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Offshoring, Firm Performance and Establishment-Level Employment: Identifying Productivity and Downsizing Effects

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  • Urban, Dieter M
  • Weder di Mauro, Beatrice
  • Moser, Christoph

Abstract

This paper examines the channels through which offshoring affects employment in a representative sample of German establishments, using a difference-in-differences matching approach. Offshoring establishments are identified by an increase in the share of foreign to total inputs. We find that an average offshoring establishment has higher employment, higher productivity, and higher domestic and foreign market share than if it did not engage in offshoring. Furthermore, its production depth remains unchanged indicating that offshoring predominantly operates through a substitution of domestic for foreign suppliers, rather than through a reduction of home production. This result enables us to isolate a positive productivity effect from offshoring on employment. However, employment in an establishment decreases - relative to its counterfactual - when it simultaneously engages in offshoring and restructuring of the home plant. Therefore, we are also able to isolate a negative downsizing effect of offshoring on employment.

Suggested Citation

  • Urban, Dieter M & Weder di Mauro, Beatrice & Moser, Christoph, 2009. "Offshoring, Firm Performance and Establishment-Level Employment: Identifying Productivity and Downsizing Effects," CEPR Discussion Papers 7455, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7455
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    Cited by:

    1. Jacob Funk Kirkegaard, 2014. "What Should Surplus Germany Do?," Policy Briefs PB14-14, Peterson Institute for International Economics.
    2. Hartmut Egger & Udo Kreickemeier & Jens Wrona, 2017. "Offshoring Domestic Jobs," World Scientific Book Chapters, in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 2, pages 27-70, World Scientific Publishing Co. Pte. Ltd..
    3. Magdolna Sass & Miklos Szanyi, 2012. "Two essays on Hungarian relocations," CERS-IE WORKING PAPERS 1223, Institute of Economics, Centre for Economic and Regional Studies.
    4. Ana Martins & Guida Nogueira & Eva Pereira, 2020. "International Sourcing in Portuguese Companies Evidence from Portuguese Micro Data," GEE Papers 0157, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Dec 2020.
    5. Linda Andersson & Patrik Karpaty & Selen Savsin, 2016. "Firm-level effects of offshoring of materials and services on relative labor demand," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(2), pages 321-350, May.
    6. Ebel Berghuis & Frank A.G. den Butter, 2013. "Labour Market Effects of International Fragmentation of Production; Evidence from a Survey and Case Studies in the Dutch Industry," Tinbergen Institute Discussion Papers 13-136/VI, Tinbergen Institute.
    7. Marcus Neureiter & Peter Nunnenkamp, 2009. "Modes of International Sourcing and the Competitiveness of Firms: An Analysis of European Survey Data," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 64(04), pages 419-429, December.
    8. Joachim Wagner, 2011. "Offshoring and firm performance: self-selection, effects on performance, or both?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(2), pages 217-247, June.
    9. Thomas Url, 2016. "Gesamtwirtschaftliche Auswirkungen der Exportgarantien in Österreich," WIFO Studies, WIFO, number 58839.
    10. Baumgarten, Daniel, 2010. "International Trade and Worker Turnover – Empirical Evidence for Germany," Ruhr Economic Papers 228, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    11. Lo Turco, Alessia & Maggioni, Daniela, 2013. "Does Trade Foster Employment Growth in Emerging Markets? Evidence from Turkey," World Development, Elsevier, vol. 52(C), pages 1-18.
    12. Martin Borowiecki & Bernhard Dachs & Doris Hanzl-Weiss & Steffen Kinkel & Johannes Pöschl & Magdolna Sass & Thomas Christian Schmall & Robert Stehrer & Andrea Szalavetz, 2012. "Global Value Chains and the EU Industry," wiiw Research Reports 383, The Vienna Institute for International Economic Studies, wiiw.
    13. Magdolna Sass & Gábor Hunya, 2014. "Escaping to the East? Relocation of business activities to and from Hungary, 2003–2011," CERS-IE WORKING PAPERS 1407, Institute of Economics, Centre for Economic and Regional Studies.
    14. Daniel Baumgarten, 2010. "International Trade and Worker Turnover – Empirical Evidence for Germany," Ruhr Economic Papers 0228, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    15. Craig P. Aubuchon & Subhayu Bandyopadhyay & Sumon Bhaumik, 2012. "The extent and impact of outsourcing: evidence from Germany," Review, Federal Reserve Bank of St. Louis, vol. 94(July), pages 287-304.
    16. Geishecker, Ingo & Riedl, Maximilian & Frijters, Paul, 2012. "Offshoring and job loss fears: An econometric analysis of individual perceptions," Labour Economics, Elsevier, vol. 19(5), pages 738-747.
    17. João Amador & Sónia Cabral, 2014. "Global Value Chains: Surveying Drivers, Measures and Impacts," Working Papers w201403, Banco de Portugal, Economics and Research Department.
    18. Wright, Greg C., 2014. "Revisiting the employment impact of offshoring," European Economic Review, Elsevier, vol. 66(C), pages 63-83.
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    More about this item

    Keywords

    Difference-in-differences matching estimator; Export performance; Offshoring; Stable unit treatment value assumption;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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