Service Imports, Workforce Composition, and Firm Performance: Evidence from Finnish Microdata

Abstract

This paper uses unique Finnish firm-level micro data on service imports, employment, and firm characteristics to analyze changes in workforce composition and performance of Finnish service importers during a period of a significant increase in service imports (2002–2012). We utilize country-service specific export supply shocks, which we allocate to firms based on their highly specialized service-origin input structure, as an instrument to identify the impact of sourcing services from abroad. Our analysis indicates that sourcing services internationally offers firms considerable opportunities to enhance productivity and competitiveness. However, the analysis also reveals potential challenges, particularly for workers in low- and medium-skilled occupations, who experienced reduced employment, whereas managers and high-skilled professionals benefited from employment growth. These effects are broad: they involve workers beyond low-skilled occupations and firms across manufacturing and service sectors.

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