The Impact of Material Offshoring on employment in the Italian Manufacturing Industries: the Relevance of Intersectoral Effects

The lively media debate on the employment consequences of offshoring is not yet backed by an adequate empirical evidence around its actual effects. This paper relies on sectoral data to assess the impact of material offshoring on employment in the Italian manufacturing industries; with just one exception, sectoral-level analysis treat sectors as independent clusters of firms, while we introduce an index built on input-output data that captures the intersectoral spill-over effects of offshoring. The econometric analysis provides evidence that the direct effects of offshoring on employment are not significant once one allows for scale effects, while the intersectoral effects are negative and highly significant. This is consistent with the intuition that offshoring can lead to the disruption of domestic sub-contracting relationships, and that the adverse occupational consequences are not concentrated in the sectors that are directly involved in the offshoring process. Although such a finding should by no means regarded as supportive of a pessimistic perspective about the aggregate economic consequences of offshoring, it is nevertheless suggestive transitional costs can be substantial and diffuse.