(2009b), the elasticity of substitution between low and high skilled labor is one key
parameter to solve this pattern. If the elasticity of substitution is high enough, what is
assumed in most of the theoretical models, the wage-effect outperforms the offshoring
effect leading to the implications described in Hypothesis (iii) above: If offshowing
takes place in the relative high skill intensive industry, industries shift production to-
wards relative more low skilled labor. Vice versa for the relative low skill intensive
industry. If, by contrast, the elasticity of substitution is below a critical level, there is the
possibility that the offshoring-effect outperforms the wage-effect, with opposite results.
In the specific context analyzed in this contribution, we know that the strength of the
wage effect is limited by the low degree of wage flexibility in Germany. Additionally,
also the extent and the composition of offshoring different production parts is of high
importance for the resulting tendencies. With respect to the empirical results found in
the analysis above, it seems that, overall, substitutional forces as reactions on the wage
effect are not as pronounced. By contrast, there seems to be another force additionally
separating the industries. If the low skill intensive industries conduct offshoring activ-
ities, their production gets more and more low skill intensive, vice versa for the high
skill intensive industries.
A possible interpretation of these results is that in some industries there can be
more complementarity than substitution between domestic production of parts and
offshoring of some production phases (giving rise to a very low elasticity of substi-
tution). For example, if a high-skill intensive industry offshores production of high-
skilled parts, the workforce employed domestically must also be skilled to use those
components, and therefore the high-skill to low-skill labor ratio does not decline with
offshoring, but it might even increase moderately. A complementarity effect can also
occur if offshoring allows the industry to expand: when expanding, low-skill intensive
industries will tend to increase the number of low-skill workers more than high-skilled
workers, and vice versa in the hig-skill intensive industries. This also can explain why
offshoring always displays a negative effect on the H/L ratio in the low-skill intensive
industries and a positive sign in the hig-skill intensive industries.
Thus, whereas implications on relative wages are quite clear cut, implications on
the industries skill ratio’ are quite fuzzy, depending strongly on specific parameter
assumptions and concrete empirical situations. Since it is not possible to capture all the
theoretically assumed parameter values empirically it is of great interest to compare
the findings of this contribution with those of other empirical examinations. As Falzoni
and Tajoli (2010) show, results are similar for the Italian economy. Also in Italy, the
high skill labor ratio increases if offshoring (measured with a narrow index) takes place
in relative high skill intensive industries and it decreases if offshoring takes place in
relative low skill intensive industries. Thus, it is interesting to have a closer look at the
empirical offshoring situation in Italy compared to those in Germany. Despite several
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