on the industries’ skill composition. How does the industries’ production structure
(the high to low skill labor ratio) change when offshoring activities take place?2 In
this respect, however, only few contributions emerged recently providing a far less
clear picture compared to that provided for the wage effects. One reason for several
ambiguities in the results is the existence of different ways how offshoring can affect
the industries’ skill composition: On the one hand, there exists a direct “offshoring-
effect”. When parts of the production process are relocated abroad, relative demand
of the factor mainly used in the relocated intermediates decreases. This, however, gets
accompanied by an indirect “wage-effect” resulting from the effects of offshoring on
relative wages. If e.g. offshoring increases relative high skill wages (what, according
to Arndt (1997) could be assumed when taking place in the relative high skill intensive
industry), a substitutional process occurs towards more low skill intensive production.
While the direct offshoring-effect depends on the skill intensity of the relocated frag-
ment, the indirect wage-effect differs with the industry where offshoring takes place.
Since causalities are more complex compared to the effects of offshoring on relative
wages, and only rarely examined by theoretical as well as empirical investigations so
far, there is a need for further examinations. With this contribution, we try to shed
some more light into the discussion.
Therefore, Section 2 provides an empirical literature review of the contributions in-
vestigating the effects of offshoring on the industries’ skill composition. Section 3
discusses theoretical frameworks. Section 4 conducts the empirical analysis using data
for the German economy. As results show, there is no significant effect visible when
examining more aggregated industry levels. When examining more disaggregated
industry levels, significant results occur showing that the implications differ strongly
between the different industries where offshoring takes place. Contrary to the theo-
retical models (but in line with other recent empirical findings), the high skilled labor
ratio increases if offshoring takes place in relative high skill intensive industries and
decreases if the relative low skill intensive industries relocate production. Since there
seems to be a puzzle between theoretical predictions and empirical findings, Section
5 discusses the results in greater detail in order to provide suggestions on how to
reconcile theory with empirics. Section 6 concludes by summarizing the major results.
2The effects on the industries production structure also have far reaching implications for migration
and education policies and thus, are of great importance for the political authority and the public
discussion as well.