What Skills Matter Most in Global Economy? Some Surprising Answers

A new study of the Danish labor market by David Hummels and Chong Xiang at Purdue, Rasmus Jørgensen at Yale and Jakob R. Munch at the University of Copenhagen rebuts much of the conventional wisdom about the effects of globalization on the workforce:

When we examine the effects of offshoring on wages for different knowledge groups, we find that offshoring has the largest positive effect on [wages for] occupations that require communication and language (premium of +4.4%), followed by social sciences (+3.7%), and maths (+2.7%). The premium for natural sciences and engineering is close to 0. This may seem curious given the policy emphasis on STEM (Science, Technology, Engineering, and Maths) education in many advanced economies, but if science and maths are universal languages, jobs requiring them can be done anywhere with an educated workforce. . . .

We find that offshoring firms not only retain workers doing communication-intensive tasks, but that these workers actually become more valuable when offshoring rises. Why? One possible explanation is that offshoring increases interactions between domestic workers and foreign workers from different cultural backgrounds, and those differences raise the cost of communicating within the firm (Lazear 1999). Having domestic workers with finely tuned communication and language skills and social scientists with knowledge of other cultures and societies may be useful in overcoming offshoring-induced costs of cross-cultural dealing.

They also turned up some surprising findings about how off-shoring affects workers who don’t have college degrees:

 For manufacturing as a whole, 50% of these workers enjoy positive wage gains on net from globalisation. The bad news is that 10% of non-college educated employees suffer wage losses more than -1.5% per year. This corresponds to workers in firms that offshored production but without a corresponding increase in exports.

The study was done in Denmark, so the results may not be the same for other economies (particularly the US).  But it does suggest that the current conventional wisdom is far from settled truth.  You can read a concise summary of the full study here.

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