Patterns of International Fragmentation of Production and the Relative Demand for Labor

North American Journal of Economics and Finance 16 (2005) 233–254

Patterns of international fragmentation of production and the relative demand for labor

Rodolfo Helg a , Lucia Tajoli b,c,∗

b

Cattaneo University, LIUC and CESPRI, Bocconi University, Italy Politecnico di Milano, Dipartimento di Ingegneria Gestionale, via Giuseppe Colombo 40, 20133 Milano, Italy c CESPRI, Bocconi University, Milano, Italy Received 2 April 2004; received in revised form 17 February 2005; accepted 24 February 2005 Available online 11 April 2005

a

Abstract Growing shares of international trade flows consist of intermediate and unfinished goods shipped from one country to another to combine manufacturing or services activities at home with those performed abroad. This configuration of the productive structure has been named “internationally fragmented.” The purpose of our work is to analyze the labor market effects of international fragmentation of production, looking at how it affects relative labor demand. Models of trade due to fragmentation of production suggest that when international fragmentation takes place we might observe changes in factor proportions in the affected industries. We use outward-processing-trade data – specifically related to international fragmentation of production – to test if the shift in the ratio of skilled and unskilled labor employed in Italy and Germany during the 1990s is related to fragmentation. © 2005 Elsevier Inc. All rights reserved.

JEL classification: F1; F14; F16 Keywords: International fragmentation of production; Trade; Labor demand

1. Introduction Recently, both theoretical and applied research have devoted increasing attention to the fact that large and growing shares of international trade flows consist of intermediate and

∗

Corresponding author. Tel.: +39 02 2399 2752; fax: +39 02 2399 2710. E-mail address: lucia.tajoli@polimi.it (L. Tajoli).

1062-9408/$ – see front matter © 2005 Elsevier Inc. All rights reserved....