Abstract
This fifth chapter constitutes the major contribution of this work. It comprises a collection of three empirical studies, which estimate the effects of services offshoring on productivity (Sect. 5.1), labor demand (Sect. 5.2), and the relative demand for less-skilled labor (Sect. 5.3) in German manufacturing. The formulation of the hypotheses is based on the underlying theoretical models. Our econometric estimations use both unrevised (1991–2000) and revised (1995–2004) input–output data. We use two different estimation methods for all of our studies, which increases the reliability of our estimation results. Services offshoring had a positive effect on total factor productivity and labor productivity in German manufacturing, while it affected labor demand negatively. Both effects were stronger between 1995 and 2004. The overall results suggest that labor demand decreased, because labor-reducing productivity and substitution effects dominated labor-augmenting scale effects from services offshoring. Moreover, services offshoring significantly reduced the relative demand for less-skilled labor from 1991 to 2000. Interestingly, the results for 1995 to 2004 indicate a relative demand shift away from high-skilled labor, mitigating the declining wage share of less-skilled labor.
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Notes
- 1.
Due to the homogeneity assumption multiplying the inputs with a constant λ (λ = 2, 3, …) augments production by λ z where z is constant and positive: \({\lambda ^z Y = F(\lambda L,\lambda K,\lambda S,\lambda M,\lambda T)}\).
- 2.
Producer price indices are available at several aggregation levels (28, 107 and 225 sectors). Since some producer prices at the required input–output aggregation level were not available, we used producer prices of more disaggregated sectors (within the same industry) as a proxy, because similar price trends can be expected there. The same procedure was also applied in a few cases where the time series was incomplete.
- 3.
Besides Hijzen et al. (2005), other authors, e.g., Falk and Koebel (2002), Strauss-Kahn (2003) or Geishecker (2006), also used net capital stocks when measuring labor demand equations, whereas the OECD (2007) study uses the gross fixed capital formation due to data limitations. Other studies do not offer further information on the capital used.
- 4.
For instance, no sectoral data are available for “food products” and “beverages,” but only for the aggregated sector “food products and beverages”. Since a similar productivity in both sectors can be assumed, we multiplied the net capital stock of the aggregated sector with the respective individual output shares to obtain the net capital stock for each sector. This procedure was done in the following eight sectors, where the net capital stock data of the German national accounts (VGR) have aggregated levels: 1–2, 8–9, 10–11, 15–16, 17–18, 19–21, 32–33, and 35–36.
- 5.
We dropped the identified outliers “pharmaceuticals” and “office, accounting and computer machinery” due to extremely high services offshoring intensities, which leads to a total of 34 manufacturing sectors.
- 6.
Subdividing capital into capital spendings on equipment and buildings did not lead to significant results in the previous estimations.
- 7.
We dropped the identified outliers “pharmaceuticals”, due to extremely high services offshoring intensities, and “tobacco”, due to very low output figures combined with a high OSS, which leads to a total of 33 manufacturing sectors.
- 8.
Capital spending on equipment and buildings is aggregated, since disaggregation yields no significant results for both variables.
- 9.
According to Shephard's Lemma (1953) factor demand is determined by the first partial derivative of the cost function with respect to the corresponding factor price, regardless of the kind of production function.
- 10.
Note that a * as a superscript in this section refers to the equilibrium amount.
- 11.
Thus, for instance, wage data are only available for the aggregated sector “food products and beverages”. The wages of the aggregated sector are weighted with the respective output shares of the individual sectors “food products” and “beverages” in order to achieve disaggregated sectoral wages. This procedure was done eight times in the following sectors: 1–2, 8–9, 10–11, 15–16, 17–18, 19–21, 32–33, and 35–36.
- 12.
As in Sect. 5.1.2, the two outliers “pharmaceuticals” and “office, accounting and computer machinery” are dropped due to extremely high services offshoring intensities.
- 13.
The outlier “pharmaceuticals” is excluded from the cross-section due to its extremely high services offshoring intensities, which leads to a total of 34 manufacturing sectors.
- 14.
According to Shephard's Lemma (1953), the factor demand X j * is determined by the first partial derivative of the cost function with respect to the corresponding factor price P j , regardless of the kind of production function. Note that a * as a superscript in this section refers to the equilibrium amount.
- 15.
The translog cost function in the empirical work on trade and the demand for heterogeneous labor was first introduced by Berman et al. (1994) and applied by e.g., Feenstra and Hanson (1996), Geishecker (2002, 2006), Strauss-Kahn (2003), Hijzen et al. (2005), and Ekholm and Hakkala (2006).
- 16.
We dropped the subscripts LS in the coefficients of (5.29).
- 17.
The following sectors have been aggregated: 1-2, 8-9, 13-14, 15-16, 17-18, 19-21, and 35-36.
- 18.
The two outliers “office, accounting and computer machinery” and chemicals (including pharmaceuticals) are dropped due to their high services offshoring intensities, leading to a total of 26 manufacturing sectors.
- 19.
The outlier “pharmaceuticals” is excluded due to extremely high services offshoring intensities, which leads to a total of 33 manufacturing sectors.
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Winkler, D. (2009). Labor Market Effects of Services Offshoring: Empirical Evidence. In: Services Offshoring and its Impact on the Labor Market. Contributions to Economics. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-2199-4_5
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