IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp717.html
   My bibliography  Save this paper

International Fragmentation and Relative Wages in the UK

Author

Listed:
  • Hijzen, Alexander

    (OECD)

  • Görg, Holger

    (Kiel Institute for the World Economy)

  • Hine, Robert C.

    (University of Nottingham)

Abstract

This paper re-examines the trade-based explanation of increased wage inequality in developed countries by focusing on international outsourcing. It is the first detailed study to address the effects of outsourcing on labour markets in the UK. In a recent paper, Feenstra and Hanson (1996) estimate the effect of international outsourcing on wage inequality in the US. This paper extends the FH approach by using more detailed definitions of outsourcing and skill. The analysis applies to UK manufacturing over the period 1982-1997. Extending the analysis to the 1990s is considered to be crucial as outsourcing is predominantly a phenomenon of the 1990s. The econometric results suggest that technical change, import penetration and outsourcing all play an important role in explaining UK wage inequality. Outsourcing may account for about half of the increase in domestic wage inequality.

Suggested Citation

  • Hijzen, Alexander & Görg, Holger & Hine, Robert C., 2003. "International Fragmentation and Relative Wages in the UK," IZA Discussion Papers 717, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp717
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp717.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bob Anderton & Paul Brenton, 2014. "Outsourcing And Low-Skilled Workers In The Uk," World Scientific Book Chapters, in: INTERNATIONAL TRADE, DISTRIBUTION AND DEVELOPMENT Empirical Studies of Trade Policies, chapter 9, pages 185-203, World Scientific Publishing Co. Pte. Ltd..
    2. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-245, May.
    3. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
    4. Holger Görg, 2000. "Fragmentation and trade: US inward processing trade in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(3), pages 403-422, September.
    5. Haskel, Jonathan & Heden, Ylva, 1999. "Computers and the Demand for Skilled Labour: Industry- and Establishment-Level Panel Evidence for the UK," Economic Journal, Royal Economic Society, vol. 109(454), pages 68-79, March.
    6. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Investment, Outsourcing and Relative Wages," NBER Working Papers 5121, National Bureau of Economic Research, Inc.
    7. Krugman, Paul R., 2000. "Technology, trade and factor prices," Journal of International Economics, Elsevier, vol. 50(1), pages 51-71, February.
    8. Matthew J. Slaughter, 1999. "Globalisation and Wages: A Tale of Two Perspectives," The World Economy, Wiley Blackwell, vol. 22(5), pages 609-629, July.
    9. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
    10. Matthew J. Slaughter, 2000. "What Are the Results of Product-Price Studies and What Can We Learn from Their Differences?," NBER Chapters, in: The Impact of International Trade on Wages, pages 129-169, National Bureau of Economic Research, Inc.
    11. Lucy Chennells & John Van Reenen, 1999. "Has technology hurt less skilled workers? A survey of the micro-econometric evidence," IFS Working Papers W99/27, Institute for Fiscal Studies.
    12. Haskel, Jonathan & Slaughter, Matthew J, 2001. "Trade, Technology and U.K. Wage Inequality," Economic Journal, Royal Economic Society, vol. 111(468), pages 163-187, January.
    13. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
    14. R. E. Baldwin & G. G. Cain, "undated". "Shifts in U.S. Relative Wages: The Role of Trade, Technology, and Factor Endowments," Institute for Research on Poverty Discussion Papers 1132-97, University of Wisconsin Institute for Research on Poverty.
    15. Egger, Hartmut & Egger, Peter, 2001. "Cross-border sourcing and outward processing in EU manufacturing," The North American Journal of Economics and Finance, Elsevier, vol. 12(3), pages 243-256, November.
    16. Arndt, Sven W., 1997. "Globalization and the open economy," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 71-79.
    17. Ng, Francis & Yeats, Alexander, 1999. "Production sharing in East Asia : who does what for whom, and why?," Policy Research Working Paper Series 2197, The World Bank.
    18. Eli Berman & John Bound & Zvi Griliches, 1994. "Changes in the Demand for Skilled Labor within U. S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 367-397.
    19. Feenstra, Robert C. (ed.), 2000. "The Impact of International Trade on Wages," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226239637, December.
