Offshoring, Multinationals and Labor Market: A Review of the Empirical Literature

This paper reviews the existing empirical literature on the effects of offshoring and foreign activities of Multinational Enterprises (MNEs) on the labor markets of developed countries. Avail-able results provide robust evidence in support of the fear that material offshoring worsens wage inequality between skilled and unskilled workers; on the contrary, results are still too ambiguous to support concerns that material offshoring raises the elasticity of unskilled labor demand and produces adverse short-run employment dynamics. Service offshoring does not reduce total labor demand significantly and does not pose serious threats to human capital accumulation. Finally, MNEs tend to substitute domestic labor with foreign labor, but the relationship is weak; moreover, substitutability is mainly driven by horizontal, market-seeking, Foreign Direct Investments.