Business Services Outsourcing: A Firm–level Analysis of Spanish Manufactures

Carmen Ansoategui (), Georgios Chrysanthou and María Dolores Guilló ()
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Carmen Ansoategui: Department of Economics, Finance and Accounting, ESADE, Spain
María Dolores Guilló: Department of Economics, Universidad de Alicante, Spain.

No 24-3, QM&ET Working Papers from University of Alicante, D. Quantitative Methods and Economic Theory

Abstract: We explore the relationship between outsourced business services and labor at the firm level, using longitudinal data of Spanish manufacturing over the period 1995-2017. We propose a measure for the degree of business services outsourcing based on the fact that (in-house) production of services is a labor intensive activity, and estimate the elasticity of substitution between purchased services and hours worked, controlling for unobserved firm heterogeneity and endogeneity issues. We assess the importance of a technical substitution effect driven by changes in the company’s own relative prices and find that this effect is similar and very significant both in the overall sample and in each industry separately. Moreover, in the overall sample, size has a negative effect on the intensity of business services outsourcing, while the effect of technological sophistication is positive, and the type of industry where the company operates is non-significant. The results are consistent with an unobserved firm productivity term being labor-enhancing.

Keywords: Firm-level manufacturing; business services outsourcing; production function; elasticity of substitution (search for similar items in EconPapers)
JEL-codes: D21 D22 D24 L22 L60 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2024-08-26
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