Diversified Occupations, Offshoring and Labor Market Volatility

Bardhan, Ashok and Tang, John (2006): Diversified Occupations, Offshoring and Labor Market Volatility.

Abstract

Are occupations that are well diversified across sectors less volatile and less susceptible to external shocks? Most external shocks, like manufacturing offshoring and oil shocks, impact the labor market along sectoral lines, i.e. they impact product and output markets; consequently, they affect employment in various occupations. Some shocks, however, like services offshoring, affect horizontals or occupations. We suggest a new approach to assess the vulnerability of jobs due to such shocks. We find that an occupation spread across multiple industries is less volatile in terms of numbers employed and the average wage. Including various measures of an occupation's offshorability does not affect the results; however, geographically clustered occupations seem more “at-risk,” after accounting for sectoral diversification.

• Item Type: MPRA Paper
• Institution: University of California, Berkeley - Haas School of Business
• Language: English
• Keywords: offshoring; external shocks; labor market volatility; occupations; diversification; geographic clusters
• Subjects: J - Labor and Demographic Economics > J2 - Demand and Supply of Labor; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers; F - International Economics > F2 - International Factor Movements and International Business

References

Agmon, Tamir and Donald Lessard, “Investor Recognition of Corporate International Diversification,” Journal of Finance, vol. 32, no. 4, pp. 1049-1055, September 1977. Amihud, Yakov and Baruch Lev, “Risk Reduction as a Managerial Motive for Conglomerate Mergers,” Bell Journal of Economics, vol. 12, no. 2, pp. 605-617, 1981. Autor, David, Frank Levy, and Richard Murnane, “The Skill Content of Recent Technological Change: An Empirical Exploration,” Quarterly Journal of Economics, vol. 118, no. 4, November 2003. Bardhan, Ashok and Cynthia Kroll, “The New Wave of Outsourcing,” Haas School of Business, UC Berkeley; www.haas.berkeley.edu/news/Research_Report_Fall_2003.pdf Berry, Charles, “Corporate Growth and Diversification,” Journal of Law and Economics, vol. 14, pp. 371-383, October 1971. Blinder, Alan, “Fear of Offshoring” CEPS Working Paper No. 119, Princeton University, December 2005. Demsetz, Rebecca and Philip Strahan, “Diversification, Size and Risk at Bank Holding Companies,” Journal of Money, Credit & Banking, vol. 29, no. 3, pp. 300-313, August 1997. Garner, Alan, “Offshoring in the Service Sector: Economic Impact and Policy Issues,” EconomicReview, Third Quarter 2004, pp. 5-37.

Grant, Robert, Azar Jammine, and Howard Thomas, “Diversity, Diversification, and Profitability among British Manufacturing Companies, 1972-84,” Academy of Management Journal, vol. 31, no. 4, pp. 771-801, December 1988. Jacquemin, Alexis and Charles Berry, “Entropy Measure of Diversification and Economic Growth,” Journal of Industrial Economics, vol. 27, no. 4, pp. 359-369, June 1979. Jaffee, Dwight, "Globalization, Offshoring, and Economic Convergence: A Synthesis" (December 1, 2005). Fisher Center for Real Estate & Urban Economics. Fisher Center Working Papers: Paper 297; http://repositories.cdlib.org/iber/fcreue/fcwp/297 Jensen, J. Bradford and Kletzer, Lori G., "Tradable Services: Understanding the Scope and Impact of Services Outsourcing" (September 2005). Institute for International Economics Working Paper No. 05-9. Available at SSRN: http://ssrn.com/abstract=803906. Lintner, John, “The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets,” Review of Economics and Statistics, vol. 47, pp 13-37, February 1965. Liu, Crocker and Jianping Mei, “The Predictability of International Real Estate Markets, Exchange Rate Risks and Diversification Consequences,” Real Estate Economics, vol. 26, no. 1, pp. 3-39, 1998. Magnusson, Erik and Alessandro Alasia, “Occupation Patterns Within Industry Groups: A Rural-Urban Comparison,” Rural and Small Town Canada Analysis Bulletin, vol. 5, no. 6, November 2004. Markowitz, Harry, “Portfolio Selection,” Journal of Finance, vol. 7, no. 1, pp. 77-91, March 1952. Markusen, Anne, “Targeting Occupations in Regional and Community Economics Development,” Journal of the American Planning Association, vol. 70, no. 3, pp 253-268, 2004. Merton, Robert, “An Intertemporal Capital Asset Pricing Model,” Econometrica, vol. 41, no. 5, pp. 867-887, September 1973. Michaels, Guy, “Technology, Complexity and Information: The Evolution of the Demand for Office Workers,” unpublished paper, 2005. Ramanujam, Vasudevan and P. Varadarajan, “Research on Corporate Diversification: A Synthesis,” Strategic Management Journal, vol. 10, pp. 523-551, 1989. Reif, Xavier and D. Van Welsum, “Potential Offshoring: Evidence from Selected OECD Countries,” Brookings Trade Forum 2005, pp165-194. Ross, Stephen, “The Arbitrage Theory of Capital Asset Pricing,” Journal of Economic Theory, vol. 13, pp. 341-360, December 1976. Sharpe, William, “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk,” Journal of Finance, vol. 19, pp. 435-442, September 1964. Tobin, James, “Money and Economic Growth,” Econometrica, vol. 33, no. 4, pp. 671-684, October 1965. Wallace, Nancy and Donald Walls, "Agglomeration Economies and the High-Tech Computer" (July 25, 2004). Fisher Center for Real Estate & Urban Economics. Fisher Center Working Papers: Paper 292. http://repositories.cdlib.org/iber/fcreue/fcwp/292. Williamson, Oliver, “The Economics of Organization: The Transaction Cost Approach,” American Journal of Sociology 3 (1981), 548-577.