Offshoring: What Consequences for Workers? Evidence from Global Value Chains

This paper investigates the question which aspects of offshoring harm low skilled workers using data from the WIOD for 14 manufacturing industries in 16 high income countries between 1995 and 2008. By considering the use of foreign production factors in domestic production, the paper shows that low skilled workers are directly and negatively affected by offshoring of low skilled tasks. Importantly, the paper determines a further indirect channel highlighting the role of growing foreign competition in domestic markets for intermediate goods. Accordingly, wage shares of low skilled workers decline when competition in domestic downstream value chains increases. Interpreting this channel in the light of the literature on defensive skill-biased innovation, the shift in wage shares away from low skilled workers might be provoked by skill intensive investments in response to tougher foreign competition in domestic markets for intermediate goods. JEL classification: F23, L23, L24, M11.