The Direct and Indirect Effect of Services Offshoring on Local Labour Market Outcomes

I prove new empirical evidence on the direct and indirect impact of services offshoring on local labour markets outcomes. Differently from the rest of the literature, I account for the effects that offshoring of services has on firms that are not directly involved in offshoring, but that are located in the same local labour market from where offshoring originates. I employ a unique detailed dataset on firms in the UK for the period 2000-2015 and exploits geographical differences in services trade flows across the country. Services offshoring is measured using precise information on firms’ location and trade in services flows. The analysis proceeds first estimating the causal average impact of services offshoring on local labour markets, showing positive elasticity of employment and wages. On a second step, it exploits firms’ heterogeneity and shows that part of the increase in average employment and wages is driven by the spillover effects of services offshoring on the firms non involved in services trade directly. Further, services offshoring widens the dispersion of firms, also when accounting for changes in the composition of firms through time and firms’ trade status. Finally, I look at the heterogeneous impact of services offshoring based on workers’ characteristics, showing higher elasticities of employment and wages to services offshoring of workers in managerial and professional occupation or with a higher level of education.