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Gains from Offshoring? Evidence from U.S. Microdata

April 2013

Working Paper Number:

CES-13-20

Abstract

We construct a new linked data set with over one thousand offshoring events by matching Trade Adjustment Assistance program petition data to micro-data from the U.S. Census Bureau. We exploit this data to assess how offshoring impacts domestic firm-level aggregate employment, output, wages and productivity. A class of models predicts that more productive firms engage in offshoring, and that this leads to gains in output and (measured) productivity, and potential gains in employment and wages, in the remaining domestic activities of the offshoring firm. Consistent with these models, we find that offshoring firms are on average larger and more productive compared to non-offshorers. However, we find that offshorers suffer from a large decline in employment (32 per cent) and output (28 per cent) relative to their peers even in the long run. Further, we find no significant change in average wages or in total factor productivity measures at affected firms. We find these results robust to a variety of checks. Thus we find no evidence for positive spillovers to the remaining domestic activity of firms in this large sampleof offshoring events.

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estimation, market, endogeneity, sale, labor productivity, subsidiary, productivity wage, exporter, regression, multinational, rates productivity, economically, spillover, wages productivity, contract, regressors, firms productivity, aggregate productivity, outsourcing

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Annual Survey of Manufactures, Standard Industrial Classification, Bureau of Labor Statistics, Ordinary Least Squares, Total Factor Productivity, Bureau of Economic Analysis, Foreign Direct Investment, Organization for Economic Cooperation and Development, Longitudinal Business Database, Department of Economics, North American Free Trade Agreement, Penn State University, Census of Manufacturing Firms, Department of Labor, Longitudinal Employer Household Dynamics, University of Michigan

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