Category Archives: Offshore

Private Equity, Layoffs, and Job Polarization

Source: Martin Olsson, Joacim Tåg, Journal of Labor Economics, Ahead of Print, March 29, 2017
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From the abstract:
Private equity firms are often criticized for laying off workers, but the evidence on who loses their jobs and why is scarce. This paper argues that explanations for job polarization also explain layoffs after private equity buyouts. Buyouts reduce agency problems, which triggers automation and offshoring. Using rich employer-employee data, we show that buyouts generally do not affect unemployment incidence. However, unemployment incidence doubles for workers in less productive firms who perform routine or offshorable job tasks. Job polarization is also much more marked among workers affected by buyouts than for the economy at large.

Why Tech Professionals Now Share A Fate With The Working Class

Source: Tamara Draut, Fast Company, March 30, 2016

What happened to manufacturing jobs a generation ago is now being repeated in the knowledge economy. … Companies are now sending many so-called “skilled” positions offshore, including once high-paying jobs in the financial and tech sectors. The transfer to cheaper sources of once-safe occupations is just one of the ways work has become less secure for many people in the middle class…..

Offshoring and Labor Markets

Source: David L. Hummels, Jakob Roland Munch, Chong Xiang, National Bureau of Economic Research (NBER), NBER Working Paper No. w22041, February 2016
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From the abstract:
We survey the recent empirical literature on the effects of offshoring on wages, employment and displacement. We start with the measurement of offshoring, focusing on the use of imported inputs that could have been produced by the importing firm. We overview key theories related to offshoring and its labor market effects and survey three waves of the literature on wage effects of offshoring: those using industry data, firm data, and worker data. For each wave we highlight the identification strategies used, critically assess strengths and weaknesses, discuss connections with theory, and draw out potential policy implications of its findings. Closely related, we address a new literature that looks at the differential impact of offshoring across occupations. Finally, we survey the literature that examines how offshoring affects employment and displacement. We highlight the recent development of a novel cohort-based approach that is specifically designed to address selection with displacement and capable of identifying the overall effects of offshoring, including wage changes, displacement, and other types of transitions.

Losing Sparta: The Bitter Truth Behind the Gospel of Productivity

Source: Esther Kaplan, Virginia Quarterly Review, Summer 2014

…One morning in November 2010, a Philips executive no one recognized drove up and walked into the plant, accompanied by a security guard wearing sunglasses and a sidearm. He summoned all the employees back to the shipping department and abruptly announced that the plant would be shut down. Though the workers didn’t know it at the time, most of their jobs would be offshored….

…These are catastrophic job losses. Yet no regulatory body ever asks the firms responsible to explain why they offshored the jobs—​even when those firms, like Philips, receive substantial taxpayer subsidies.

It was left to two scholars, Kate Bronfenbrenner, of Cornell University’s School of Industrial and Labor Relations, and Stephanie Luce, of the University of Massachusetts at Amherst, to look behind the numbers. In a 2004 study, they found that offshoring, that old story from the 1970s and ’80s, was still sharply on the rise. They used detailed first-​quarter data to estimate that 406,000 jobs would be offshored in 2004 (a number roughly triple the widely recognized undercount from BLS), compared with 204,000 three years earlier. More of these jobs, they found, moved to Mexico than to any other country. Other details are salient. “Once a place sells to somebody else that’s not union, you might as well shut the damn doors,” Bo McCurry said to me one afternoon, and Bronfenbrenner’s data shows he’s probably right. Though only 8 percent of private-​sector workplaces are unionized in the United States, 29 percent of production shifts involved unionized facilities, implying that offshoring may be, at least in part, a union-​avoidance strategy. Even more interestingly, the overwhelming majority of the facilities being offshored were owned by large, profitable multinationals—​not, as one might imagine, by firms struggling to compete. And many of the closures took place soon after the plants had been acquired.

“Corporations often do things to impress their shareholders,” Bronfenbrenner said. “Everybody is offshoring and outsourcing, even though it isn’t necessarily a good financial decision. It may actually cost more, but to investors it looks like sound management. It’s just keeping up with the Joneses, where the Joneses are every other manufacturing company in the world.”

