Offshoring, either as FDI or offshore outsourcing, is a phenomenon of increasing importance that has been widely studied in the economics literature. Studies analysing the impact of offshoring on the labour market report divergent results. In this paper we develop a meta-analysis of the empirical literature that estimates the effect of offshoring on wages. We find that, after correcting for the presence of publication bias, the average effect is not significantly different from zero in either the origin or the destination countries. We also find that the wage impact of offshoring depends on methodological characteristics of the primary studies, such as the way offshoring is measured, the nature of goods/services that are offshored, the workers’ skill level, the unit of analysis, the structure of the data, and the estimation technique.
This is a preview of subscription content, log in to check access.
Buy single article
Instant access to the full article PDF.
Price includes VAT for USA
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
This is the net price. Taxes to be calculated in checkout.
Other branches of the literature have examined the impacts of offshoring in other dimensions of the labour market, such as: employment (e.g., Amiti and Wei 2009a, b; Ottaviano et al. 2013; Mion and Zhu 2013; Antràs et al. 2017), occupations (e.g., Liu and Treffler 2008; Crinò 2010; Criscuolo and Garicano 2010; Becker et al. 2013; Ebestein et al. 2014); and displacement (e.g., Geishecker 2008; Egger et al. 2007; Autor et al. 2014; Hummels et al. 2014).
Although the term “offshoring” generally implies the idea of relocation of company activities abroad, the literature is not always convergent when defining it. Venkatraman (2004), for example, defines offshoring as the search for lower costs without sacrificing quality significantly. Erber and Sayed-Ahmed (2005) describe it as the relocation of company activities to countries where costs are lower. Both definitions treat offshoring solely in its FDI modality, by declaring that the “mother” company performs the investment entirely abroad. However, offshoring can also be seen in a broader perspective—as “the splitting up of the production process into many separate activities and the shift of some of these activities abroad” (Michel and Rycx 2012, p. 230), regardless of whether these are internalized or not (Niederman et al. 2007; Crino, 2009; Neureiter and Nunnenkamp 2010). In this case, offshoring can involve both FDI (when it refers to an internalized activity, carried by the subsidiary of a company) and international outsourcing (when it refers to an activity carried by the intermediary of a company or local subsidiary of a multinational company, that is not the company itself).
We note that the origin country is the country where the firms that outsource their tasks (i.e.., the firms that import the intermediate inputs) are located.
We note that the destination country is the country to which the task/job is relocated.
This set of studies typically regress wage inequality on offshoring. Therefore, they cannot be mixed with the papers that regress the wage levels on offshoring, as both types of studies estimate the offshoring effects on variables with different natures.
We should note that here the terms “fixed effects” and “random effects” do not refer to the common panel data estimation techniques. In the context of meta-analysis, they refer to specific methods of computing the average effect size.
We are aware that the number of observations in the subsample of studies that estimate the wage effect of offshoring in the destination country is considerably lower. Still, we also perform the analysis of this subset of studies, as it allows having a richer, more comprehensive view of the phenomenon.
The table does not report the results of the WAAP for the origin country, since none of the primary estimates has the adequate power. This is probably due to the fact that, as shown above, the average effect of offshoring on wages is very small, in which case studies will necessarily have a low power (Ioannidis et al. 2017). Quite surprisingly, around 20% of the areas of empirical economics do not contain a single estimate with an adequate power (Ioannidis et al. 2017).
We do not account for differences regarding the development level of the countries of offshoring origin, as in almost all the papers the origin of offshoring is in developed countries.
We use only the results of the estimations of the specific regressions and of the BMA method, because these are more reliable than the results of the general regression, which suffer from multicollinearity and model uncertainty.
To compute the best-practice estimate for the destination country, we use the same values for the moderator variables as in the case of the origin country, with the exception of variable ImpIG (given that most of the primary studies examine the effect of offshoring in the destination country in its FDI modality).
Acemoglu, D., Gancia, G., & Zilibotti, F. (2015). Offshoring and directed technical change. American Economic Journal: Macroeconomics,7(3), 84–122.
