Offshoring and skill-biased technical change
Daron Acemoglu, Gino Gancia, Fabrizio Zilibotti 30 September 2014
Offshoring of production can have a deep impact on the wages and welfare of workers with different abilities through its effect on technological progress. This column argues that, when labour is sufficiently cheap abroad, firms have incentives to offshore low-skill tasks and invest in skill-biased technologies at home. Over time, however, offshoring raises foreign wages. This increases demand for all firms and makes innovations complementing low-skill workers more profitable. As a result, offshoring can eventually lead to higher wages for everybody and less inequality.
Offshoring, the demand for skill, and biased innovations
The rapid rise of offshoring has been one of the most visible trends in the US labour market over the last three decades. Despite its prevalence, the implications for wages and skill premia are still debated (see, for instance, Grossman and Rossi-Hansberg 2008 and Baldwin and Robert-Nicoud 2014).
International trade Labour markets Poverty and income inequality Productivity and Innovation
offshoring, skill-biased technical change, Inequality, wages, technological progress, innovation
More evidence for technology’s role in the clean-up of manufacturing
Arik Levinson 24 September 2014
Pollution emitted by manufacturers has been falling in Europe and the US. A concern with this clean-up is that developed countries have been offshoring the production of pollution-intensive parts and products. This column presents evidence refuting this concern. Using a new approach, the author calculates that almost all of the clean-up in US manufacturing can be explained by technological changes.
Pollution emitted by manufacturers has been falling for decades in Europe and the US, while the real value of manufacturing output has been growing (Brunel 2014). What accounts for this clean-up? A worrisome explanation is that rich countries have been offshoring the pollution-intensive, or ‘dirty’, parts of their manufacturing sectors, producing the clean goods and doing final assembly at home while importing the dirty goods and resource-intensive intermediate inputs. That’s worrisome for two reasons.
manufacturing, pollution, clean-up, offshoring
The US manufacturing base is surprisingly strong
Theodore H. Moran, Lindsay Oldenski 09 August 2014
There is indisputable evidence that manufacturing employment as a share of total employment in the US has been declining. This column argues that focusing on employment masks important signs of growth of the manufacturing sector. Using most up-to-date data, the authors reason that the US manufacturing base is growing larger, more productive and competitive. The expansion of operations abroad by US manufacturing multinationals leads to particularly strong increases in economic activity – including creation of greater numbers of high-paying manufacturing jobs – by those same firms in the US domestic economy.
Recently, a number of studies, descriptive employment statistics, and statements by US politicians have raised concerns about the strength of US manufacturing. For example, in a January 2014 Journal of Economic Perspectives article, Martin Baily and Barry Bosworth expressed concern about the recent absolute decline in US manufacturing employment, as well as the long-recognised decreasing share of manufacturing within overall US employment.
Industrial organisation Productivity and Innovation
employment, multinationals, offshoring, US manufacturing
Offshoring and its effects on innovation in emerging economies
Ursula Fritsch, Holger Görg 23 September 2013
Outsourcing is a controversial practice. This column looks at its effects on firm-level innovation in emerging markets. The authors find robust evidence that outsourcing is positively related to various innovation measures. However, outsourcing only leads to increased R&D spending in countries where intellectual-property rights are well-protected.
Most empirical studies of the impact of outsourcing on firms look at industrialised countries. However, outsourcing is also common in emerging economies, and firms in middle-income countries split up their production processes similarly to firms in developed countries (see figures in Miroudot et al. (2009) on trade in intermediates). Recent research analyses the benefits to firms from outsourcing, focusing mainly on productivity and innovation effects. The latter are particularly important, since innovation is a key determinant of productivity improvements and – ultimately – growth.
International trade Productivity and Innovation
R&D, offshoring, innovation, international trade, emerging markets, outsourcing, technology transfer
Does offshoring hurt domestic innovation activities?
Bernhard Dachs, Bernd Ebersberger, Steffen Kinkel, Oliver Som 07 September 2013
European offshoring mostly concerns factory jobs, but some worry that innovation will soon follow. This column shows that offshoring firms employ more people in R&D and design, introduce more frequently new products, and invest more frequently in advanced process technologies compared to non-offshoring firms. Concerns that offshoring may hurt innovation because of the lost links between production and product development are not supported by the evidence.
