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Offshore Outsourcing and Non-production Workers: Firm-level Relationships Disaggregated by Skills and Suppliers


  • The authors deeply acknowledge insightful and constructive comments from the editor and an anonymous referee. This paper is a substantially revised version of our discussion paper previously entitled ‘Offshoring and corporate headquarters: Evidence from Japanese firm-level data.’ This research is partly financed by RIETI and Grant-in-Aid for Scientific Research. The authors appreciate the administrative supports by RIETI, especially Akira Kawamoto, Kazumi Wakai and Database Group staffs, and valuable comments from seminar participants at Tsinghua, Kyoto and Okinawa University. Remaining errors are those of the authors. The opinions expressed in this paper do not reflect those of RIETI or METI.


In analysing the impact of offshoring on the skill composition, previous empirical studies have established that offshoring firms employ more non-production workers. However, not all non-production workers are highly skilled. This paper disaggregates non-production workers into the following three categories: (i) skilled non-production workers, (ii) unskilled non-production workers and (iii) non-production workers with special skills for offshoring and other overseas business management. By linking our offshoring survey data with firm-level data for Japanese manufacturing firms, this paper finds that the share of skilled non-production workers tends to be significantly high in offshoring firms but that of unskilled non-production workers is not. As offshoring has expanded from production to non-production tasks, this result implies that the distinction between skilled versus unskilled workers becomes critical among non-production workers. Using our unique data on supplier types in offshoring, this paper finds that the share of non-production workers for the management of overseas activities tends to be high in foreign direct investment firms and in firms outsourcing to foreign independent suppliers, but not in Japanese firms outsourcing to offshore suppliers located abroad but owned by other Japanese firms. This difference indicates that coordination burdens are likely to be at least partly mitigated by common languages or shared business practices. These findings suggest that offshoring has different impacts on employment depending on suppliers and the worker’s skill. The principal results are confirmed robust even after various firm characteristics are controlled for in panel regressions, though we should not give any causal interpretations.