Outsourcing and Low-Skilled Workers in the U.K.

CSGR Working Paper No. 12/98

28 Pages Posted: 3 May 1999

See all articles by Bob Anderton

Bob Anderton

National Institute of Economic and Social Research (NIESR)

Paul Brenton

World Bank

Date Written: July 1998

Abstract

This paper investigates the impact of "outsourcing" on the relative wages and employment of the low-skilled in the U.K. In contrast to previous studies which proxy outsourcing by imports from all countries, we examine whether the source of imports is important. We disaggregate U.K. imports according to individual supplier countries and construct import penetration terms for different groups of countries--i.e., distinguishing between imports from industrialized countries and imports from low-wage countries--for each 4-digit industry within the broader categories of textiles and non-electrical machinery. Our econometric results show that imports from low-wage countries have made a significant contribution to the decline in the relative wages and employment of the less-skilled in the U.K., with no discernible effect resulting from imports originating from industrialized countries. The estimates suggest that rising imports from low-wage countries may account for about 40 percent of the rise in the wage bill share of skilled workers, and approximately one-third of the increase in their employment share, in the U.K. textiles sector during the period 1970-1983. We also offer some limited evidence that the degree of outsourcing may differ across industries and that large currency appreciations may have a disproportionately large impact on the economic fortunes of the less-skilled, partly by creating an increased "threat" of outsourcing.

JEL Classification: J31

Suggested Citation

Anderton, Bob and Brenton, Paul, Outsourcing and Low-Skilled Workers in the U.K. (July 1998). CSGR Working Paper No. 12/98, Available at SSRN: https://ssrn.com/abstract=146964 or http://dx.doi.org/10.2139/ssrn.146964

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Paul Brenton

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