How Offshoring Can Affect the Industries’ Skill Composition

2 Offshoring and the Industries’ Skill Composition: A

Look at some Empirical Results

As mentioned, most empirical contributions on the implications of offshoring focus
on relative wages, whereas the literature on how offshoring affects the industries’ skill
composition is relatively rare. Furthermore, the few empirical works on the effects of
offshoring on skill composition do not distinguish among different industries where
offshoring takes place, and run cross-industry estimates. It is acknowledged that
cross-industry regressions make the implicit assumption that the estimated cost or
production function is the same across industries, and this assumption can indeed be
far-stretched. Even if we assume a similar production function across manufacturing
industries, there will be very different factor intensities used across industries. This
heterogenity in factor intensities should be very relevant for offshoring choices. The
results of the regressions run across all industries do not allow to see a different impact
of offshoring according to the different factor intensities, as the theory suggests, and do
not consider the differences in factor intensity of the inputs which are imported.

A partial exception to this last problem are the studies that differentiate imports of
intermediate inputs according to the country of origin, assuming that imports from less
developed and emerging countries with low (unskilled) labor costs will be intensive
in unskilled labor. Examples of these studies are given by Egger and Egger (2005) and
Geishecker (2006), who consider imports of intermediate inputs in Western European
countries from Central and Eastern Europe, and find that these imports have a positive
and significant effect on the relative employment or relative wage of skilled workers.
But imports from countries with relatively low labor cost do not need to be relatively
unskilled-labor intensive. Especially in the CEECs, the endowment of skilled workers
is aboundant relative to other areas of the world. Therefore, even if controlling for the
geographical origin of the intermediate inputs is an attempt to take into account the
factor intensity of these inputs, it can only partially do so.³

A couple of studies instead explicitely address the issue of differences across man-
ufacturing industries that can affect the impact of offshoring. The first is the work by
Geishecker and Gorg (2005), who assess the effect of international fragmentation of
production on wage levels in Germany. The data used show that the extent and the
dynamic of fragmentation of production is quite diffentiated between industries. In
the estimates obtained including all industries, they don’t find a significant effect of in-
ternational fragmentation, but splitting the sample between skill-intensive industries

³A very recent work by Becker et al. (2009) addresses the issue of which types of tasks are kept at
home by German multinationals when offshoring occurs, but data limitations again do not allow to
model explicitely which types of tasks are offshored. For this sample of MNEs, the location where
offshoring takes place does not seem to matter for the effect on domestic employment.

<<   2   3   4   5   6   7   8   >>

More intriguing information