    20. Stephen Machin & John Van Reenen, 1998. "Technology and Changes in Skill Structure: Evidence from Seven OECD Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1215-1244.
    21. Jonathan E. Haskel, 2000. "Trade and Labor Approaches to Wage Inequality," Review of International Economics, Wiley Blackwell, vol. 8(3), pages 397-408, August.
    22. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
    23. Salvatore Baldone & Fabio Sdogati & Lucia Tajoli, 2001. "Patterns and determinants of international fragmentation of production: Evidence from outward processing trade between the EU and Central Eastern European countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(1), pages 80-104, March.
    24. Hijzen, Alexander, 2003. "Fragmentation, Productivity and Relative Wages in the UK: A General Equilibrium Approach," Royal Economic Society Annual Conference 2003 108, Royal Economic Society.
    25. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
    26. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed the Labor Market?," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1169-1213.
    27. Kohler, Wilhelm, 2001. "A specific-factors view on outsourcing," The North American Journal of Economics and Finance, Elsevier, vol. 12(1), pages 31-53, March.
    28. Robert E. Baldwin & Glen G. Cain, 2000. "Shifts In Relative U.S. Wages: The Role Of Trade, Technology, And Factor Endowments," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 580-595, November.
    29. Jose Campa & Linda S. Goldberg, 1997. "The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries," NBER Working Papers 5919, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hartmut Egger & Udo Kreickemeier, 2017. "International Fragmentation: Boon or Bane for Domestic Employment?," World Scientific Book Chapters, in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 9, pages 237-263, World Scientific Publishing Co. Pte. Ltd..
    2. Keiko Ito & Kyoji Fukao, 2005. "Physical and Human Capital Deepening and New Trade Patterns in Japan," NBER Chapters, in: International Trade in East Asia, pages 7-52, National Bureau of Economic Research, Inc.
    3. Koskela, Erkki & Stenbacka, Rune, 2010. "Equilibrium unemployment with outsourcing and wage solidarity under labour market imperfections," European Economic Review, Elsevier, vol. 54(3), pages 376-392, April.
    4. Helg, Rodolfo & Tajoli, Lucia, 2005. "Patterns of international fragmentation of production and the relative demand for labor," The North American Journal of Economics and Finance, Elsevier, vol. 16(2), pages 233-254, August.
    5. Fontagne, Lionel & Mirza, Daniel, 2007. "International trade and rent sharing among developed and developing countries," Economic Modelling, Elsevier, vol. 24(3), pages 523-558, May.
    6. R. Antonietti & D. Antonioli, 2007. "Conditional Leptokurtosis in Energy Prices: Multivariate Evidence from Futures Markets," Working Papers 594, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Sourafel Girma & Holger Görg, 2004. "Outsourcing, Foreign Ownership, and Productivity: Evidence from UK Establishment‐level Data," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 817-832, November.
    8. Ito, Keiko & 伊藤, 恵子 & イトウ, ケイコ & Fukao, Kyoji & 深尾, 京司 & フカオ, キョウジ, 2003. "Vertical Intra-Industry Trade and the Division of Labor in East Asia," Discussion Paper Series a444, Institute of Economic Research, Hitotsubashi University.
    9. Alexander Hijzen, 2004. "Trade in Intermediates and the Rise in Wage Inequality in the UK: A GNP Function Approach," Econometric Society 2004 North American Summer Meetings 224, Econometric Society.
    10. Ujjaini Mukhopadhyay, 2021. "Differential Education Subsidy Policy and Wage Inequality Between Skilled, Semi-skilled and Unskilled Labour: A General Equilibrium Approach," Review of Development and Change, , vol. 26(1), pages 40-62, June.
    11. Rodolfo Helg & Lucia Tajoli, 2002. "Patterns of International Fragmentation of Production and Implications for the Labor Markets," Working Papers 503, Research Seminar in International Economics, University of Michigan.
    12. Swenson, Deborah L., 2004. "Entry costs and outsourcing decisions: evidence from the U.S. overseas assembly provision," The North American Journal of Economics and Finance, Elsevier, vol. 15(3), pages 267-286, December.
    13. Carmen Díaz Mora & Rosario Gandoy Juste, "undated". "Estrategias de fragmentación de la producción: Una realidad en la industria espanola?," Studies on the Spanish Economy 180, FEDEA.
