Summary # 1 : 2 In their article Outscouring Types, Relative Wages, and the Demand for Skilled Workers: New Evidence from the U. S. Manufacturing Aekapol Chongvilaivan, Jung Hur and Yohanes E. Ryianto analyse the impacts of outsourcing on relative wages of firm workers. The concept of outsourcing implies that firms contract out some level of production in the vertical chain of production. The authors claims that there is a relationship between outsourcing types and relative wages of skilled and unskilled workers.
In fact, the researchers thesis claim that downstream materials and service outsourcing are influenced by worker skill, while upstream materials outsourcing is not. First, the authors divide the concept of outsourcing in three categories. The first type consist of upstream material outsourcing. A firm doing so will outsource the production of inputs for a good. The second type consists of downstream production in which firms outsource the production of the final product. The third type consists of service outsourcing sectors such as communications, accounting, auditing , bookkeeping and computer services.
The authors explain that each type require different levels of skills for labour. Therefore, they do not have the same impact on demand for skilled labour. Before conducting their study, the authors reviewed previous literature on the topic. An influential study to the authors research is one written by Blum in 2007. This reviewed literature showed that shifts of structures in the economy industries could explain the rising wages for skilled workers. Another influential literature studied by the researchers is one study conducted by Amiti and Weu (2006).
This study evaluated the impacts of contracting out on the productivity in the United-States. Amiti and Weu (2006) explain that if firms are able to internationally fragment the inefficient parts of their production process by outsourcing, they can then specialise in the part of the production process in which they have comparative advantage locally. The study conducted by Manufacturing Aekapol Chongvilaivan, Jung Hur and Yohanes E. Ryianto differs from previous ones because of their distinction between skilled and unskilled worker.
Another distinguishing aspect of the research is the division of upstream and downstream outsourcing as different categories . Instead of using a panel data analysis researchers used a cross industry analysis. In order to conduct their research on impact of outsourcing on relative wages, the authors have retrieved their information from various data sources. The first one is the 2002 Annual survey of Manufactures(ASM). This source offered authors information on “wages and employment of the skilled and unskilled workers across the manufacturing sector”.
Researchers also used the 2002 economic census as a data source where they got the “cost and production structure of manufacturing firms and also their use of capital and services”. To measure the employment share of skilled workers the authors used a short run cost function based on the Brown and Christensen(1981 model). To measure downstream and upstream outsourcing impacts on relative wages, researchers scattered skill wage share with different logarithm of elements of production.
As for results, authors found that if import share is not significant on wage gap between skilled and unskilled workers. Researchers found a negative relationship between capitals and the relative demand for skilled workers. The authors also present that larger industries have higher wage share of skilled workers. This can be due to their cost advantage as a firm. Researchers also found that material outsourcing show the way to a decline in the overall productivity of labour in the short-run. Consequently, the efficiency of has a positive impact on relative wages.
The authors show that downstream materials and service outsourcing have a positive impact on the wages of skilled workers relative to those of unskilled workers. Researchers also showed that upstream material outsourcing has a negative impact on relative wages of workers. The authors conclude by claiming that technology is influenced by skill in the manufacturing sector. Summary # 2 : Hartmut Egger and Peter Egger are authors of International outsourcing and the productivity of low-skilled labor in the EU.
Their article shows the relationships between outsourcing and the productivity of low skilled labor. For their work, the authors claim that in the short run outsourcing has a minor negative effect on contributions of workers. They estimate that in the long run however, that outsourcing has a positive impact on real value added per worker. The researchers relied on previous studies conducted by Feenstra and Hanson to structure their study. Feenstra and Hanson’s article studied the effects of offshoring and outsourcing on the labor market in the U.
S. Other influential studies used by authors studied the trade relationship of the E. U with developing countries. For their study, the researchers used various source of data to analyze the relationship of outsourcing and worker productivity. First, authors referred to the sources New Cronos (Eurostats) and Stan (OECD) to obtain numbers on productivity per worker, real gross production, employment and education in the European Union. Also, to measure the concept of outsourcing researchers used EU-output input tables.
Finally, the authors used data from the UN data on intermediate goods trade. The data sets chosen by researchers were computed using translog functions and CES functions. CES refers to constant elasticity of substitution; a function that include complex production or utility functions. Such functions offer simulation of the outsourcing effect on the average productivity of labor. The calculations where based on three main characteristic assumptions. The first being that outsourcing moves part of the production to other countries economies and markets.
Secondly, by maximizing their surplus firms want to adjust their factor employment. Thirdly, the difference between the short-run and the long run effects of contracting out may be increased due to flaws in markets. More firms may have the incentive to respond to competing companies outsourcing. After analyzing data with functions researchers made the following findings: The first relates to outsourcing seems to make use of a significant negative effect on low skill worker productivity. Their research showed that.
Also, researchers demonstrated that in the long run outsourcing had a positive effect on the productivity of low skilled labor. The difference between the short-run and the long-run effects of international outsourcing may be magnified by product market imperfections. The authors conclude their work by claiming that low-skilled labor productivity growth in the European industries in the short run was mainly stimulated by the change in physical capital stocks and skill upgrading rather than fragmentation of production across borders.
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