Outsourcing, imports and labour demand

This paper examines the effects of purchased services and imported intermediate materials on the labour demand for different skills in German manufacturing sectors. We derive and estimate a factor demand system based on the generalised Box-Cox cost function nesting both the normalised quadratic and the translog functional form. We find that the impacts of output and capital growth are more important in explaining the demand for heterogeneous labour than substitution effects between labour and non-labour inputs. Similarly, the increasing use of both imported materials and purchased services is a consequence of output growth rather than input substitution.