When work moves off. Effect of outsourcing on firm level employment growth

This study empirically examines the effect of outsourcing on employment growth at the level of the individual firm. We take a dynamic view of outsourcing, measuring it as a shift of activities previously performed in-house to an external supplier. We study the effect of outsourcing of several business functions separately. Our measure includes both domestic and international outsourcing. The analysis is based on data of a representative set of Belgian firms covering all sectors of activity. An exploratory analysis is performed by using ordinary least squares regression. In a second step, we consider an instrumental variables approach. The main finding is that outsourcing does not have a negative effect on firm level employment growth. In the case of support activities, outsourcers even show significantly higher average growth rates than firms which did not outsource this kind of activities. Only in the case of R&D outsourcing, a negative relationship between outsourcing and employment growth is found.