Globalization and Investment in Human Capital

Workers are becoming increasingly concerned about the impact that globaliza- tion has on their domestic labor market. While existing research typically focuses on the effects on labor market outcomes such as wages and employment, we examine whether American workers respond to globalization by increasing their investment in human capital. Specifically, we measure the extent to which offshoring and immigra- tion affect enrollment at institutions of higher education. The results indicate that both offshoring and immigration increase enrollment at community colleges, particu- larly among older students. We conclude that workers in the U.S. are responding to offshoring and immigration by acquiring the skills necessary to compete in a global economy.globalization, higher education, enrollment, offshoring, immigration

Outsourcing, Offshoring, and Productivity Measurement in Manufacturing

I discuss reasons why manufacturing productivity statistics should be interpreted with caution in light of the recent growth of domestic and foreign outsourcing and offshoring. First, outsourcing and offshoring are poorly measured in U.S. statistics, and poor measurement may impart a significant bias to manufacturing and, where offshoring is involved, aggregate productivity statistics. Second, companies often outsource or offshore work to take advantage of cheap (relative to their output) labor, and such cost savings are counted as productivity gains, even in multifactor productivity calculations. This fact has potentially important implications for the interpretation of productivity statistics. Whether, for instance, productivity growth derives from a better-educated, more efficient U.S. workforce, from investment in capital equipment in U.S. establishments, or from the use of cheap foreign labor affects how productivity gains are distributed among workers and firms in the short term and undoubtedly matters for U.S. industrial competitiveness and living standards in the long term. Although it is impossible to fully assess the impact that mismeasurement and cost savings from outsourcing and offshoring have had on measured productivity growth in manufacturing, I point to several pieces of evidence that suggest it is significant, and I argue that these issues warrant serious attention. I am grateful to Katharine Abraham, Mike Harper, Peter Meyer, Anne Polivka, Ken Ryder, Larry Summers, Lisa Usher, Robert Yuskavage, and seminar participants at the Federal Reserve Bank– Chicago for comments on an earlier draft of this paper, and to Mary Streitweisser and James Franklin for supplying detailed information on the construction of BEA's input-output estimates and their use in productivity calculations. Lillian Vesic-Petroic provided excellent research assistance. Any remaining errors as well as the views expressed in this piece are my own.offshoring, productivity, manufacturing, outsourcing, measurement, houseman

How Offshore Outsourcing is Perceived: Why Do Some Consumers Feel More Threatened?

As globalization intensifies, multinational companies are not only compelled to expand their operations, but are also facing greater pressure to enhance productivity and concomitant return on investment (ROI). One way to achieve cost efficiencies is by offshoring selected business operations to overseas firms. Such offshoring, however, has generated public concern and, in some cases, outrage. Angst against offshoring is based on many perceptions, including perceived job losses and damage to domestic industries. In the wake of this threat, multinational firms in Europe and North America confront a public relations problem in justifying their offshoring activities. Yet, no systematic study has investigated why some consumers feel threatened by offshoring while others do not. Our study addresses this concern by using Americans as a sample. We show that economic threat and consumer ethnocentrism have a negative impact on offshoring attitudes while perceived quality of services delivered by offshore firms has a positive effect. Implications are discussed

Outsourcing, Offshoring, and Productivity Measurement in U.S. Manufacturing

I discuss reasons why manufacturing productivity statistics should be interpreted with caution in light of the recent growth of domestic and foreign outsourcing and offshoring. First, outsourcing and offshoring are poorly measured in U.S. statistics, and poor measurement may impart a significant bias to manufacturing and, where offshoring is involved, aggregate productivity statistics. Second, companies often outsource or offshore work to take advantage of cheap (relative to their output) labor, and such cost savings are counted as productivity gains, even in multifactor productivity calculations. This fact has potentially important implications for the interpretation of productivity statistics. Whether, for instance, productivity growth derives from a better-educated, more efficient U.S. workforce, from investment in capital equipment in U.S. establishments, or from the use of cheap foreign labor affects how productivity gains are distributed among workers and firms in the short term and undoubtedly matters for U.S. industrial competitiveness and living standards in the long term. Although it is impossible to fully assess the impact that mismeasurement and cost savings from outsourcing and offshoring have had on measured productivity growth in manufacturing, I point to several pieces of evidence that suggest it is significant, and I argue that these issues warrant serious attention

