The effects of offshoring on employer-provided training

Abstract

This study examines how offshoring affects employers’ investment in training. Departing from the standard assumption in the literature that low-skilled jobs are transferred to developing countries while high-skilled jobs are still performed in the Home Country, we argue that whether a productive activity is offshored depends on whether its associated occupation is offshorable, regardless of its skill content. Our theoretical model suggests that the offshoring of productive activities involving offshorable occupations raises the wage rate for non-offshorable occupations in the Home Country, and thus reduces the incentive for firms to provide training in non-offshorable occupations. The effects of offshoring on training for offshorable occupations, however, are ambiguous. Based on two new measures of offshoring and data from the National Longitudinal Survey of Youth 1979 (1989–2004), we empirically investigate the relationship between offshoring and employer-provided training in the United States. For non-offshorable occupations, we find that offshoring has a significant negative relationship with the incidence of training, but does not have much, if any, significant relationship with the intensity of training. For offshorable occupations, offshoring does not have any significant relationship with either the incidence or the intensity of employer-provided training. These findings are in line with our theoretical model.