Integrated sectors - diversified earnings: the (missing) impact of offshoring on wages and wage convergence in the EU27

Abstract

This paper assesses the impact of international outsourcing/offshoring practices on the process of wage equalization across manufacturing sectors in a sample of EU27 economies (1995)(1996)(1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009). We discriminate between heterogeneous wage effects on different skill categories of workers (low, medium and high skill). The main focus is on the labour market outcomes of vertical integration, so we augment a model of conditional wage convergence through the inclusion of sector-specific broad and narrow outsourcing/offshoring indices based on input-output data (World Input Output Database, April 2012 release). Twoway relations between trade and wages are addressed through the use of a gravity-based sector-level instrument. We find no evidence supporting unconditional skill-specific wage convergence in EU sectors. In a conditional setting, (slow) wage convergence takes place, but international outsourcing plays a negligible role in wage equalization. Moreover, even though regression results indicate that offshoring reduces the wage growth of domestic medium-and low-skilled workers, we show that this negative effect is economically small.The research has been conducted within the project financed by the National Science Centre (NCN), Poland (decision number DEC-2013/11/B/HS4/02134). Financial support from NCN is gratefully acknowledged. We also thank two anonymous referees, David Card, as well as the participants to conferences (Max Weber Conference -European University Institute, Warsaw International Economic Meeting, DEGIT, Macromodels) and seminars (Labor Lunch Seminar -University of California, Berkeley; Universita' Politecnica delle Marche, Ancona; Warsaw School of Economics, Gdansk University of Technology) for useful remarks on an earlier version of this paper. The usual disclaimers apply.A. Parteka ( ) · J. Wolszczak-Derlacz

Wage convergence and trade

“…Market integration more generally likely plays an important role in explaining the higher estimated rate of convergence for the sub-sample of highly integrated EU countries than for the sub-sample of less integrated non-EU countries. We find evidence of much faster and widespread convergence of wage rates across countries and skill groups than do Parteka and Wolszczak-Derlacz (2015) or Egger and Pfaffermayr (2004). Both of these studies focus on European manufacturing industries, so the most comparable of our results are those in Table 4 or Table 6 that have the fastest convergence among all our estimates (at or above 5% per annum).…”

“…There is also evidence of 18 In a single time series of data, the regression of a change in a variable against its initial value indicates reversion to the mean if the estimated coefficient of the initial value is negative, which implies the time series is stationary. Parteka and Wolszczak-Derlacz (2015) indicate their data satisfy a panel-data test for stationarity. Yet, when they regress the logarithm of the initial relative real wage against the change in this variable, they find the estimated coefficient is not statistically significant for the regressions involving medium and high-skill workers unless control variables are added to the regression.…”

Global Value Chains and Wages: Multi-Country Evidence from Linked Worker-Industry Data

“…Increasing cross-country industrial interdependence due to offshoring and production networks has even been dubbed Bthe next industrial revolution^ (Blinder 2006), while today's geographically dispersed production and trade can be described as a BFactory World^ (Los et al 2015a). Unsurprisingly, labour market research has focused on potential crossborder job substitution and the employment outcomes of production sharing (Acemoglu et al 2016;Harrison and McMillan 2011;Michel and Rycx 2012) or the impact of production fragmentation on earnings and wages (Baumgarten et al 2013;Crinò 2010;Ebenstein et al 2014;Geishecker and Görg 2013;Geishecker et al 2010, Hummels et al 2014Parteka and Wolszczak-Derlacz 2015;Wolszczak-Derlacz and Parteka 2018). 3 This paper ties most directly into the latter aspect: the influence of cross-border production sharing and the resulting production links on domestic workers' wages.…”

Workers, Firms and Task Heterogeneity in International Trade Analysis: An Example of Wage Effects of Trade Within GVC

“…Such an instrument is more accurate than the one based on simple lag of the dependent variable. Specifically, to obtain the instrument for FVA, in the first stage we estimate the following bilateral trade regression (in line with Parteka and Wolszczak-Derlacz, 2015): " = + ln + # ln " + $ ln %& " + ' ()*+,-" + + . / " + 0 ()1 2 " + 3 ()14 *-" + 5 ()4)*6 " + "…”