Labor Market Effects of Services Offshoring: Empirical Evidence

Abstract

This fifth chapter constitutes the major contribution of this work. It comprises a collection of three empirical Studies, which estimate the effects of services offshoring on productivity (Sect. 5.1), labor demand (Sect. 5.2), and the relative demand for less-skilled labor (Sect. 5.3) in German manufacturing. The formulation of the hypotheses is based on the underlying theoretical models. Our econometric estimations use both unrevised (1991-2000) and revised (1995-2004) input-output data. We use two different estimation methods for all Of Our studies, which increases the reliability of our estimation results. Services offshoring had a positive effect on total factor productivity and labor productivity in German manufacturing, while it affected labor demand negatively. Both effects were stronger between 1995 and 2004. The overall results suggest that labor demand decreased, because labor-reducing productivity and Substitution effects dominated labor-augmenting scale effects from services offshoring. Moreover, services offshoring significantly reduced the relative demand for less-skilled labor from 1991 to 2000. Interestingly, the results for 1995 to 2004 indicate a relative demand shift away from high-skilled labor, mitigating the declining wage share of less-skilled labor.