International Outsourcing and Wage Rigidity: A Formal Approach and First Empirical Evidence

International Outsourcing effects on labor markets are mostly analyzed within flexible wage settings. Using a modern duality approach, this paper formally investigates differences occurring in industries with low skilled wage rigidity and, for the first time in literature, presents empirical evidence supporting the theoretical findings. Using a logit model to analyze microeconomic German panel data, results show that International Outsourcing significantly increases low skilled unemployment when taking place in industries characterized by low skilled wage rigidity. Thus, in terms of unemployment, not International Outsourcing but inflexible labor market institutions instead should be blamed for harming low skilled labor.International Outsourcing, Wage Rigidity, Unemployment

Labor Market Effects of International Outsourcing: How Measurement Matters

As regards labor market effects of International Outsourcing, empirical studies have difficulties in confirming theoretical results. The use of different indices adds to the puzzle. The paper examines whether measurement differences are one reason for the mismatch between empirical and theoretical findings. In fact, considering the properties of various outsourcing indices and applying a panel data estimation of the effects on the within industries' wage gap in Germany, theory and empirics can be reconciled: while the wage gap increases in the aggregate, the service sector and the high skill intensive industries, it decreases in the low skill intensive industries - which is in line with theoretical findings by Arndt (1997, 1998).International outsourcing, wage differential

A Ricardo-Viner Approach to Service Offshoring

Empirical contributions on service offshoring show less pronounced labor market implications than with material offshoring. Since no formal model exists investigating service offshoring in particular, empirical examinations are not based on properly defined hypothesis. This contribution formalizes service offshoring within a Ricardo-Viner specific factors model. As service offshoring is assumed to expand the range of possible offshoring scenarios,results differ from those of material offshoring. The different scenarios have opposite implications and sum up to marginal effects in the aggregate. This theoretical contribution thus is capable of explaining empirical findings so far and provides clear testable hypotheses for future research.service offshoring; trade in services; specific factors model

International Outsourcing and Wage Rigidity: A Formal Approach and First Empirical Evidence

International Outsourcing effects on labor markets are mostly analyzed within flexible wage settings. Using a modern duality approach, this paper formally investigates differences occurring in industries with low skilled wage rigidity and, for the first time in literature, presents empirical evidence supporting the theoretical findings. Using a logit model to analyze microeconomic German panel data, results show that International Outsourcing significantly increases low skilled unemployment when taking place in industries characterized by low skilled wage rigidity. Thus, in terms of unemployment, not International Outsourcing but inflexible labor market institutions instead should be blamed for harming low skilled labor.International outsourcing, wage rigidity, unemployment

How Offshoring Can Affect the Industries’ Skill Composition

While most offshoring literature focus on the effects on relative wages, other implications do not receive the necessary attention. This paper investigates effects on the industries’ skill ratio. It sum-marizes the empirical literature, discusses theoretical findings, and provides first empirical evidence for Germany. As results show, effects are mainly driven by the industry where offshoring takes place. In high skill intensive industries, the high skill labor ratio increases (vice versa for low skill intensive industries). Since this result is in line with other empirical findings but seems to contradict with theory, the paper additionally discusses possible explanations.oshoring; labor market implications; skill ratio; skill composition

The global operations of European firms - The second EFIGE policy report

This Bruegel blueprint analyses, within the framework of the EFIGE (European Firms in a Global Economy) project, the export and foreign investment performance of European firms. It is based on new cross-country data from 15,000 individual firms never available before. Written by Giorgio Barba Navaretti, Matteo Bugamelli, Gianmarco Ottaviano and Fabiano Schivardi, the report looks at the specific elements that make some European companies more competitive than others in foreign markets, revealing that firm characteristics -mainly size- are the primary determinants of export performance, even more so than country characteristics. Therefore the authors suggest that firm growth and consolidation in all European countries would generate a considerable increase in the value of European exports and thus help lift European growth. These findings will be crucial for policymakers, who, in order to boost the chance of European firmsâ?? on foreign markets, should shift the policy discussion from the current focus on specific sectors and skill groups to structural reforms that allow firms across the board to grow and to develop more sophisticated forms of management. Until now, evidence on European firmsâ?? competitiveness has been based on partial, non-comparable national data. But for the first time this paper is based on detailed results from a new large-scale survey of 15,000 manufacturing companies in seven EU countries (Austria, France, Germany, Hungary, Italy, Spain and the United Kingdom). The survey examines firmsâ?? exporting, importing, outsourcing and foreign investment activities. This survey data has then been combined with structural data about the individual firms taken from their balance-sheets such as governance, profits, number of employees.

The global operations of European firms

This Bruegel blueprint analyses, within the framework of the EFIGE (European Firms in a Global Economy) project, the export and foreign investment performance of European firms. It is based on new cross-country data from 15,000 individual firms never available before. The book looks at the specific elements that make some European companies more competitive than others in foreign markets, revealing that firm characteristics -mainly size- are the primary determinants of export performance, even more so than country characteristics. Therefore the authors suggest that firm growth and consolidation in all European countries would generate a considerable increase in the value of European exports and thus help lift European growth

The Global Operations of European Firms

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The Elasticity of Substitution and the Sector Bias of International Outsourcing: Solving the Puzzle

Considering the sector bias of International Outsourcing within a 2x2 framework, four different scenarios appear. Each industry can either relocate its high or its low skill intensive production fragment. Traditionally, depending on the superiority of a wage vs. an outsourcing-effect, general equilibrium effects of two scenarios are assumed to be ambiguous. Applying a formal duality approach and a calibration exercise for the German economy, this contribution shows that a focus on the elasticity of substitution can solve the puzzle. With the elasticity exceeding a critical value, unambiguous results in all four scenarios appear, supporting the sector bias of International Outsourcing.Finally, the introduction of distributional constraints into the allocative decisions leads to a decisive worsening in the supply of the public good.International Outsourcing; Sector Bias; Elasticity of Substitution