In a two-sector, general-equilibrium model with labor-market search frictions, we find that the wage
increases and sectoral unemployment decreases upon offshoring in the presence of perfect intersectoral
labor mobility. If, as a result, labor moves to the sector with the lower (or equal) vacancy costs, there is an
unambiguous decrease in economywide unemployment. With imperfect intersectoral labor mobility,
unemployment in the offshoring sector can rise, with an unambiguous unemployment reduction in the nonoffshoring
sector. Imperfect labor mobility can result in a mixed equilibrium in which only some firms
offshore, with unemployment in the offshoring sector rising.