differences of these two economies concerning the structure and the composition of the
manufacturing sector, it is interesting to note that offshoring is in both economies more
pronounced in relative high skill intensive industries compared to relative low skill
intensive ones. It is also worth remembering that in both economies, labor markets and
especially wage rates are fairly rigid. Therefore, in both cases we can expect the wage
effect to be weak, and to observe the offshoring effect prevailing.
Another finding that is one of the core results of both empirical analyses, and even
supports the theoretical findings so far (summarized in Hypothesis ii), is that it is of
great importance in which industry offshoring takes place. Supporting the sector bias,
implications of offshoring on the industries’ skill intensity differ strongly if offshoring
takes place in the relative high or the relative low skill intensive industries instead.
6 Conclusions
This contribution investigates the implications of offshoring on the industries’ high skill
labor ratio. By contrast to the effects on relative wages, implications on the industries’
production structure are not as clear cut. A more direct offshoring-effect gets accompa-
nied by an indirect wage-effect, with the possibility of both effects outperforming each
other. From a theoretical point of view results strongly depend on detailed assump-
tions, as e.g. the elasticity of substitution between high and low skilled labor, and on
the extent and composition of offshoring activities as well. Since there are only few
contributions investigating the effects of offshoring on the industries’ skill ratio, this
paper tries to shed some more light into this discussion.
The value added of the paper is as follows: Since the main part of offshoring literature
focus on effects on relative wages, and since most empirical investigations are not based
on clearly specified theoretical hypothesis, the paper summarizes the main theoretical
findings on the effects of offshoring on the skill ratio in order to distill from the theory
three testable hypotheses providing the theoretical base for the empirical analysis.
The empirical analysis on the effects of offshoring on the industries’ high skill labor
ratio presents the first results for the German economy, supporting the sector bias
of offshoring. The effects on the skill ratio are mainly driven by the skill intensity
of the industry where offshoring takes place and only to a minor extent by the skill
intensity of the relocated production fragment. If offshoring occurs in the relative
high skill intensive industries, the industries’ high skill labor ratio increases, whereas
it decreases if offshoring takes place in the relative low skill intensive industries. This
detailed result, however, seems to contradict with theory at first sight. Therefore,
the paper further discusses the link between theoretical and empirical findings and the
relation to other empirical examinations as well. From a theoretical point of view, results
seem to crucially depend on the elasticity of substitution as well as on the extent and
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