How Offshoring Can Affect the Industries’ Skill Composition

Daniel Horgos,Lucia Tajoli

doi:10.3390/economies3020072

Abstract

While most of the offshoring literature focuses on the effects on relative wages, other implications do not receive the necessary attention. This paper investigates the effects on the industries’ skill ratio. It summarizes the empirical literature, discusses theoretical findings, and provides empirical evidence for Germany. As results show, effects are mainly driven by the industry where offshoring takes place. If offshoring takes place in high-skill intensive industries, the high-skill labor ratio increases (vice versa if offshoring takes place in low-skill intensive industries). Results are in line with other empirical findings, however, they seem to contradict theoretical causalities. Thus, we additionally discuss possible explanations.

Highlights

During the last decades, implications of offshoring became an important issue in economic research and political discussion as well
The estimation strategy is similar to the majority of other empirical analyses on the implications of offshoring, with some differences that are worth being mentioned: Most contributions investigate the effects of offshoring on relative wages
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

Summary

Introduction

Implications of offshoring became an important issue in economic research and political discussion as well. While the direct offshoring-effect depends on the skill intensity of the relocated production fragment, the industry where offshoring takes place is important for the wage-effect Since these effects are only rarely examined by economic literature so far, there is a need for further investigations. It may be assumed that imports from less developed and emerging economies with low (unskilled) labor costs are 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 relative employment or the relative wage of skilled workers [21,22]. Before entering the econometric analysis, the section will briefly discuss the factor and the sector bias of offshoring from a theoretical perspective

Short Sketch of the Theoretical Background

Empirical Evidence for Germany

Empirical Methodology and Results

Discussing the Results

Conclusions