Offshoring and Relative Labor Demand from a Task Perspective

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Non-technical summarySince trade is becoming more of a task-related phenomenon due to the increase in offshoring activities by firms, the pattern of effects across workers is changing as well. In particular, the skill-based characterization of differentially affected groups falls short of comprehensively capturing the effects. Offshoring occurs based on relocation cost for single occupations, which do not necessarily reflect skill intensities. This paper puts this claim to a test by analyzing industry level relative labor demand from a task perspective. First, a model is developed to describe the mechanisms underlying the link between offshoring and shifts in employment and cost shares of tasks. This model explicitly treats occupations as fixed bundles of tasks which are, as a whole, subject to the offshoring decision. This is a crucial difference to skill-based approaches, in which individuals either supply high-skilled or low-skilled labor, with complete mobility across industries or stages of production. Furthermore, the model highlights the between-occupation dimension in task share changes in the economy. The model introduces a sorting mechanism of individuals across occupations, which relies on a trade off between occupations specific wages and individual abilities in terms of effort needed for the execution of certain tasks. In such a setting, an overall fall in offshoring costs can shift the cut-off occupation, which separates home from foreign production, such that the range of occupations at home shrinks. Crucially, this remaining range of occupations is characterized by a higher non-routine and interactive task content. Since workers whose jobs have gone offshore optimally re-sort into these occupations, average employment shares and cost shares of routine and non-interactive tasks fall in the home economy.Introducing occupations as bundles of tasks provides a new and consistent way of theoretically sound estimation of relative labor demand for tasks. Second, the theoretical predictions are tested with industry level data from German manufacturing. A clear and robust result emerges. An increase in offshoring significantly reduces home country relative demand for routine and non-interactive tasks -in particular if this offshoring is directed towards non-OECD countries. This result is robust to various alterations and the use of instrumental variable methods. The additional value compared to skill related measures is demonstrated by the fact that this d...

Integration in Global Value Chains and Employment in Europe

“…Becker et al (2013) found that offshoring is associated with a downward shift of labour demand towards less-routinized and interactive tasks, and with an upward shift towards highly qualified workers. Similar results have been found by Hogrefe (2013) showing that offshoring has shifted domestic labour demand towards complex tasks, in particular when offshoring is directed towards non-OECD countries. Different results are however found by Akcomak et al (2013) showing that offshoring changes the level of employment without affecting the way in which tasks are organized.…”

Offshoring and Outsourcing Potentials: Evidence from German Micro‐Level Data

“…Thus, she classifies tasks according to categories of routines, interaction and blue‐collar/white‐collar activities (three job characteristics). In the end, however, the differentiation is mostly between routine tasks and non‐routine tasks, even in papers building on her work (see, for example, Hogrefe ()). The method she uses to generate the five categories follows Autor et al.…”

“…Section ), to different degrees of offshoreability. For the correlation analysis presented in Table , all tasks classified as routine manual or as routine cognitive have been classified as more offshoreable (+1), whereas non‐routine analytic tasks are classified as less offshoreable (−1); tasks classified as non‐routine interactive and non‐routine manual have been classified as ambiguous (0) (similarly, see Hogrefe, ). Based on these assignments, indices of offshoreability according to Spitz‐Oener's () classification have been calculated for the (various) tasks performed by each individual…”

“… A recent example analysing the link between offshoring and outsourcing potentials is the working paper by Hogrefe (). He analyses the effect of offshoring on relative labour demand measured as the share of routine tasks in occupations in German manufacturing industries.…”

Age and Skill Bias of Trade Liberalisation? Heterogeneous Employment Effects of EU Eastern Enlargement

“…Autor et al (2013b) show that predominantly routine-intensive jobs are subject to offshoring. Hogrefe (2013) finds that German manufacturing industries reduce domestic demand for routine and non-interactive tasks in response to increased offshoring.…”