A 2012 study by Michael E. Porter and Jan W. Rivkin of Harvard Business School, based on interviews with 1,767 executives involved in location decisions over the previous year, confirms Bronfenbrenner’s view. Porter and Rivkin found that “rigorous processes for location choices” are “far from universal” and that such decision-​making processes “have lagged behind those for virtually all other major investment decisions.” They found that companies often underestimate the hidden costs of offshoring, overlook the advantages of a US location and “fall prey to biases that work against the U.S.”

Combined, this research hints at a radical idea: that offshoring has simply become a reflex. And if that’s true, all the lean manufacturing and just-​in-​time production and automation and retraining and two-​tier pay scales in the world won’t be enough to save American production jobs.

So much in the Sparta story defies the familiar political scripts: Norris, the union-​avoidance expert, along with Bailey and Sullivan, of the Chamber of Commerce, joining hands with the IBEW to help save a union plant; small businessmen in Tea Party country championing community ownership. It became clear from my conversations that Philips’s actions had deeply offended people’s sense of decency, from the laid-​off workers to what Donna McCurry calls “the big wheels in town,” and that this sense of corporate indecency is what had brought such politically disparate people together. ….

Offshoring and the Polarization of the U.S. Labor Market

Source: Lindsay Oldenski, Industrial and Labor Relations Review, Vol. 67 supplement, Spring 2014
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From the abstract:
Using firm-level data on offshoring paired with occupation-level data on employment and wages, the author estimates the impact that offshoring has had on U.S. workers from 2002 to 2008. She finds that offshoring by U.S. firms has contributed to relative gains for the most high-skilled workers and relative losses for middle-skilled workers. An increase in offshoring in an industry is associated with an increase in the wage gap between workers at the 75th percentile and workers with median earnings in that industry, and with a decrease in the gap between workers earning the median wages and those at the 25th percentile. This pattern can be explained by the tasks performed by workers. Offshoring is associated with a decrease in wages for occupations that rely heavily on routine tasks and an increase in wages if the occupation is nonroutine and communication-task intensive. The results hold in both ordinary least squares (OLS) and instrumental variable specifications.

Secrecy for Sale: Inside the Global Offshore Money Maze

Source: Marina Walker Guevara, Nicky Hager, Mar Cabra, Gerard Ryle and Emily Menkes, International Consortium of Investigative Journalists, April 4, 2013

Secret records obtained by the International Consortium of Investigative Journalists reveal tens of thousands of people in more than 170 countries and territories linked to offshore companies and trusts.

Key Findings:
– Government officials and their families and associates in Azerbaijan, Russia, Canada, Pakistan, the Philippines, Thailand, Mongolia and other countries have embraced the use of covert companies and bank accounts.
– The mega-rich use complex offshore structures to own mansions, yachts, art masterpieces and other assets, gaining tax advantages and anonymity not available to average people.
– Many of the world’s top’s banks – including UBS, Clariden and Deutsche Bank – have aggressively worked to provide their customers with secrecy-cloaked companies in the British Virgin Islands and other offshore hideaways.
– A well-paid industry of accountants, middlemen and other operatives has helped offshore patrons shroud their identities and business interests, providing shelter in many cases to money laundering or other misconduct.
– Ponzi schemers and other large-scale fraudsters routinely use offshore havens to pull off their shell games and move their ill-gotten gains.
Related:
Piercing the secrecy of offshore tax havens
Source: Scott Higham, Michael Hudson and Marina Walker Guevara, Washington Post, April 6, 2013

Offshoring Bias in U.S. Manufacturing

Source: Susan Houseman, Christopher Kurz, Paul Lengermann and Benjamin Mandel, Journal of Economic Perspectives, Journal of Economic Perspectives, Vol. 25, No. 2, Spring 2011

