Fact of the Week: Danish Firms Increased Domestic Tech Employment by 40 Percent For Every 10 Percent of Production They Outsourced

Source: Andrew B. Bernard, et al., “Heterogeneous Globalization: Offshoring and Reorganization,” November 23, 2018, Working Paper.

Commentary: Offshoring is widely maligned for reducing manufacturing employment in advanced economies. However, by lowering costs and utilizing global value chains, firms that outsource can afford to increase their investments and funding for higher-productivity jobs, making the overall economic implications less clear. Research into Danish firms’ outsourcing lends credence to this, finding that for every 10 percent of production that was offshored between 2001 and 2006, firms increased their share of technology workers by 40 percent and introduced 1.4 new domestically made products. This demonstrates that the innovations facilitated by outsourcing can spur new demand for domestic manufacturing, mitigating the effect of initial reductions.