The Wage Effects of Material and Service Offshoring: Evidence From South Korea

ABSTRACT Using commodity‐level input–output tables with detailed import matrices for South Korea, we construct a direct industry‐level measure of offshoring, avoiding the proportionality assumption common in prior studies. Comparing measures with and without this assumption, we reveal significant disparities, particularly in service offshoring. Integrating this measure with individual‐level worker data, we estimate the wage effects of material and service offshoring between 2005 and 2014. Both industry‐ and occupation‐level material offshoring increase wages, whereas service offshoring has positive effects only when measured directly. Occupation‐level offshoring consistently has larger wage effects than industry‐level offshoring. Using two‐stage least squares, we find that a one‐percentage‐point increase in occupation‐level service offshoring raises wages by 2.094%. Our heterogeneity analysis reveals that material offshoring widens the gender wage gap, while service offshoring reduces the skill premium. Moreover, service workers and those who remain in the same occupation benefit the most from wage increases driven by service offshoring.