Offshoring, Outsourcing, and Production Relocation—Labor-Market Effects in the OECD Countries and Developing Asia

WORKING PAPER 07-2

Offshoring, Outsourcing, and Production Relocation—Labor-Market Effects in the OECD Countries and Developing Asia

by Jacob Funk Kirkegaard, Peterson Institute for International Economics

April 2007

Data for the United States, EU-15, and Japan indicate only a limited impact of offshoring/outsourcing on employment in the three regions. Correspondingly, developing Asia is unlikely to experience large employment gains as an offshoring/outsourcing destination region. The paper highlights the Indian information technology (IT) industry, where the majority of job creation has been in local Indian companies rather than foreign multinationals. Domestic entrepreneurs have played a crucial role in the growth of the Indian IT-related service industry. However, increased tradability of services and associated skill bias in favor of higher skilled workers could have an uneven employment impact on developing Asia. Some high-skilled groups are benefiting and will continue to benefit dramatically from new employment opportunities and rising wage levels. Meanwhile, the same skill bias may eliminate employment opportunities for unskilled or low-skilled groups in the region. Developing Asian countries therefore face a double challenge: the need to simultaneously improve both primary and higher education.

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