Services Offshoring and its Impact on Productivity and Employment: Evidence from Germany, 1995–2006

Economists have recently recognised services offshoring as an important influence on domestic labour market outcomes. Services are of particular interest since their significance has grown in terms of both quantity and quality. Only one and a half decades ago, most services were considered non‐tradable, but the emergence and development of new information and communication technologies has made many services internationally tradable. The liberalisation of international trade in services trade has further accelerated the volume of services trade. Our econometric estimations focus on services offshoring by German manufacturing sectors. We use revised input–output data from 1995 to 2006. We first estimate the impact of services offshoring on labour productivity. We then measure the effects of services offshoring on labour demand. The results show that services offshoring increased sectoral labour productivity, but reduced German manufacturing employment. The overall results suggest that labour demand decreased over 1995–2006, because labour‐reducing productivity and substitution effects dominated labour‐augmenting scale effects from services offshoring.