Offshoring and Immigrant Employment: Firm-level Theory and Evidence

We propose and solve a simple model of firm-level decisions to offshore production stages of lower skill intensity than that of activities that remain in the domestic location. In theory, offshoring is optimal only for the more productive among heterogeneous firms if it entails a fixed cost. In a large sample of Italian firms, offshoring - especially of intermediate production stages - is indeed more prevalent among firms that are larger and more productive, and is predicted by arguably relevant firm-level characteristics. We also document that offshoring decreases the share of unskilled employment in domestic production facilities as well as firms’ propensity to employ immigrant workers, and we discuss the possible determinants and policy implication of the latter finding.

Offshoring, Labour Market Institutions and the Elasticity of Labour Demand

This paper analyses the evolution of the elasticity of labour demand and the role of offshoring therein using industry-level data for a large number of OECD countries. The first main finding is that the wage elasticity of labour demand has increased substantially. The finding that employment has become increasingly sensitivity to wages is shown to be robust to a wide variety of econometric specifications of labour demand, although some of this association may reflect a trend increase in the speed of adjustment rather than an increase in the long-run wage elasticity. A second finding is that more intensive offshoring is associated with more elastic labour demand, consistent with increased offshoring having expanded the flexibility of firms to adjust the mix of domestic workers and foreign value-added in production when relative factor prices change. More in particular, the average elasticity of labour demand appears to be about 30% to 40% larger in absolute value than the counter-factual elasticity which would have prevailed had offshoring not been possible. Increases of this magnitude might well have important implications for job security and worker bargaining power. Finally, we find some evidence that strict employment protection legislation weakens the link between offshoring and higher labour demand elasticity. This suggests that the impact of offshoring on labour demand elasticity depends on the national institutional environment.Employment protection legislation, international outsourcing, labour demand, worker insecurity

Recent findings on trade and inequality:

The 1990's dealt a blow to traditional Heckscher-Ohlin analysis of the relationship between trade and income inequality, as it became clear that rising inequality in low- income countries and other features of the data were inconsistent with that model. As a result, economists moved away from trade as a plausible explanation for rising income inequality. In recent years, however, a number of new mechanisms have been explored through which trade can affect (and usually increase) income inequality. These include within-industry effects due to heterogeneous firms; effects of offshoring of tasks; effects on incomplete contracting; and effects of labor-market frictions. A number of these mechanisms have received substantial empirical support.trade inequality,

Home country effects of offshoring. A critical survey on empirical literature.

The International fragmentation of production processes is of rising importance. One part of this fragmentation involves the relocation of a production process from a home- to a new host country. This literature survey deals with the effects of such relocations on the home country. First of all, we try to conceptualize the terms and definitions most frequently used in this context which are "outsourcing", "offshore outsourcing" and "offshoring". Despite the fact that there is little textual documentation dealing directly with the phenomena of offshoring and offshore outsourcing we try to give an overview of possible empirical literature to which one can regard to. Including FDI literature we try to cover empirical literature which can provide helpful insight on the effects of a relocation to foreign countries on the home country in connection with wages, skill upgrading, prices, profits, taxes and unions. (author's abstract)Series: Discussion Papers SFB International Tax Coordinatio

Estimating the Impact of Trade and Offshoring on American Workers Using the Current Population Surveys

In this paper, we link industry-level data on offshoring activities of U.S. multinational firms, import penetration, and export shares with individual level worker data from the Current Population Surveys. We examine whether increasing globalization through offshoring or trade has led to reallocation of labor, both within and out of manufacturing, and measure its impact on the wages of domestic workers. We also control for the "routineness" of individual occupations. Our results suggest that (1) offshoring to high wage countries is positively correlated with U.S. manufacturing employment (2) offshoring to low wage countries is associated with U.S. employment declines (3) wages for workers who remain in manufacturing are generally positively affected by offshoring; in particular, we find that wages are positively associated with an increase in U.S. multinational employment in high income locations (4) much of the negative effects of globalization operate through downward pressure on wages of workers who leave manufacturing to take jobs in agriculture or services and (5) the downward pressure on aggregate U.S. wages operating through import competition has been quite important for some occupations. This effect has been overlooked because it operates across, not within, industries.