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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.

  • Public sector outsourcing Updated

    The desirability of outsourcing the provision of public services depends on their characteristics and market conditions

    The 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.
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  • Effect of international activity on firm performance Updated

    Trade liberalization benefits better performing firms and contributes to economic growth

    Joachim Wagner, November 2019
    There 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.
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  • 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 countries

    David H. Autor, February 2018
    Economists 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.
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  • International trade and economic insecurity

    Trade can increase economic insecurity for some workers while increasing stability for others

    Mine Z. Senses, May 2017
    Whether 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.
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  • Do global value chains create jobs?

    Impacts of GVCs depend on lead firms, specialization, skills, and institutions

    Thomas Farole, August 2016
    Global 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.
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  • Knowledge spillovers and future jobs

    In the future, jobs will be created by those bold enough to transform new ideas and knowledge into innovations

    David B. Audretsch, December 2015
    Globalization brings both good and bad job news. The bad news is that jobs will be outsourced from high-cost developed countries into lower-cost locations as soon as the associated economic activity becomes mechanized and predictable. The good news is that globalization creates opportunities that can be realized by people bold enough to transform new ideas and knowledge into innovations. In that way, entrepreneurs will play a vital role in creating the jobs of the future by transforming ideas and knowledge into new products and services, which will be the competitive advantage of the advanced economies.
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