Amiti, M., & Wei, S. J. (2009a). Does service offshoring lead to job losses? Evidence from the United States. In M. Reinsdorf & M. J. Slaughter (Eds.), International trade in services and intangibles in the era of globalization (pp. 227–243). Chicago: University of Chicago Press.
Amiti, M., & Wei, S. J. (2009b). Service offshoring and productivity: Evidence from de US. The World Economy,32(2), 203–220.
Anderson, E., d’Orey, M. A. J., Duvendack, M., & Esposito, L. (2018). Does government spending affect income poverty? A meta-regression analysis. World Development,103, 60–71.
Andrews, I., & Kasy, M. (2019). Identification of and correction for publication bias. American Economic Review,109(8), 2766–2794.
Antràs, P., Garicano, L., & Rossi-Hansberg, E. (2006). Offshoring in a knowledge economy. Quarterly Journal of Economics,121(1), 31–77.
Autor, D. H., Dorn, D., Hanson, G. H., & Song, J. (2014). Trade adjustment: Worker level evidence. Quarterly Journal of Economics,129, 1799–1860.
Baumgarten, D., Geishecker, I., & Görg, H. (2013). Offshoring, tasks, and the skill-wage pattern. European Economic Review,61, 132–152.
Becker, S. O., Ekholm, K., & Muendler, M. (2013). Offshoring and the onshore composition of tasks and skills. Journal of International Economics,90, 91–106.
Bogliacino, F., Guarascio, D., & Cirillo, V. (2018). The dynamics of profits and wages: Technology, offshoring and demand. Industry and Innovation,25(8), 778–808.
Bom, P., & Rachinger, H. (2019). A kinked meta-regression model for publication bias correction. Research Synthesis Methods,10(4), 497–514.
Bound, J., & Johnson, G. (1992). Changes in the structure of wages in the 1980’s: An evaluation of alternative explanations. American Economic Review,82(3), 371–392.
Cameron, A. C., Gelbach, J. B., & Douglas, L. M. (2008). Bootstrap-based improvements for inference with clustered errors. Review of World Economics and Statistics,90(3), 414–427.
Card, D., Kluve, J., & Weber, A. (2018). What works? A meta-analysis of recent active labor market program evaluations. Journal of the European Economic Association,16(3), 894–931.
Chen, Z., Ge, Y., & Huiwen, L. (2011). Foreign direct investment and wage inequality: Evidence from China. World Development,39(8), 1322–1332.
Crinò, R. (2009). Offshoring, multinationals and labour market: A review of the empirical literature. Journal of Economic Surveys,23(2), 197–249.
Crinò, R. (2010). Service offshoring and white-collar employment. Review of Economic Studies,77, 595–632.
Criscuolo, C., & Garicano, L. (2010). Offshoring and wage inequality: Using occupational licensing as a shifter of Offshoring costs. American Economic Review,100(2), 439–443.
Damijan, J. P., & Kostevc, C. (2011). Trade liberalisation and economic geography in CEE countries: The role of FDI in the adjustment pattern of regional wages. Post-Communist Economies,23(02), 163–189.
Dominicis, L., Florax, R. J., & De Groot, H. L. (2008). A meta-analysis on the relationship between income inequality and economic growth. Scottish Journal of Political Economy,55(5), 654–682.
Doucouliagos, C. (2005). Publication bias in the economic freedom and economic growth literature. Journal of Economic Surveys,19(3), 367–387.
Doucouliagos, C., & Laroche, P. (2009). Unions and profits: A meta-regression analysis. Industrial Relations,48(1), 146–184.
Doucouliagos, C. (2011). How large is large? Preliminary and relative guidelines for interpreting partial correlations in economics. Economics series working paper 05, Deakin University.
Ebenstein, A., Harrison, A., McMillan, M., & Phillips, S. (2014). Estimating the impact of trade and offshoring on American workers using the current population surveys. Review of Economics and Statistics,96(4), 581–595.
