Offshoring: Impacts on the Nordic welfare states and industrial relations - Survey based evidence from Denmark

The increasing international fragmentation and decomposition of production and work processes has significant impacts on the organization of working life and industrial relations in general. Firms’ can easier relocate entire plants or single parts or processes of the value chain to countries with much lower wages and other costs as well as less strict labour market regulation as well as other regulation e.g. environmental than found in the Nordic countries. The integration of e.g. the Chinese and Indian labour markets in the world economy, but more importantly for the Nordic economies, the Eastern and Central European countries is a defining new aspect. The Eastern and Central European countries have been the dominant offshoring destination from the Nordic countries due to the geographical proximity. Combined with major technological improvements in information and communication technology (ICT) as well as transportation, this has made the process of relocation even more accessible. This adds yet another dimension to the impact internationalisation is having on national industrial relations as well as welfare state policies and general labour market regulation. Other central features of the more internationalised economy are increasing trade in intermediates, rising FDI and increasing competition.
In this context where international relocation is increasingly accessible the phenomenon attracts much attention in both academic analysis, media reports as well as policy analysis. But our knowledge is at best rather limited since the offshoring decision is very difficult to extrapolate from existing literature like trade statistics. Therefor can survey data collected by Eurostat provide some very interesting insight on the scope of the phenomenon, since the survey was made compulsory in Denmark.
The very preliminary evidence provide shows that offshoring only accounts of a minor share, 16 %, of overall job loss in Danish manufacturing in the period 2009-2011. While the crisis might have significant impacts for the period investigated it could be argued that the crisis would actually speed up the offshoring process rather than slowing it down. Previous survey data from 2001-2006 seems to support this argument, since the job loss in this period was roughly the same as in 2009-2011.
Overall this paper presents preliminary evidence on the impacts encountered by the Danish political economy. The very wide ranging Danish survey data on relocation of production is being combined with register data to provide further evidence on the impacts and implications for employment, composition of employment, skill requirements, competitiveness and so forth. While the numerical impact might be more moderate than often portrayed in the literature, there could be very substantial long-term implications of the increasing “international division of labour”.