Service Imports, Workforce Composition, and Firm Performance : Evidence from Finnish Microdata

This paper uses unique Finnish firm-level micro-data to examine changes in workforce composition and performance of Finnish service importers during a period of a significant increase in service imports. We use world service export-supply shocks, which we allocate to firms based on their highly specialized service input structure, as an instrument to identify the impact of sourcing services from abroad. We find that firms increasing imports of service inputs reduce employment of low-skill service workers, increase employment of managers and improve their performance in terms of sales, assets, and service exports. These effects are heterogeneous across sectors: manufacturing firms also reduce employment of medium-skilled workers and experience weaker improvements in performance, firms in the service sector experience additional skill upgrading (high-skilled professionals). Therefore, the effects of importing service inputs are pervasive and different from imports of intermediate products: they involve firms in all sectors and workers beyond low-skilled occupations