Egger, H., & Egger, P. (2002). How international outsourcing drives up Eastern European wages. Weltwirtschaftliches Archiv/Review of World Economics,138(1), 83–96.
Egger, P., Pfaffermayr, M., & Weber, A. (2007). Sectoral adjustment of employment to shifts in outsourcing and trade: Evidence from a dynamic fixed effects multinomial logit model. Journal of Applied Econometrics,22, 559–580.
Egger, P., Pfaffermayr, M., & Wolfmayr-Schnitzer, Y. (2001). The international fragmentation of Austrian manufacturing: The effects of outsourcing on productivity and wages. North American Journal of Economics and Finance,12, 257–272.
Egger, M., Smith, G., Schneider, M., & Minder, C. (1997). Bias in meta-analysis detected by a simple graphical test. BMJ: British Medical Journal,316, 629–634.
Erber, G., & Sayed-Ahmed, A. (2005). Offshore outsourcing. A global shift in the present IT Industry. Intereconomics,40(2), 100–112.
Farrell, D., Laboissière, M. A., & Rosenfeld, J. (2006). Sizing the emerging global labor market. Academy of Management Perspectives, 20, 23–34.
Feenstra, R. C., & Hanson, G. H. (1996). Foreign investment, outsourcing and relative wages. In R. C. Feenstra, G. M. Grossman, & D. A. Irwin (Eds.), Political economy of trade policy: Essays in honor of Jagdish Bhagwati. Cambridge: MIT Press.
Feenstra, R. C., & Hanson, G. H. (1997). Foreign direct investment and relative wages: Evidence from Mexico’s maquiladoras. Journal of International Economics,42(3–4), 371–393.
Feenstra, R. C., & Hanson, G. H. (1999). The impact of outsourcing and high-technology capital on wages: Estimates for the United States, 1979–1990. Quarterly Journal of Economics,114, 907–940.
Forza, C., & Di Nuzzo, F. (1998). Meta-analysis applied to operations management: Summarizing the results of empirical research. International Journal of Production Research,36(3), 837–861.
Furukawa, C. (2019). Publication bias under aggregation frictions: Theory, evidence, and a new correction method. SSRN Electronic Journal.
Gancia, G., & Bonfiglioli, A. (2008). North-South trade and directed technical change. Journal of International Economics,76(2), 276–295.
Geishecker, I. (2008). The impact of international outsourcing on individual employment security: A micro-level analysis. Labour Economics,15, 291–314.
Geishecker, I., & Görg, H. (2008). Winners and losers: A micro-level analysis of international outsourcing and wages. Canadian Journal of Economics,41(1), 243–270.
Geishecker, I., & Görg, H. (2013). Services, offshoring and wages: Evidence from micro data. Oxford Economic Papers,65(1), 124–146.
Geishecker, I., Görg, H., & Munch, J. R. (2010). Do labour market institutions matter? Micro-level wage effects of international outsourcing in three European countries. Review of World Economics,146(1), 179–198.
Goel, M. (2017). Offshoring—Effects on technology and implications for the labor market. European Economic Review,98, 217–239.
Görg, H., & Görlich, D. (2015). Offshoring, wages and job security of temporary workers. Review of World Economics,151(3), 533–554.
Greenland, S., & O’Rourke, K. (2008). Meta-analysis. In K. Rothnan, S. Greenland, & T. Lash (Eds.), Modern epidemiology (pp. 652–682). Philadelphia: Lippincott Williams & Wilkins.
Grossman, G. M., & Rossi-Hansberg, E. (2008). Trading tasks: A simple theory of offshoring. American Economic Review,98(5), 1978–1997.
Havranek, T. (2015). Measuring intertemporal substitution: The importance of method choices and selective reporting. Journal of the European Economic Association,13(6), 1180–1204.
Havranek, T., Hampl, M., & Irsova, Z. (2020). Foreign capital and domestic productivity in the Czech Republic: A meta-regression analysis. Applied Economics, 52 (18), 1949–1958.
Havranek, T., Herman, D., & Irsova, Z. (2018). Does daylight saving save electricity? A meta-analysis. The Energy Journal,39(2), 35–61.