Offshoring of production activities has been a topic of economic policy debates for at least the last decade. A central issue in these debates are the economic effects of offshoring on firms in the home country. Most contributions investigated the effects of offshoring on output, employment or skills (see the surveys of Lipsey 2002, Olsen 2006, Crinò 2009) and find a complementary relationship between foreign and domestic economic activity, at least in the long run.
Productivity and Innovation
R&D, Labour Markets, offshoring
Being in a global value chain: Hell or heaven?
Antonio Accetturo, Anna Giunta, Salvatore Rossi 15 December 2012
Global value chains are increasingly viewed as the new paradigm in international production and trade. This column argues that a firm can perform better if it 'improves' its positioning in the world network by offshoring the production of its intermediates.
The recent literature on global value chains has shown that the production of every good (from computers to retail trade services) now consists of a series of separate tasks (unbundling), each of which can be located outside the boundaries of the 'final' firm (Blinder 2006). It follows that international trade is increasingly in tasks rather than in goods (Miroudot and Ragoussis 2009; Baldwin and Robert-Nicoud 2010); value (or supply) chains linking together all these tasks have become global and form the core of a new international division of labour.
Industrial organisation International trade
offshoring, global value chains, trade network
Offshoring and middle-income workers in the US
Lindsay Oldenski 16 October 2012
The state of the US middle class has been a key issue this election season as middle-income workers have experienced relative wage losses in the last decade. Skill-biased technology change has previously been identified as a major cause of this polarisation of wages in the US. But this column shows that there is also an empirical link between offshoring by US firms and the polarisation of the US labour market.
As the US presidential election approaches, both candidates have been focusing on the state of the middle class. In the first presidential debate, Mitt Romney claimed: "the people who are having the hard time right now are middle income Americans. Under the president's policies, middle income Americans have been buried". At the same time, Barack Obama has made the middle class the centrepiece of many of his campaign proposals, with his official website claiming that "President Obama is fighting to grow the economy from the middle class out, not the top down."
offshoring, comparative advantage, polarisation
Effects of offshoring on home employment and skill upgrading
Yasuyuki Todo 15 July 2012
Offshoring continues to be a controversial issue in many developed countries. This column provides evidence from Japan and argues that policymakers should not worry too much about the loss of jobs; while unskilled jobs are offshored, they are replaced with skilled jobs, leading to a more productive use of the domestic labour force.
How offshoring affects the home economy, particularly home employment and inequality, has been a hot issue in policy circles in many developed countries. Theoretically, the employment and wage effects of offshoring can go either way, depending on how offshoring affects domestic productivity and technology (Baldwin 2010). Empirically, existing studies often find that the effects of offshoring on the size of domestic employment are either negative but quantitatively small (Amiti and Wei 2006; Harrison and McMillan 2011), or positive (Moser et al. 2009).
International trade Productivity and Innovation
Offshoring of high-skilled workers is not a zero-sum game
Rachel Griffith, Helen Miller, Laura Abramovsky 15 March 2012
Multinational firms outsourcing or offshoring their operations to developing countries is a problem as old as globalisation. This column looks at the effect on high-skilled labour in the home country. It presents evidence that, on average, when firms start employing high-skilled workers offshore, they also increase the number of this type of worker employed at home.
It has been well documented that US and European multinationals have expanded the amount of high-tech investment and innovative activities carried out offshore (OECD 2008). There is evidence that firms may offshore innovation activities not only to adapt products to local conditions but also to develop state-of-the-art technology.
International trade Productivity and Innovation
Services trade, the IT revolution, and occupational tasks
Giordano Mion, Andrea Ariu 25 February 2012
Services trade has increased dramatically in the last 20 years. This column examines data from Belgium and suggests that the change in IT use does not translate into higher services exports. It argues instead that offshoring is a key factor contributing to the rise of services trade.
IT, offshoring, Belgium, trade in services