How Offshoring Can Affect the Industries’ Skill Composition



and low-skill intensive industries, they find a differentiated effect of fragmentation.
Furthermore, in their sample they can distinguish between types of workers in each in-
dustry, and their estimates show a positive and significant e
ffect of fragmentation on the
wages of the high-skilled workers in the skill-intensive industries and a negative and
significant e
ffect on the wages of low-skilled workers in the low-skill intensive indus-
tries. This sharp di
fference in results highlights the importance of assessing carefully
the e
ffect of offshoring in each specific context. However, their analysis is restricted to
the e
ffects on relative wages only.

The work by Falzoni and Tajoli (2010) instead looks at the effect of offshoring on
the employment of skilled and unskilled workers in Italy. In Italy too, o
ffshoring
is more extensive in relatively skill-intensive industries (as in Germany), in spite of
di
fferences in the overall manufacturing specialization between the two countries.
Even if considering employment rather than wages, the results by Falzoni and Tajoli
(2010) are consistent with the ones by Geishecker and Gorg (2005), as the impact of
o
ffshoring appears only weakly significant and not robust when regressions are run
across all manufacturing industries. But when splitting the sample between skill-
intensive and unskill-intensive industries, the picture changes, as the impact on skill
composition di
ffers across industries. Offshoring has a significant and negative effect
on the relative employment of skilled workers in the unskilled-intensive sectors, while
it has positive and significant e
ffect on the relative employment of skilled workers in
the skill-intensive industries. Here too, therefore, the context in which o
ffshoring takes
place is crucial.

3 Short Sketch of the Theoretical Background

As in the empirical literature, contributions investigating the effects of offshoring on
the industries’ skill composition are relatively rare. This section summarizes some
of the theoretical predictions in order to provide testable hypothesis for the empirical
analysis below.

Even if the broadly known framework of Feenstra and Hanson (1996a,b, 1999) does
not explicitly investigate the implications on the skill ratio, some results can be drawn
from this model. Assuming a high skill abundant economy (without distinguishing
between di
fferent industries) where offshoring takes place by relocating low skill inten-
sive production parts abroad, demand of low skilled labor decreases. Straight forward,
relative wages of high skilled labor increases in both, the o
ffshoring as well as the
inshoring economy. With respect to the o
ffshoring economy, the relocated produc-
tion block is assumed to be relatively low skill intensive whereas with respect to the
inshoring one, the relocated production block is relative high skill intensive instead.
The follow up e
ffects on the skill ratio are twofold: In the high skill abundant home



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