International Production Networks in the Nordic/Baltic Region

The Nordic countries are characterized by relatively compressed wage structures, implying that theincentives to offshore activities intensive in low-skilled labour might be particularly strong in thesecountries. In this paper, we document the recent changes in measures of offshoring and find that there hasbeen an overall increase since the mid 1990s but that the experience varies considerably across sectors. Wealso document the recent trends in wage-bill shares of workers with different levels of educationalattainment. As in most industrialized countries, there has been an overall increase in the wage-bill share ofhighly educated workers, a development that is relatively uniform across sectors.In an econometric analysis we estimate the relationship between offshoring of intermediate inputproduction and labour demand in Sweden, Finland and Norway, distinguishing between workers withdifferent educational attainments. We only find weak relationships. In this sense, the results suggest thatthe gains from an increased specialisation due to fragmentation of production and the emergence ofproduction networks involving low-wage countries are reaped without any large adverse effects on incomedistribution. For Sweden, we find that offshoring to low-income countries is associated with a shift indemand towards workers with a relatively high level of education. For Finland, however, it is ratheroffshoring to high-income countries that is associated with such a shift. Moreover, in the Swedish case theshift is away from workers with upper secondary education whereas in the Finnish case it is away fromworkers with lower secondary education.