This paper uses unique Finnish firm-level micro data on service imports, work-force composition, and firm characteristics to examine changes in employment composition and performance of Finnish service importers during a period of a significant increase in services imports (2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012). We use world service export supply shocks, which we allocate to firms based on their highly specialized service input structure, as an instrument to identify the impact of service offshoring. We find that firms that increase imports of service inputs reduce employment of low-skill service workers, increase employment of (high-skilled) managers and improve their performance in terms of sales (turnover), assets, service exports, and firm survival. The employment composition and performance responses to service imports differ across firms in the manufacturing sector and those in the service sector. JEL-Codes: F100, F140, L800.

We analyse the effects of the Great Recession (GR) on the profitability of firms located in the main cities versus in the rest of Finland. Based on earlier literature, various regional factors could affect firms' profitability in urban areas in comparison to periphery during a major export demand shock, such as what the GR was in Finland. Yet, there are both negative and positive location specific factors in play. We use micro-data from 2005 to 2010, and employ different profitability indicators and fixed effects panel regressions. Our results indicate that firm and sector level factors affected the profitability changes the most. Regional differences seem to stem mainly from a composition of firm and sector level factors.JEL classification: R11, L25, F14

Do firms engaging in international trade have higher or lower profit margins? It is well established that more productive firms engage in trading activities and as a result have higher profit levels. We use two theoretical models (the Melitz model and the Egger–Kreickemeier model) to clarify the relationship between productivity, trade activity, and profit margins and derive three hypotheses: (I) profit margins rise as productivity rises for domestic firms; (II) profit margins rise as productivity rises for trading firms; and (III) profit margins are not higher for trading firms than for domestic firms. We test these hypotheses using detailed micro‐data for Finland (2005–10) and the Netherlands (2002–10). We find strong support for Hypothesis I (in favour of the Melitz model), Hypothesis II (in favour of both models) and Hypothesis III (in favour of the Egger–Kreickemeier model). A propensity score matching analysis provides further support for Hypothesis III.

No abstract