Outsourcing/offshoring: Service Outsourcing in Manufacturing: Evidence from the 1990s
Outsourcing/offshoring: Measures of Outsourcing
Outsourcing/offshoring: Effect of Outsourcing on Wages: Evidence from the 1980s
Outsourcing/offshoring: Outsourcing versus Technological Change
Outsourcing/offshoring: Trade Costs and Outsourcing across Firms
Outsourcing/offshoring: Regional Variation in Wage Inequality in the United States
Outsourcing/offshoring: Offshoring’s Impact on the Service Sector
The patterns of wages and employment in U.S. manufacturing changed in the 1990s,with rising relativewages and employment for skilledworkers.The relativewage of nonproduction/ production labor in U.S. manufacturing continued to increase from 1989 to 2000, but in addition, the relative employment of production workers decreased. A likely explanation for this new pattern of wage and employment is that it reflects service outsourcing from U.S. manufacturing. To the extent that the back-office jobs being outsourced from manufacturing use the lower-paid nonproduction workers, then the offshoring of those jobs could very well raise the average wage among nonproduction workers, while lowering their employment. So that pattern would be consistent with what has actually occurred in U.S. manufacturing. In the rest of our entry, then, we focus on service outsourcing.
Examples of service outsourcing from the manufacturing sector include the offshoring of services such as communication, finance, insurance, computer, and information services. Amiti and Wei (2006) report that in the United States, the amount of imported service inputs is small but growing. Measured as a share of total inputs purchased, imported services were 0.2 percent in 1992 (i.e., twotenths of one percent of total inputs), and grewto 0.3 percent in 2000 (i.e., three-tenths of one percent). The fact that imported services are small does not necessarily prevent them from being important for productivity and employment.
In terms of the impact of service outsourcing and high-technology equipment on manufacturing productivity measured by value added per worker, over the eight years 1992 2000, Amiti and Wei find service outsourcing can explain about 11 percent of the total increase in productivity. Despite the small amount of service imports, they find it explains a significant portion of productivity growth. It may be some of that productivity growth is actually due to domestic outsourcing of service activities, which is confounded in the data with foreign outsourcing of services. The contribution of service outsourcing can be compared to the offshoring of material inputs, which explains a further 5 percent of the total increase in productivity.Adding together these contributions, we see that these two factors explain about 16 percent of the increase in value added per worker, or as much as one-sixth of productivity growth. Since productivity rose by about 4 percent per year in manufacturing, these results show that outsourcing of services together with material inputs during the 1990s can explain two-thirds of a percentage point in productivity growth per year, which is economically important.