Is the World Flat or Spiky? Information Intensity, Skills, and Global Service Disaggregation

Abstract

Which service occupations are the most susceptible to global disaggregation? What are the factors and mechanisms that make service occupations amenable to global disaggregation? This research addresses these questions by building on previous work by Apte and Mason (1995) and Rai, Patnayakuni, and Seth (2006) that focuses on the unbundling of information and physical flows. We propose a theory of service disaggregation and argue that high information intensity makes an occupation more amenable for disaggregation because the activities in such occupations can be codified, standardized, and modularized. We empirically validate our theoretical model using data on more than 300 service occupations. We find that at the mean level of skill, the information intensity of an occupation is positively associated with the disaggregation potential of that occupation, and the effect of information intensity on disaggregation potential is mediated by the modularizability of an occupation. We also find that skills moderate the effect of information intensity on service disaggregation. Furthermore, we study the patterns in U.S. employment and salary growth from 2000 to 2004. Contrary to popular perception, we do not find any adverse effect in terms of employment growth or salary growth for high-information-intensity occupations at the mean level of skill. Our findings show that high-skill occupations have experienced higher employment and salary growth than low-skill occupations at the mean level of information intensity. Notably, high-information-intensity occupations that require higher skill levels have experienced higher employment growth, though this employment growth is accompanied by a decline in salary growth. Occupations with a higher need for physical presence have also experienced higher employment growth and lower salary growth. Overall, these results imply that firms and managers need to consider the modularizability of occupations as they reallocate global resources to pursue cost and innovation opportunities. For individual workers, our results highlight the importance of continuous investments in human capital and skill acquisition because high-information-intensity and high-skill occupations appear to be relatively less vulnerable to global disaggregation.

Keywords: Information Intensity, Skills, Codifiability, Standardizability, Modularizability, Offshoring, Global Disaggregation, Service Occupations, Services, Need for Physical Presence

JEL Classification: E24, L86, M54, O30