No evidence that offshoring led to an increase in unemployment: study

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Sydney Employees
Commuters cast their shadows as they arrive at the Central Business District during the morning rush hour in Sydney July 1, 2013. Reuters/Daniel Munoz/File Photo

Offshoring or the relocation of a part of a business from one country to another may not have anything to do with unemployment at home. A new study has found no evidence that offshoring led to an increase in unemployment.

The relocation of a business process is usually operational, such as manufacturing. It could also be supporting processes like accounting. Offshoring is perceived as one of the central planks of globalisation. There have been claims of loss of employment because of offshoring, but a recent study tells otherwise.

A study by Warwick Business School’s Nigel Driffield, University of Wollongong’s Vijay Pereira and Aston University’s Yama Temourib has recorded no evidence that offshoring results in unemployment. Driffield said the unsubstantiated claims of loss of employment because of offshoring have played a role in the UK voting for Brexit as well as the rise of right-wing protectionist governments in some countries. He said it is imperative to have proper evidence on the issue.

Aside from the nonexistence of proof that offshoring led to reduction in employment at home, it was also notable that it had actually resulted to uplift employment for the company in its home since the global financial crisis in 2007-08. The researchers noted that most studies have concerned manufacturing companies. But they kept their focus on services with the service sector making up about 80 percent of UK employment.

Researchers looked at thousands of multi-national firms across Europe over an almost 20-year period, calculating the impact of their offshoring activities. They specifically investigated the effects of offshoring by 5,746 European multi-nationals from 1997 to 2016.

Retailers, hoteliers, financial services and telecommunications companies offshored to 9,416 subsidiaries in 87 countries. Germany, Spain, France and Sweden hosted the majority of parent firms. Belgium, Denmark, Finland and the United Kingdom follow.

The majority of the subsidiaries were located in high income economies in Western Europe, North America or Japan and Australia, the researchers found. They also learned that companies offshoring to move into a new market saw employment grow in their home country. Offshoring by “information intensive” companies saw a drop in employment when offshoring before the financial crisis, but since then it did not impact unemployment.

The study titled “Does offshore outsourcing impact home employment? Evidence from service multinationals” involved almost 6,000 European service multi-nationals. It will be published in the Journal of Business Research.