Globalization, offshoring and jobs chapter 1 holger gorg 1 21. The two were joined to explain the common trends, the causes and effects of these trends, and the benefits and drawbacks industry leaders perceive as they increase their use of offshoring. Trends in offshoring business facilities area economic. Feenstra university of california, davis, and nber october 1, 2016 abstract we identify first generation statistics to measure offshoring as the share of imported. Annette bernhardt institute for research on labor and employment, uc berkeley. Offshorings impact on human resources your business. Offshoring and the labour market 1 although offshoring, which means the relocation of production processes abroad, is an ageold phenomenon, it has recently gained a new dynamic through the decrease in transportation and communication costs and dramatic advances in information technology. The phenomenon of offshoring is not really new, but it arouses just as much debate and concern because it is no longer confined to. However, there is potential for rapid growth, which. Offshoring effects on technology and implications for. Noting that many models of trade posit that workers can move in a costless. Offshoring reduces audit costs and also increases audit efficiency by allowing use of additional audit staff in other global time zones.
As the market for labor is globalized, the supply of labor is expanded greatly. Economic and policy analysis alavi, struss, chang and kim 7 and more white collar workers are being laid off from their companies as their jobs are shipped overseas. First, the report defines offshoring in detail, allowing readers to see the many ways that industrial activityboth in manufacturing and in servicescan be transferred abroad. Offshoring practices in the uk where are the limits. Many americans are particularly concerned about the loss of skilled, wellpaid jobs in such fields. In bringing the theory to data i focus solely on the employment impact of offshoring, conditional on factor prices. Trade literature has found that the impact of globalization on the domestic labor market depends, among other factors, on the sourcing countrys income level, the education level of domestic workers, and the occupations involved. Estimating the impact of trade and offshoring on american. Offshoring, the practice of moving production to foreign locales while continuing to sell goods to the u. The literature has consistently found that technological change was responsible for more change in employment than offshoring. Section iii describes our data and documents broad trends in trade, offshoring, wages and employment. Any discussion of offshoring business operations should involve hr leadership because of the effect on personnel. Offshoring and the migration of jobs iza world of labor.
Chief among the specific reasons for locating operations outside a corporations home country are lower labour costs, more lenient environmental. We therefore begin by discussing the politics, as seen through. Revisiting the employment impact of offshoring sciencedirect. Alan garner t he united states continues to run an international trade surplus in services, but business stories frequently appear about servicesector jobs moving offshore. Background paper introduction outsourcing is the term commonly used for the practice of companies to subcontract work to third parties. Oecd ilibrary productivity impacts of offshoring and.
The offshoring of engineering helps to answer many questions about the scope, composition, and motivation for offshoring and considers the implications for the future of u. Some believe that offshoring has resulted in significant job losses and that the labor standards in developing nations are lower than in wealthy nations. The model of grossman and rossihansberg 2008 and the related work by wright 2014 show that the impact of offshoring on employment can go either way. Over the years, business demands become more and more complicated and have pushed many trends in the offshoring industry.
Section iv presents our main empirical findings regarding the impact of offshoring and trade on domestic wages and employment within and between sectors. Service offshoring reduced manufacturing employment by around 0. Outsourcing this work to foreign or offshore companies, solely to take advantage of lower labor rates in those countries, became known as offshoring. Evidence from changes in global tax policies brian k. The theoretical literature on offshoring has been mainly positive, focusing on the. It offshoring causes wage deflation for us workers competing with offshore labor. The impact of offshoring on the labour market has become one of the major issues of concern to policy makers and public opinion. Finally, this groundbreaking report outlines the public policy implications of offshoring. This column employs the variation in the timing of us treaties to infer the causal effect of tax treatyinduced changes in foreign affiliate employment on changes in us domestic employment. In outsourcing, specialized companies provide their services to client companies at a lower cost than the client companies would ultimately incur doing the work inhouse. This way, a company can focus on its core business and leave non core activities to providers that can perform them to a. The remainder of this paper gives an overview of the literature on each of these topics. The focus in the media and politics has been on offshoring and job losses.
Offshoring creates an incentive for new firms to innovate and produce differentiated products. Statistics to measure offshoring and its impact by robert c. Offshoring has no effect on native employment in the aggregate, the authors said. This book examines trends and impacts from a broad perspective and in six specific industries software. The hr staff is most able to determine how the selected company would be able to handle your companys requirements, matching what functions you want to outsource with countries and companies that have demonstrated expertise in those. Section 4 discusses the different effects of offshoring for high and low skilled workers. In considering international offshoring, two trends scream out for our attention. The report then describes the wideranging effects that offshoring can have on domestic employmentthe positive, as well as the negative. A 2011 world bank study, estimating the impact of trade and offshoring on american workers using the current population surveys, examines the effects of globalization pressures on wages and employment opportunities for american workers between 1982 and 2002. The impact of offshoring on domestic employment is hotly debated as the us looks to renegotiate trade treaties, but the existing literature is conflicting in its conclusions.
Revisiting the employment impact of offshoring request pdf. The statistic used by feenstra and hanson 1999 to measure offshoring was the cost share of imported intermediate inputs in each industry. The story for the 1990s and later is quite different. Offshoring in the broad sense offshore outsourcing or subcontracting abroad 1. The positive and negative effects of offshoring on. Offshoring, the practice of outsourcing operations overseas, usually by companies from industrialized countries to lessdeveloped countries, with the intention of reducing the cost of doing business. Companies have embraced offshoring for so many reasons. There is no evidence that that influence offshoring include the uniqueness of proj offshoring has had a significant impact on the employment ects, the extensive local knowledge necessary to meet local of engineers in the u. However, less important than technology covers a wide range of impacts, and there is less agreement on the share attributable to.
The topic of offshore outsourcing is as much a political topic as an economic one, and perhaps even more so. Time series data will allow policymakers to track employment trends in the occupations most vulnerable to. On the other hand, there is another school of thought that claims increased employment. Statistics to measure offshoring and its impactfeenstra. However, less important than technology covers a wide range of impacts, and there is less agreement on the share attributable to offshoring. Trends in offshoring the term offshoring refers to the relocation of jobs and production to a foreign country.
To fill this empirical gap, one needs access to a large matched employeremployee panel, as well as research design that can credibly control for job and worker characteristics when comparing outsourced to nonoutsourced jobs. Section 6 discusses the relative importance of offshoring and tech nology in explaining employment trends. Trends and impacts isbn9789264030923 oecd 2007 table of contents foreword 3. Economic damage to us economy from offshoring jobs may be exaggerated date. What our government has done as regards the offshoring of our manufacturing has nothing to do with fairness or anything else. Certain jobs within the service sector will be lost as companies look to avoid higher labor costs, higher taxes, and excessive government regulations not found in places like india, the new hotbed for it offshoring. The effects of outsourcing on unemployment evidence from microdata in the netherlands j.
It is part of a wider plan to bring the rest of the world living standard up, while slowly getting us to a lower standard. Offshoring and economic insecurity of the american worker richard g. I hold the mass of firms constant at its level in the steady state corresponding to 1974. Existing studies suggest that the current employment impacts of services offshoring are relatively small at the aggregate level. Companies have been outsourcing work for many years. What are the most likely impacts of offshore outsourcing of servicesector jobs on u. The impact of trade, offshoring and multinationals on job.