Abstract
This paper explores the impact of international outsourcing on the demand for skills in three small and open EU economies. A model of variable costs and factor demand functions for different skill levels and imported as well as domestic materials are constructed. International outsourcing is treated directly as a substitution process between labour of different skills and imported inputs. The direct consequence of international outsourcing for labour is measured by the cross price elasticities. These cross price elasticities indicate a negative outsourcing impact on low- and medium-skilled labour in the three countries and on high-skilled labour in two out of the three countries. This outsourcing effect on labour is compared with the direct effect of embodied technical change and of the technical change bias. International outsourcing has a more unambigous and significant negative impact on labour than technical change. Technical change is either labour using (embodied technical change) or only slightly biased in favour of high-skilled labour. When the cost savings effect of international outsourcing is taken into account, an indirect positive stimulus for all skill categories arises from a greater demand for goods. It can be shown, that this indirect positive effect can compensate for a large part of the negative substitution impact of international outsourcing on labour.
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Notes
Further one could also think of taking into account the own price effect of a change in p i on s i .
Here invaluable research assistance from Irene Langer must be acknowledged.
Generally prices of aggregates have been calculated according to the Divisia price index, i.e. the weighted sum of logs of single prices with the value shares as weights.
The narrow measure could not be calculated for the Netherlands in 2002 and 2003, due to a different commodity classification of the available import matrices other than the industry classification.
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Acknowledgments
Research for this paper has been funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, “Policy Support and Anticipating Scientific and Technological Needs” (project 502049). The paper has benefited most from discussions with Martin Falk and Yvonne Wolfmayr. Very helpful research assistance has been delivered by Irene Langer, comments have been delivered by Michael Wueger, Martin Falk and an anonymous referee. The usual disclaimer applies.
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Appendix
Appendix
The EU KLEMS database is generally designed at the NACE 2 digit industry level with a disaggregation of 2 digits to sub-industries in some cases. Due to a lack of data in some variables, the aggregation level that could be chosen for this analysis was determined by the largest common denominator. This led to an aggregation level of 28 industries out of which 13 are manufacturing activities. The following table describes the concordance between the original EUKLEMS classification (middle column) defined by NACE (left column) and the classification applied in this study. The column on the right hand side comprises the 13 manufacturing industries analysed in this study.
NACE | ||
15t16 | Food, beverages and tobacco | Food, beverages and tobacco |
15 | Food and beverages | |
16 | Tobacco | |
17t19 | Textiles, textile, leather and footwear | Textiles, leather and footwear |
17t18 | Textiles and textile | |
17 | Textiles | |
18 | Wearing apparel, dressing and dying of fur | |
19 | Leather, leather and footwear | |
20 | Wood and of wood and cork | Wood and of wood and cork |
21t22 | Pulp, paper, paper, printing and publishing | Pulp, paper, printing and publishing |
21 | Pulp, paper and paper | |
22 | Printing, publishing and reproduction | |
221 | Publishing | |
22x | Printing and reproduction | |
23t25 | Chemical, rubber, plastics and fuel | |
23 | Coke, refined petroleum and nuclear fuel | Coke, refined petroleum, nuclear |
24 | Chemicals and chemical products | Chemicals and pharmaceuticals |
244 | Pharmaceuticals | Chemicals and pharmaceuticals |
24x | Chemicals excluding pharmaceuticals | Chemicals and pharmaceuticals |
25 | Rubber and plastics | Rubber and plastics |
26 | Other non-metallic mineral | Other non-metallic mineral |
27t28 | Basic metals and fabricated metal | Basic metals and fabricated metal |
27 | Basic metals | |
28 | Fabricated metal | |
29 | Machinery, nec | Machinery nec |
30t33 | Electrical and optical equipment | Electrical and optical equipment |
30 | Office, accounting and computing machinery | |
31t32 | Electrical engineering | |
31 | Electrical machinery and apparatus, nec | |
313 | Insulated wire | |
31x | Other electrical machinery and apparatus nec | |
32 | Radio, television and communication equipment | |
321 | Electronic valves and tubes | |
322 | Telecommunication equipment | |
323 | Radio and television receivers | |
33 | Medical, precision and optical instruments | |
331t3 | Scientific instruments | |
334t5 | Other instruments | |
34t35 | Transport equipment | Transport equipment |
34 | Motor vehicles, trailers and semi-trailers | |
35 | Other transport equipment | |
351 | Building and repairing of ships and boats | |
353 | Aircraft and spacecraft | |
35x | Railroad equipment and transport equipment nec | |
36t37 | Manufacturing nec; recycling | Manufacturing nec and recycling |
36 | Manufacturing nec | |
37 | Recycling |
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Kratena, K. International outsourcing and the demand for skills. Empirica 37, 65–85 (2010). https://doi.org/10.1007/s10663-009-9119-2
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DOI: https://doi.org/10.1007/s10663-009-9119-2