Globalization, offshoring and jobs

The labour market consequences of globalization in general, and offshoring in particular, have been hotly debated in recent public discussions and academia. Their are important public perceptions that trade has negative employment effects at least for certain groups of workers. Policy makers need to take these anxieties seriously, but in order to devise appropriate policy responses also need to consider carefully the economic arguments, from theory as well as from empirical evidence. This is what this chapter sets out to do, by examining the available theoretical arguments and empirical evidence as to the possible employment effects of globalization (defined somewhat narrowly as total trade and offshoring). The findings of the paper may be summarized as follows. Firstly, globalization and, in particular, offshoring of activity may lead to higher job turnover in the short run. Secondly, in the long run, there is no indication that trade or offshoring leads to higher unemployment (or lower employment) overall, though, again, employment of low skilled workers may suffer while high skilled employment may expand. Thirdly, while the literature finds that these effects are statistically significant, the economic magnitude thereof is still debated, with many studies concluding that they are economically negligible. Fourthly, there is evidence that the structural changes away from manufacturing towards services sectors in advanced economies goes hand in hand with the process of globalization. However, whether or not there is a causal relationship is still to be investigated.