Havranek, T., Horvath, R., Irsova, Z., & Rusnak, M. (2015). Cross-country heterogeneity in intertemporal substitution. Journal of International Economics,96(1), 100–118.
Havranek, T., Rusnak, M., & Sokolova, A. (2017). Habit formation in consumption: A meta-analysis. European Economic Review,95, 142–167.
Havranek, T., & Sokolova, A. (2020). Do consumers really follow a rule of thumb? Three thousand estimates from 144 studies say `Probably Not’. Review of Economic Dynamics,35(1), 97–122.
Hedges, L., & Olkin, I. (1985). Statistical methods for meta-analysis. New York: Academic Press.
Hsieh, C. T., & Woo, K. T. (2005). The impact of outsourcing to China on Hong Kong’s labor market. American Economic Review,95(5), 1673–1687.
Hummels, D., Jørgensen, R., Munch, J., & Xiang, C. (2014). The wage and employment effects of outsourcing: Evidence from Danish matched worker-firm data. American Economic Review,104(6), 1597–1629.
Hummels, D., Munch, J., & Xiang, C. (2018). Offshoring and labour markets. Journal of Economic Literature,56(3), 981–1028.
Ioannidis, J. P., Stanley, T. D., & Doucouliagos, H. (2017). The power of bias in economics research. The Economic Journal,127, 236–265.
Kamal, F., & Lovely, M. E. (2017). Import competition from and offshoring to low-income countries: Implications for employment and wages at U.S. domestic manufacturers. Journal of Asian Economics,48, 100–119.
Kass, R. E., & Raftery, A. (1995). Bayes factors. Journal of the American Statistical Association,90(430), 773–795.
Katz, L. F., & Murphy, K. M. (1992). Changes in relative wages, 1963–1987: Supply and demand factors. The Quarterly Journal of Economics,107(1), 35–78.
Kim, S., & Hwang, J. (2016). Offshoring, wages and heterogeneity. Japan and the World Eonomy,37–38, 65–72.
Kramarz, F. (2008). Offshoring, wages and employment: Evidence from data matching imports, firms and workers. In L. Fontagné & A. Harrison (Eds.), The factory-free economy. Oxford: Oxford University Press.
Lee, H., & Lee, J. (2015). The impact of offshoring on temporary workers: Evidence on wages from South Korea. Review of World Economics,151(3), 555–587.
Lipsey, R. E., & Sjoholm, F. (2004). FDI and wage spillovers in Indonesian manufacturing. Review of World Economics,140, 321–332.
Liu, R. & Trefler, D. (2008). Much Ado About Nothing: American Jobs and the Rise of Service Outsourcing to China and India (NBER working paper 14061).
Liu, M., Xu, L., & Liu, L. (2004). Wage-related labour standards and FDI in China: Some survey findings from Guangdong Province. Pacific Economic Review,9(3), 225–243.
Mancher, M., Lowes, P., Tarsh, S., & Ahn, C. (2014). Deloitte’s 2014 global outsourcing and insourcing survey. Deloitte: LLP.
Martins, P. S., & Opromolla, L. D. (2009). Exports, imports and wages: Evidence from matched firm-worker-product panels (IZA Discussion Paper No. 4646).
Michel, B., & Rycx, F. (2012). Does offshoring of materials and business services affect employment? Evidence from a small open economy. Applied Economics,44(2), 229–251.
Mion, G., & Zhu, L. (2013). Import competition from and offshoring to China: A curse or blessing for firms? Journal of International Economics,89, 202–215.
Munch, J. R., & Skaksen, J. R. (2009). Specialization, outsourcing and wages. Review of World Economics,145, 57–73.
Nelson, J., & Kennedy, P. (2009). The use (and abuse) of meta-analysis in environmental and natural resource economics: An assessment. Environmental & Resource Economics,42(3), 345–377.
Neureiter, M., & Nunnenkamp, P. (2010). Outsourcing motives, location choice and labour market implications: An empirical analysis for European Countries. Kyklos,63(2), 206–230.