    14. Mary Amiti & Shang-Jin Wei, 2005. "Fear of service outsourcing: is it justified? [‘Location of vertically linked industries: agglomeration versus comparative advantage’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 20(42), pages 308-347.
    15. Nicholas Sim, 2004. "International production sharing and economic development: moving up the value-chain for a small-open economy," Applied Economics Letters, Taylor & Francis Journals, vol. 11(14), pages 885-889.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alexander Hijzen & Holger Görg & Robert C. Hine, 2005. "International Outsourcing and the Skill Structure of Labour Demand in the United Kingdom," Economic Journal, Royal Economic Society, vol. 115(506), pages 860-878, October.
    2. Rosario Crinò, 2009. "Offshoring, Multinationals And Labour Market: A Review Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 23(2), pages 197-249, April.
    3. Michael Landesmann & Robert Stehrer, 2009. "South-North Integration, Outsourcing and Skills," wiiw Research Reports 353, The Vienna Institute for International Economic Studies, wiiw.
    4. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
    5. Jorge Saba Arbache, 2001. "Trade Liberalisation and Labor Markets in Developing Countries: Theory and Evidence," Studies in Economics 0112, School of Economics, University of Kent.
    6. Helg, Rodolfo & Tajoli, Lucia, 2005. "Patterns of international fragmentation of production and the relative demand for labor," The North American Journal of Economics and Finance, Elsevier, vol. 16(2), pages 233-254, August.
    7. Dumont, Michel, 2004. "The Impact of International Trade with Newly Industrialised Countries on the Wages and Employment of Low-Skilled and High-Skilled Workers in the European Union," Thesis Commons bmxag, Center for Open Science.
    8. repec:ilo:ilowps:365055 is not listed on IDEAS
    9. Robbins, Donald J., 2003. "The impact of trade liberalization upon inequality in developing countries : a review of theory and evidence," ILO Working Papers 993650553402676, International Labour Organization.
    10. Rodolfo Helg & Lucia Tajoli, 2002. "Patterns of International Fragmentation of Production and Implications for the Labor Markets," Working Papers 503, Research Seminar in International Economics, University of Michigan.
    11. Taylor, Karl & Driffield, Nigel, 2005. "Wage inequality and the role of multinationals: evidence from UK panel data," Labour Economics, Elsevier, vol. 12(2), pages 223-249, April.
    12. Horgos, Daniel, 2009. "Labor market effects of international outsourcing: How measurement matters," International Review of Economics & Finance, Elsevier, vol. 18(4), pages 611-623, October.
    13. Paolo Epifani & Gino Gancia, 2008. "The Skill Bias of World Trade," Economic Journal, Royal Economic Society, vol. 118(530), pages 927-960, July.
    14. Wilhelm Kohler, 2002. "The Distributional Effects of International Fragmentation," Economics working papers 2002_01, Department of Economics, Johannes Kepler University Linz, Austria.
    15. João Amador & Sónia Cabral, 2014. "Global Value Chains: Surveying Drivers, Measures and Impacts," Working Papers w201403, Banco de Portugal, Economics and Research Department.
    16. Agnese, Pablo, 2009. "Japan and her dealings with offshoring: An empirical analysis with aggregate data," MPRA Paper 16505, University Library of Munich, Germany.
    17. Amador, João & Cabral, Sónia, 2008. "International fragmentation of production in the Portuguese economy: What do different measures tell us?," MPRA Paper 9783, University Library of Munich, Germany.
    18. Tomiura, Eiichi, 2005. "Foreign outsourcing and firm-level characteristics: Evidence from Japanese manufacturers," Journal of the Japanese and International Economies, Elsevier, vol. 19(2), pages 255-271, June.
    19. Kemal Türkcan, 2011. "Vertical Intra-Industry Trade and Product Fragmentation in the Auto-Parts Industry," Journal of Industry, Competition and Trade, Springer, vol. 11(2), pages 149-186, June.
    20. Daniel Traca & Pushan Dutt, 2005. "Trade and the skill-bias: it's not how much, but with whom you trade," Working Papers CEB 05-010.RS, ULB -- Universite Libre de Bruxelles.
    21. Nathalie Chusseau & Michel Dumont & Joël Hellier, 2008. "Explaining Rising Inequality: Skill‐Biased Technical Change And North–South Trade," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 409-457, July.

    More about this item

    Keywords

    fragmentation; outsourcing; trade; wages; skill-biased technological change;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp717. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.