This line of research investigates how domestic of outsourcing can lead to growing differences in job quality, firm performance, and even shape the employment structure of EU countries.
Outsourcing is the process by which firms subcontract some activities to external providers, other firms, or individual workers. This process can take place within country boundaries, in which case it is called “domestic outsourcing”, or internationally (also called “offshoring”), which involves companies contracting out some production phases abroad.
Outsourcing is distinct from digital labour platforms, which also involve contracting services externally, because outsourcing entails an ongoing contractual relation between businesses or between business and autonomous workers, whereas digital labour platforms mostly mediate one-time-only services between individuals.
Domestic outsourcing and structural employment change
The JRC researches how domestic outsourcing contributes to structural employment changes within EU countries from a macroeconomic perspective. Domestic outsourcing changes the types of jobs available in an economy – as companies choose to outsource tasks that were previously done in-house. This can lead to a shift in the number of workers employed from certain jobs to other ones. It may also partly explain the structural rise in employment in the service sector.
Measuring the prevalence and impact of outsourcing is hampered by a lack of data: outsourcing introduces intermediaries and more complex contractual relationships between workers and employers, which may not be consistently measured through conventional survey data. Other types of data, like administrative matched employers-employee data, or structural data like input-output tables help measuring the phenomenon at the micro and macro level.
Domestic outsourcing, job quality and firms performance
Domestic outsourcing can put pressure on wages and working conditions. A study by the JRC on France found evidence that outsourced workers suffer a wage penalty compared to in-house peers. Complementing existing evidence for the U.S., Germany, and few other countries, the study detected a wage penalty for outsourced workers compared to their in-house peers and that this effect is stronger for female workers. Other ongoing studies by the JRC team investigate the impact of outsourcing on wages, employment characteristics, like contract type, working time and career prospects using administrative microdata for other two European countries, Spain and Italy as well as the impact of outsourcing on the creation and disappearance of firms and their performance over time.
Domestic outsourcing and minimum wage
An ongoing strand of research studies how institutional changes, like the increase in statutory minimum wage, affect outsourced and in-house workers in terms of wages, employment relationship and workers relocation across jobs.
Publications
Fana, M., Giangregorio, L., Villani, D., The outsourcing wage penalty along the wage distribution by gender, JRC Working Papers Series on Labour, Education and Technology 2022/04, European Commission, Seville, 2022, JRC130452.
