Offshoring and outsourcing
Offshoring is the relocation of an aspect of a business's operations from one country to another; typically, to a country where labor costs are lower. Offshored work is often contracted out to an external company (referred to as outsourcing). There is concern that relocating business offshore leads to domestic job losses; however, the picture is more complicated as offshoring can lead to productivity gains and task upgrading at home.
Policymakers should support domestic workers in building the types of communication and cognitive skills that domestic firms have a hard time finding abroad through forward-looking vocational education for future workers and focused retraining programs for current workers.
Offshoring and labor markets in developing countries
Lessons learned and questions remaining about offshoring and labor markets in developing countriesArnab K. BasuNancy H. Chau, September 2022Developing countries are often seen as unquestionable beneficiaries in the phenomenal rise of global value chains in international trade. Offshoring—the cross-border trade in intermediate goods and services which facilitate country-level specialization in subsets of production tasks—enables an early start in global trade integration even when the requisite technology and knowhow for cost-effective production from scratch to finish are not yet acquired. A growing economics literature suggests a more nuanced view, however. Policymakers should be mindful of issues related to inequality across firms and wages, labor standards, and effects of trade policy.MoreLess
Public sector outsourcing Updated
The desirability of outsourcing the provision of public services depends on their characteristics and market conditionsPanu PoutvaaraHenrik Jordahl, November 2020The decision to outsource public provision of services is multifaceted and context dependent. Doing so tends to lower labor intensity and increase its efficiency. Costs are usually lower, but quality problems can affect services like health care, though consumer choice has stimulated innovation and quality in both education and health care. Natural monopolies are less suitable for outsourcing, while network services (public transportation) may be outsourced through public tenders. Though some jobs may be lost in the short term, the long-term effects are generally positive for a wide variety of activities.MoreLess
Effect of international activity on firm performance Updated
Trade liberalization benefits better performing firms and contributes to economic growthJoachim Wagner, November 2019There is evidence that better performing firms tend to enter international markets. Internationally active firms are larger, more productive, and pay higher wages than other firms in the same industry. Positive performance effects of engaging in international activity are found especially in firms from less advanced economies that interact with partners from more advanced economies. Lowering barriers to the international division of labor should therefore be part of any pro-growth policy.MoreLess
Trade and labor markets: Lessons from China’s rise
The China Shock has challenged economists’ benign view of how trade integration affects labor markets in developed countriesDavid H. Autor, February 2018Economists have long recognized that free trade has the potential to raise countries’ living standards. But what applies to a country as a whole need not apply to all its citizens. Workers displaced by trade cannot change jobs costlessly, and by reshaping skill demands, trade integration is likely to be permanently harmful to some workers and permanently beneficial to others. The “China Shock”—denoting China’s rapid market integration in the 1990s and its accession to the World Trade Organization in 2001—has given new, unwelcome empirical relevance to these theoretical insights.MoreLess
International trade and economic insecurity
Trade can increase economic insecurity for some workers while increasing stability for othersMine Z. Senses, May 2017Whether or not international trade exposes workers to economic insecurity depends on the nature of the trade exposure of the firm, or industry, in which the worker is employed. Import-competing industries experience higher levels of risk to workers’ incomes and employment, while firms that import intermediate production stages (“offshoring”) display bigger employment responses to small changes in workers’ wages, and are more likely to shut down home factories. But offshoring also helps firms weather economic shocks. Offshoring firms are more likely to survive and provide greater employment stability to their workers.MoreLess
Do global value chains create jobs?
Impacts of GVCs depend on lead firms, specialization, skills, and institutionsThomas Farole, August 2016Global value chains (GVCs) describe the cross-national activities and inputs required to bring a product or service to the market. While they can boost exports and productivity, the resulting labor market impacts vary significantly across developing countries. Some experience large-scale manufacturing employment, while others see a shift in demand for labor from manufacturing to services, and from lower to higher skills. Several factors shape the way in which a country’s labor market will be impacted by GVC integration, including the type of sector, lead firms’ strategies, domestic skills base, and the institutional environment.MoreLess