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The nature of the employer-employee relationship is drastically changing in the United States, with lead employers employing fewer workers directly and instead relying on intermediaries and contracting firms for providing labor services. In the paper researchers investigate the incidence and effects of outsourcing labor service jobs in food, cleaning, security and logistics (FCSL) to business service firms. They first provide long time series using Census and ACS data documenting large movements of FCSL jobs to business service firms, with an accelerating trend since the Great Recession. They then analyze how the outsourcing of jobs affects wages at those jobs by identifying on-site outsourcing events in the Longitudinal Employer-Household Dynamics (LEHD) dataset which allows them to compare the same worker before and after he is outsourced to a business service firm. Preliminary results suggest long-run earnings losses of about 5% for the outsourced workers and higher job-to-job mobility.

Research Questions

• How much did domestic outsourcing increase over the last decades?
• Does domestic outsourcing affect wages of affected workers?
• Do economic downturns such as the Great Recession accelerate firms’ decisions to outsource their workforce?

Research Gaps

• In the future we plan to investigate the relationship between the incidence (and effects) of domestic outsourcing and the business cycle in more detail. At this point we are not sure whether the variation over the business cycle is due to outsourcing varying over the cycle or due to other types of business services being more cyclical. We now turn to estimates of equation (4) for the incidence of outsourcing. The outcome variable here is the share of workers in FCSL occupations that work for business service firms. This is a broad measure of the incidence of contracting out jobs, rather than a measure of the type of outsourcing events we observe in the LEHD. In the future we plan to replicate the same type of analysis for other measures of outsourcing, including the on-site outsourcing events from the LEHD. (page 5)

Citation

Dorn, D., Schmieder, J. F., Spletzer, J. R. (2018). Domestic Outsourcing in the United States. Chief Evaluation Office, U.S. Department of Labor.

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This study was part of the Department of Labor Scholars Program, and was produced outside of CEO’s standard research development process.