The Determinants of International Outsourcing and its Impact on the Labor Market in the USA

This research investigates which factors affect the share of offshored activities in American industries and how this procedure influences the difference in wages between high and low skilled workers within the domestic market. This study is carried out through a panel data on 49 industries of the American economy throughout the time span going from 1997 to 2015. In order to take care of serial correlation issues and capture the dynamics of this process, I decide to perform an error correction model, thanks to which it is possible to assess which variables have an effect in the short and long run. The results suggest that when it comes to move production stages abroad, domestic high skilled wages appear to be the major motive in the short run, as the input which companies seek the most is cheaper qualified labor force. A further finding of this study is the widening effect of international outsourcing on the gap between the different kinds of salary only in the short term. However, this procedure does not appear to be the sole factor determining this difference.