From the abstract:
In this paper, we show that the substitution of imported for domestically produced goods and services–often known as offshoring–can lead to overestimates of U.S. productivity growth and value added. We explore how the measurement of productivity and value added in manufacturing has been affected by the dramatic rise in imports of manufactured goods, which more than doubled from 1997 to 2007. We argue that, analogous to the widely discussed problem of outlet substitution bias in the literature on the Consumer Price Index, the price declines associated with the shift to low-cost foreign suppliers are generally not captured in existing price indexes. Just as the CPI fails to capture fully the lower prices for consumers due to the entry and expansion of big-box retailers like Wal-Mart, import price indexes and the intermediate input price indexes based on them do not capture the price drops associated with a shift to new low-cost suppliers in China and other developing countries. As a result, the real growth of imported inputs has been understated. And if input growth is understated, it follows that the growth in multifactor productivity and real value added in the manufacturing sector have been overstated. We estimate that average annual multifactor productivity growth in manufacturing was overstated by 0.1 to 0.2 percentage point and real value added growth by 0.2 to 0.5 percentage point from 1997 to 2007. Moreover, this bias may have accounted for a fifth to a half of the growth in real value added in manufacturing output excluding the computer and electronics industry.

The Impact of International Outsourcing on Unionization and Wages: Evidence from the Apparel Export Sector in Central America

Source: Mark Anner, Industrial & Labor Relations Review, Volume 64, Number 2 , January 2011
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From the abstract:
It is often assumed that manufacturing workers in developing countries, as recipients of outsourced jobs, would achieve economic benefits and organizational power. The author argues that job growth in developing countries through outsourcing to competing firms has often actually resulted in declining unionization and lower wage rates relative to traditional, integrated manufacturing firms. Using time-series data on union membership from 1980-2003 for Honduras and El Salvador as well as 2004 Household Survey Data for El Salvador, he examines the determinants of unionization rates and wages in the manufacturing sectors. He finds that that competitive outsourcing hurts labor at the plant-level in three ways: 1) it reduces labor’s strike leverage by geographically dispersing the production process; 2) it increases the threat of plant mobility by decreasing plant-level investments; and 3) it increases labor costs relative to total costs, which creates an incentive for employers to keep wages low and unions out.

Downsizing Effects on Survivors: Layoffs, Offshoring, and Outsourcing

Source: Carl P. Maertz Jr., Jack W. Wiley, Cynthia Lerouge, Michael A. Campion, Industrial Relations: A Journal of Economy and Society, Volume 49, Issue 2, April 2010
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From the abstract:
In a representative sample of 13,683 U.S. employees, we compared survivors of layoffs, offshoring, outsourcing, and their combinations to a group who experienced no downsizing. Survivors of layoffs perceived lower organizational performance, job security, affective attachment, calculative attachment, and had higher turnover intentions. Offshoring survivors perceived lower performance, fairness, and affective attachment, but outsourcing survivors generally did not have more negative outcomes than the no-downsizing group. Layoffs generally had more negative outcomes than other downsizing forms.

Regulatory Effects and Strategic Global Staffing Profiles: Beyond Cost Concerns in Evaluating Offshore Location Attractiveness

Source: Stan Malos, Employee Responsibilities and Rights Journal, Published online: 25 April 2009
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From the abstract:
The practice of offshoring–staffing all or part of a business outside the home country–has proliferated to such an extent that the question for most multinational corporations (MNCs) is where, not if, some or all of its labor forces should be located beyond geopolitical borders. It remains an open question, however, where and under what conditions the hoped-for advantages of offshore staffing are best realized. While cost savings continue to play the major role for most companies, both quality and availability of worker skills and administrative and regulatory contexts of labor markets have increasingly influenced global staffing decision processes. This paper has two purposes: to examine the extent to which employment laws and other regulatory factors can impact–beyond cost concerns alone–the decision where to offshore, and to offer a methodology for developing attractiveness profiles that can help governments, service providers, and MNCs evaluate and improve the match between staffing needs and labor market characteristics. By examining financial considerations in conjunction with administrative and regulatory effects, the parties can better manage ongoing expansion of offshore staffing arrangements beyond more established locations such as India, China, and Malaysia. Strategic implications of a trend toward nearshoring–relocating offshore operations closer to or within the home country–are also discussed.