Offshoring, multinationals, and employment in South Korea

Abstract

This study explores the impact of offshoring on employment growth and labor demand using a South Korean manufacturing firm-level panel dataset while considering offshoring structures, technology levels, and destinations. The results suggest that intra-firm offshoring has a statistically significant negative effect on employment growth, whereas arm’s-length offshoring does not. This effect is apparent in the high-tech industry, implying that labor-intensive tasks of the production process in such industries are offshored among multinational enterprises (MNEs), resulting in substituting domestic workers. In particular, offshoring to low-wage countries negatively affects labor demand, whereas offshoring to high-wage countries positively affects labor demand. These empirical findings suggest that the impact of offshoring on employment is heterogeneous depending on the industrial technology level, the organizational structure of firms with sourcing affiliations, and foreign offshoring locations.