Offshoring and the Skill Structure of Labour Demand in Belgium

A major concern regarding the consequences of offshoring is the worsening of the labour market position of low-skilled workers. This paper addresses this issue by providing evidence on the impact of offshoring on the skill structure of manufacturing employment in Belgium between 1995 and 2007. Offshoring is found to significantly lower the employment share of low-skilled workers. Its contribution to the fall in the employment share of low-skilled workers amounts to 35%. This is mainly driven by offshoring to Central and Eastern European countries. Moreover, our analysis contains three extensions with respect to the existing literature. First, while previous papers exclusively focus on materials offshoring, we show that offshoring of business services also contributes significantly to the fall in the low-skilled employment share. Second, according to our results, the widely used current price measures of offshoring underestimate the extent of offshoring and its impact on low-skilled employment. Finally, we find that the impact of offshoring on low-skilled employment is significantly smaller in industries with a higher ICT capital intensity. This result also implies that even if ICT capital facilitates offshoring, especially of business services, this does not lead to faster skill upgrading in industries with a high ICT capital intensity.