Offshoring to China and the skill structure of manufacturing labour demand in developed countries

The aim of this paper is to examine the impact of manufacturing offshoring to China on the skill structure of labour demand, for a sample of 19 developed countries, each consisting of 14 manufacturing industries, over the years 1995-2009. A system of factor demand equations is estimated, by using data from the World Input-Output Database, which allow for distinguishing between three skill categories of labour. Besides constructing the widely used narrow and broad offshoring measures, an additional measure is proposed, in order to capture the effects on labour demand when the offshored task was formerly outsourced domestically. The overall results show that offshoring negatively affects demand for all skill types of labour, but low and medium skilled labour demand are hardest hit. By estimating the effects of the additional offshoring measure, this pattern becomes more pronounced. This implies that by including this new measure in the analysis, the widening gap between lower and higher skilled labour can be attributed to offshoring to a larger extent.