Production offshoring and the skill composition of Italian manufacturing firms: a counterfactual analysis

This work explores how the international relocation of production impacts the skill composition within Italian manufacturing firms. The aim is to assess if the choice to offshore production activities to cheap labour countries determines a bias in the employment of skilled workers relative to unskilled workers. Using a balanced panel of firms across the period 1995-2003, we set up a counterfactual experiment in which we use a difference-in-differences propensity score matching estimator in order to control for selectivity bias and unobserved heterogeneity without relying on specific functional forms. Our results point to a potential skill bias effect of production offshoring. In particular, we find that treated firms tend to show an upward shift in the skill ratio with respect to the counterfactual, although coefficients are not significantly different from zero. When we separate the components of the skill ratio, we find that the skill bias is significantly driven by a fall in the employment of production workers (blue collars), rather than by the increase in the employment of nonproduction workers (white collars), thus providing further evidence on the unskilled labour-saving nature of international outsourcing.