariya, and Srinivasan
(2004) and Grossman and Helpman (2005) have modeled offshoring decisions and their
economic effects. However, the political economy of offshoring remains understudied,
despite the issue’s recent prominence. Specifically, how does offshoring affect different
classes of workers? The answer to this economic question in turn illuminates important
political issues: how do labor groups tend to react to offshoring?
This paper examines how offshoring affects labor markets and shapes the political
responses of workers through an analysis of the U.S. motion picture industry. Three
characteristics make the motion picture industry an informative case for the political
economy of offshoring. First, with the Internet and innovations in computing and
telecommunications, it is now possible to transport audiovisual content anywhere–
instantaneously and with no loss of quality or fidelity. Because studios can physically
divide the process of filmmaking as never before, offshoring has increased significantly.
Second, import penetration is negligible in the U.S. market because foreign movies and
television programs are unpopular with domestic audiences, so disentangling the labor
markets effects of imported inputs and competition in finished goods poses less of an
identification problem. Third, while U.S. producers dominate the world market for
filmed entertainment, domestic debates over offshoring have matched those in labor-
intensive manufactures such as apparel and textiles in their intensity and rancor.
Standard trade models predict that in a skilled-labor rich country such as the
United States, offshoring, like trade in finished goods, will benefit abundant factors of
production (capital and high-skilled labor) and harm scarce factors (low-skilled labor).
As high-skilled workers reap gains and low-skilled workers incur losses, wage inequality
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Convention