The Impact of Service Outsourcing on Labor Productivity (work in progress)


This paper investigates the impact of service outsourcing on sectoral labor productivity in the United States over the period 1963-2019. Outsourcing refers to a situation where firms or sectors contract out particular jobs, such as accounting, data analyzing, and cleaning, to specialized companies rather than produce them in-house. In the paper, I observe that service-related sectors were becoming more central input suppliers in the U.S. economy over the sample period, which coincident with the fast-growing service outsourcing activities. I also document a significantly positive correlation between the change in employment in the service sectors and their supply of output within the network. Our results imply that this structural transformation might trigger labor reallocation towards service sectors and thus influence sectoral labor productivity. To account for these sectoral movements, I incorporate the input-output network into a multisector real business cycle model to quantitatively assess the role of industry sourcing mode in labor productivity.