International outsourcing, job loss fears and wage bargaining
Final Report Abstract
The aim of the project was to assess the impact of offshoring (international outsourcing) on individual job loss fears and the role of job loss fears and offshoring in wage bargaining. We first analysed to what extent offshoring indeed is perceived as a threat to job and estimated the impact of offshoring on subjective job loss fears. The main contribution of this analysis is that we assessed job loss fears instead of objective job security. Our results point to the importance of this distinction. While the existing literature has established that the objective job loss risk due to offshoring generally is smaller or at best equally high for highskilled workers in comparison to low-skilled workers, subjective job loss fears of high-skilled workers are significantly more adversely affected by offshoring than job loss fears of the lowskilled. To explain this finding we argue that not only job loss risk matters but also the subjective pecuniary and non-pecuniary costs of job loss. Accordingly, while low-skilled workers may have a higher objective and also subjective job loss risk their subjective costs of job loss may be smaller since for low-skilled, low-paid workers the difference between unemployment allowance and current earnings is smaller and because low-skilled workers lose less firm-specific human capital through displacement. Thus, high-skilled workers are more fearful of job loss through offshoring because they have more to lose. Analysing the determinants of job loss fears, an ordinal variable, proved to be less straightforward than expected. There are several established estimation procedures which however have unknown finite sample (or even asymptotic) properties. We therefore systematically evaluated alternative estimators for ordered response data through Monte Carlo simulation and provide valuable guidelines for choosing the appropriate estimating technique under different settings. In the process we also programmed a Stata-adon which for the very first time makes available the complete Ferrer-i-Carbonel-Frijters estimator to the general public. Finally, we assessed the impact of potential offshoring on wages. Thus, instead of assessing actual offshoring we evaluated the threat of offshoring which depends on the actual potential for offshoring in given industry and the degree of job loss fears of a median union member or individual. We find that increasing potential offshoring to low-wage countries significantly lowers wages. The magnitude of the effect, however, depends on workers’ job loss fears. For instance, in the motor vehicles industry the cumulative change of potential offshoring from 1995 to 2008 led to wage cuts of about 11 percent for workers with low levels of job loss fears while workers with high levels of job loss fears experienced wage cuts of 16 percent.
Publications
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fcf Stata ado-file that fits a Ferrer-i-Carbonell and Frijters (2004) based estimation model for ordinally scaled dependent variables using conditional logit. Software
Maximilian Riedl
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“Offshoring and Job Loss Fears: An Econometric Analysis of Individual Perceptions,” Labour Economics, 19(5), 2012, 738-74
Geishecker, Ingo, Maximilian Riedl, and Paul Frijters