Neves, P. C., & Sequeira, T. (2018). Spillovers in the production of knowledge: A meta-regression analysis. Research Policy,47(4), 750–767.
Neves, P. C., Silva, S., & Afonso, Ó. (2016). A meta-analytic assessment of the effects of inequality on growth. World Development,78, 386–400.
Niederman, F., Kundu, S., & Salas, S. (2007). IT software development offshoring: A multi-level theoretical framework and research agenda. In Strategic use of information technology for global organizations (pp. 59–84). IGI Global.
Oldenski, L. (2014). Offshoring and the polarization of the U.S. Labour Market. Industrial and Labour Relations Review,67, 734–761.
Olney, W. W. (2012). Offshoring, immigration, and the native wage distribution. The Canadian Journal of Economics,45(3), 830–856.
Ottaviano, G. I. P., Peri, G., & Wright, G. C. (2013). Immigration, offshoring and American Jobs. American Economic Review,103(5), 1925–1959.
Palugod, N., & Palugod, P. A. (2011). Global trends in offshoring and outsorcing. International Journal of Business and Social Science,2(16), 13–19.
Parteka, A., & Wolszczak-Derlacz, J. (2015). Integrated sectors-diversified earnings: the (missing) impact of offshoring on wages and wage convergence in the EU27. The Journal of Economic Inequality,13(3), 325–350.
Raftery, A., Madigan, D., & Hoeting, J. (1997). Bayesian model averaging for linear regression methods. Journal of the American Statistical Association,92(437), 179–191.
Rodriguez-Clare, A. (2010). Offshoring in a Ricardian World. American Economic Journal-Macroeconomics,2(2), 227–258.
Sequeira, T., & Neves, P. C. (2020). Stepping on toes in the production of knowledge: A meta-regression analysis. Applied Economics,52(3), 260–274.
Sethupathy, G. (2013). Offshoring, wages, and employment: Theory and evidence. European Economic Review,62, 73–97.
Sokolova, A., & Sorensen, T. A. (2018). Monopsony in labor markets: A meta-analysis (IZI Discussion Paper No. 11966).
Stanley, T. D. (2005). Beyond publication bias. Journal of Economic Surveys,19(3), 309–345.
Stanley, T. D., Doucouliagos, C., & Jarrell, S. B. (2008). Meta-regression analysis as the socio-economics of economics research. The Journal of Socio-Economics,37(1), 276–292.
Tomohara, A., & Takii, S. (2011). Does globalization benefit developing countries? Effects of FDI on local wages. Journal of Policy Modeling,33(3), 511–521.
Ugur, M. (2014). Corruption’s direct effects on per-capita income growth: A meta-analysis. Journal of Economic Surveys,28(3), 472–490.
Ugur, M., Trushin, E., Solomon, E., & Guidi, F. (2016). R&D and productivity in OECD firms and industries: A hierarchical meta-regression analysis. Research Policy,45, 2069–2086.
Valickova, P., Havranek, T., & Horvath, R. (2015). Financial development and economic growth: A meta-analysis. Journal of Economic Surveys,29(3), 506–526.
Venkatraman, N. V. (2004). Offshoring without guilt. Mit Sloan Management Review,45(3), 14.
Wolszczak-Derlacz, J., & Parteka, A. (2018). The effects of offshoring to low-wage countries on domestic wages: A worldwide industrial analysis. Empirica,45(1), 129–163.
Wood, A. (1994). North-south trade, employment, and inequality. Oxford: Clarendon Press.
This paper is financed by National Funds of the FCT - Portuguese Foundation for Science and Technology within the projects UIDB/04007/2020, UIDB/04105/2020, UIDP/04105/2020, and UIDB/04630/2020.
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
About this article
Cite this article
Cardoso, M., Neves, P.C., Afonso, O. et al. The effects of offshoring on wages: a meta-analysis. Rev World Econ (2020). https://doi.org/10.1007/s10290-020-00385-z
- Foreign direct investment
- Offshore outsourcing