Outsourcing and US Manufacturing Employment

In an increasingly protectionist trade environment, there is public concern in the USA that services outsourcing is contributing to declining employment. Addressing this concern, this paper analyzes the impact of outsourcing on the relative demand for skilled worker in US manufacturing industries between 1998 and 2004. Greater outsourcing of communications and business services slightly reduces skilled labor demand and the outsourcing of other services increases labor demand, although nonproduction labor demand is generally inelastic to changes in outsourcing intensity. Part of the reason for this is the fact that tradable services are only small shares of the industries’ total inputs.