Offshoring and the Skill Structure of Labour Demand in Belgium

Abstract

A major concern regarding the consequences of offshoring is the worsening of the labour market position of low-skilled workers. This paper addresses this issue by providing evidence on the impact of offshoring on the skill structure of manufacturing employment in Belgium between 1995 and 2007. Offshoring is found to significantly lower the employment share of low-skilled workers. Its contribution to the fall in the employment share of low-skilled workers amounts to 35%. This is mainly driven by offshoring to Central and Eastern European countries. Moreover, our analysis contains three extensions with respect to the existing literature. First, while previous papers exclusively focus on materials offshoring, we show that offshoring of business services also contributes significantly to the fall in the low-skilled employment share. Second, according to our results, the widely used current price measures of offshoring underestimate the extent of offshoring and its impact on low-skilled employment. Finally, we find that the impact of offshoring on low-skilled employment is significantly smaller in industries with a higher ICT capital intensity. This result also implies that even if ICT capital facilitates offshoring, especially of business services, this does not lead to faster skill upgrading in industries with a high ICT capital intensity. Offshoring and the Skill Structure of Labour Demand in Belgium AbstractA major concern regarding the consequences of offshoring is the worsening of the labour market position of low-skilled workers. This paper addresses this issue by providing evidence on the impact of offshoring on the skill structure of manufacturing employment in Belgium between 1995 and 2007. Offshoring is found to significantly lower the employment share of low-skilled workers. Its contribution to the fall in the employment share of low-skilled workers amounts to 35%. This is mainly driven by offshoring to Central and Eastern European countries. Moreover, our analysis contains three extensions with respect to the existing literature. First, while previous papers exclusively focus on materials offshoring, we show that offshoring of business services also contributes significantly to the fall in the low-skilled employment share. Second, according to our results, the widely used current price measures of offshoring underestimate the extent of offshoring and its impact on low-skilled employment. Finally, we find that the impact of offshoring on low-skilled employment is significantly smaller in industries with a higher ICT capital intensity. This result also implies that even if ICT capital facilitates offshoring, especially of business services, this does not lead to faster skill upgrading in industries with a high ICT capital intensity.3

The effects of offshoring to low-wage countries on domestic wages: a worldwide industrial analysis

“…Due to the use of industry-level wage data, we obtain flexible classification of LWC over time and by industry. Moreover, drawing on bilateral input-output tables, we directly split imported inputs according to the country of origin of the imports (rather than using a proportional method based on shares of total imports, which is employed instead of using tables of imports by country of origin, as in Falk and Wolfmayr 2008;Hertveldt and Michel 2013). We also allow for changes in the relative positions of LWC over time, and the existence of industry-specific wage advantages.…”

Services trade and labor market outcomes: Evidence from Italian firms

“…This negative impact vanishes if a less disaggregated sector classification is used, suggesting that there is sufficient growth in labor demand in sub‐sectors within these broader categories to offset the negative effect. In the case of Germany and Belgium, respectively, Schöller (2007); Winkler (2010) and Hertveldt and Michel (2013) find a negative impact of services offshoring on low‐skilled labor in manufacturing sectors. Milberg and Winkler (2010a, (2015) extend this analysis to OECD countries and show that negative impacts are attenuated by the existence of labor market institutions that reduce economic insecurity 3 .…”

Demand Patterns in France, Germany, and Belgium: Can We Explain the Differences?

“…For instance, in the case of the automotive industry, factories in Eastern Europe became a part of Germany-centered value chains (Iwulska, 2012). Industry offshoring, in particular to Central and Eastern European countries (Hertveldt and Michel, 2013), is likely to have also weighed on Belgian investment.…”