Fragmentation, Productivity and Relative Wages in the UK: A General Equilibrium Approach

Feenstra and Hanson (1999) propose a two-stop method to analyse the role of outsourcing and skill-biased technological change (SBTC) in the rise in wage inequality. This paper applies their methodology to UK manufacturing using data for the 1990s and extends it in order to obtain additional insight in the relative importance of the sector bias and the factor bias of outsourcing and SBTC. The results indicate that outsourcing has significantly contributed to the rise in the domestic wage inequality accounting for approximately 12% of the increase in the UK in the 1990s. Factor-biased outsourcing was about 2.5 times as important as sector-biased outsourcing in explaining the increase in wage inequality.fragmentation, outsourcing, productivity, madated wage regressions

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

Does offshoring reduce industry employment?

This paper looks at the implications of offshoring for industry employment whilst explicitly accounting for the scale and technology effects of offshoring. The effects of offshoring on employment are analysed using industry-level data for 17 high income OECD countries. Our findings indicate that offshoring has no effect or a slight positive effect on sectoral employment. Offshoring within the same industry (“intra-industry offshoring”) reduces the labour-intensity of production, but does not affect overall industry employment. Inter-industry offshoring does not affect labour-intensity, but may have a positive effect on overall industry employment. These findings suggest that the productivity gains from offshoring are sufficiently large that the jobs created by higher sales completely offset the jobs lost by relocating certain production stages to foreign production sites.international outsourcing, labour demand

The Effects at Home of Initiating Production Abroad: Evidence from Matched French Firms

Based on matching techniques in combination with a difference-in-difference estimator, this paper estimates the effects at home of initiating production abroad through the establishment of a foreign production affiliate. The analysis covers manufacturing and service firms active in France during the period 1987-1999. We show that the motivation to start producing abroad is an important determinant of its impact at home. Market-seeking FDI in manufacturing is associated with significant scale effects, resulting in job creation. By contrast, factor-seeking FDI in manufacturing has no significant effect on employment. FDI in the services sector is associated with significant positive employment effects, which may reflect the possibility that FDI in this sector is predominantly motivated by market access.FDI, multinationals, propensity score matching, services, delocalisation

Does Offshoring Pay? Firm-Level Evidence From Japan

This paper explores the impact of offshoring, or contracting out of business activities to foreign providers, on firm productivity, using Japanese firm-level data for the period 1994-2000. We find that offshoring has generally a positive effect on productivity growth. This effect is robust to controlling for the possible endogeneity of offshoring with respect to unobserved productivity shocks. Our preferred specification suggests that a one percent increase in offshoring intensity raises productivity growth by 0.17 percent. For the average offshoring firm this implies a 1.8 percent increase in annual productivity growth. These results do not appear to depend much on either the level of technological sophistication of a firms' industry or a firms' international orientation. However, we find that the scope for productivity improvements from offshoring depends negatively on the initial level of productivity of the firm.offshoring, international insourcing, domestic sourcing, TFP

The role of production technology for productivity spillovers from multinationals: Firm-level evidence for Hungary

This paper analyses the potential for productivity spillovers from inward foreign direct investment using administrative panel data on firms for Hungary. We hypothesise that the potential for spillovers is related to observable characteristics of the production process of foreign affiliates, and evaluate this empirically. We further explore the role of competition in explaining productivity spillovers within industries. Our empirical analysis yields a number of important findings. First, we show that the potential for spillovers is importantly related to the production technology of the sectors and foreign affiliates. Firms that relocate labour-intensive activities to Hungary to exploit differences in labour costs are unlikely to generate productivity spillovers, while spillovers increase in the capital intensity of foreign affiliates. Second, we find that spillovers differ markedly in the early and later stages of transition, and that there are differences between small and large firms. Furthermore, foreign presence tends to affect the productivity of domestic firms negatively whenever MNEs produce for the domestic market

International Outsourcing and the Skill Structure of Labour Demand in the United Kingdom

This paper investigates empirically the link between international outsourcing and the skill structure of labour demand in the United Kingdom. It is the first detailed study of this issue for the UK. Outsourcing is calculated using import-use matrices of input-output tables for manufacturing industries for the period 1982 to 1996. Estimating a system of variable factor demands, our main results show that international outsourcing has had a strong negative impact on the demand for unskilled labour. Hence, international outsourcing is an important component in explanations of the changing skill structure of manufacturing industries in the United Kingdom.Outsourcing; Fragmentation; Trade; Wages; Skill-biased technological change

Cross-border mergers and acquisitions and the role of trade costs

Cross-border mergers and acquisitions (M&As) have increased dramatically over the last two decades. This paper analyses the role of trade costs in explaining the increase in both the number and the value of cross-border mergers and acquisitions. In particular, we distinguish horizontal and non-horizontal M&As and investigate whether distance and trade policy barriers affect these two types of mergers differently. We analyse this question using industry data for 23 OECD countries for the period 1990-2001. Our findings suggest that while in the aggregate trade costs affect cross-border merger activity negatively its impact differs importantly across horizontal and non-horizontal mergers. The impact of trade costs is less negative for horizontal mergers, which is consistent with the tariff-jumping argument.mergers and acquisitions, international trade, trade costs, gravity, FDI, Hijzen, G�rg, Manchin

On the determinants of euro area FDI to the United States: the knowledge- capital-Tobin's Q framework

The long-run determinants of euro area FDI to the United States during the period 1980-2001 are explained by employing the Tobin's Q-model of investment. By using the fixed effects panel estimator, stock market developments in the euro area countries - including a measure adjusted for economic developments common to both the United States and the euro area - are found to influence euro area FDI to the United States. Moreover, the inclusion of the Tobin's Q enhances the traditional knowledge-capital framework specification. Overall, the empirical findings suggest that euro area patents (ownership advantage), various variables related to productivity in the United States (location advantage), the volume of bilateral telephone traffic to the United States relative to euro area GDP (ownership advantage), euro area stock market developments (Tobin's Q), and the real exchange rate are statistically significant determinants of euro area FDI to the United States. JEL Classification: F21, F23euro area, Foreign Direct Investment, Multinational firms, Tobins Q