Offshoring, Outsourcing, and Production Relocation - Labor-Market Effects in the OECD Countries and Developing Asia

51 Pages Posted: 23 May 2007

See all articles by Jacob F. Kirkegaard

Jacob F. Kirkegaard

Peter G. Peterson Institute for International Economics

Date Written: April 2007

Abstract

This working paper evaluates the validity of available data on and the extent of the impact of offshoring on service-sector labor markets in the United States, EU-15, and Japan. A three-tier data validity hierarchy is identified. The impact of offshoring on employment in the three regions is found to be limited. Correspondingly, developing Asia is unlikely to experience large employment gains as a destination region. The paper highlights the case of the Indian IT industry, where the majority of job creation has been in local Indian companies rather than foreign multinationals. Domestic entrepreneurs have played a crucial role in the growth of the Indian IT-related service industry. However, increased tradability of services and associated skill bias in favor of higher skilled workers could have an uneven employment impact on developing Asia. Some high-skilled groups are benefiting and will continue to benefit dramatically from new employment opportunities and rising wage levels. Meanwhile, the same skill bias may eliminate many employment opportunities for unskilled or low-skilled groups in the region. Developing Asian countries therefore face a double educational challenge in the coming years: the need to simultaneously improve both primary and higher education.

Keywords: services sectors, offshoring, production relocation, data source validity, automation, highly skilled workers

JEL Classification: F23, J21

Suggested Citation

Kirkegaard, Jacob F., Offshoring, Outsourcing, and Production Relocation - Labor-Market Effects in the OECD Countries and Developing Asia (April 2007). IIE Working Paper No. 07-02, Available at SSRN: https://ssrn.com/abstract=988067 or http://dx.doi.org/10.2139/ssrn.988067

Jacob F. Kirkegaard (Contact Author)

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