Outsourcing, Offshoring, and Productivity Measurement in Manufacturing

Upjohn Institute Staff Working Paper No. 06-130

25 Pages Posted: 10 Sep 2006

See all articles by Susan N. Houseman

Susan N. Houseman

W.E. Upjohn Institute for Employment Research

Date Written: September 2006

Abstract

Because of gaps in existing surveys and methodological problems with the computation of productivity measures, outsourcing and offshoring result in an overstatement of labor productivity and multifactor productivity growth in manufacturing. Although it is impossible to fully characterize the size of the bias, I present several pieces of evidence indicating that it is large. Any overstatement of productivity in manufacturing, which has been a driver of productivity in the American economy, may have important implications for aggregate productivity measurement, particularly to the extent that the bias arises from offshoring activities. These findings may help explain why recent high growth in labor productivity has not been associated with widespread wage gains but rather with an increase in capital's share of GDP: labor productivity growth in manufacturing, and most likely in the aggregate economy, are overstated, and the very factors that have led to the overstatement - outsourcing and offshoring - depress wages. The effects of outsourcing and offshoring on manufacturing and aggregate productivity measurement, I argue, warrant further study, and productivity measures should be interpreted with caution.

Keywords: productivity, offshoring, outsourcing, measurement, manufacturing

JEL Classification: D24, D33, O47, J24

Suggested Citation

Houseman, Susan N., Outsourcing, Offshoring, and Productivity Measurement in Manufacturing (September 2006). Upjohn Institute Staff Working Paper No. 06-130, Available at SSRN: https://ssrn.com/abstract=929110 or http://dx.doi.org/10.2139/ssrn.929110

Susan N. Houseman (Contact Author)

W.E. Upjohn Institute for Employment Research ( email )

300 South Westnedge Avenue
Kalamazoo, MI 49007-4686
United States

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