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By allowing work to be done externally, broadband technology has increased outsourcing – USAPP American Politics and Policy (blog)

Domestic outsourcing has grown substantially in developed countries over the past two decades. One reason for this is technological change that allows work to be done externally. Antonin Bergeaud, Clement Malgouyres, Clement Mazet-Sonilhac and Sara Signorelli show that broadband technology increases firm productivity and the relative demand for high-skilled workers. Both low- and high-skilled workers in non-core occupations were more likely to be outsourced after the arrival of broadband. But only high-skill workers experienced salary gains from being outsourced, while low-skill workers lost out.


 

In a book published in 2014, “The Fissured Workplace”, David Weil describes the fragmentation of the organisation of firm production, resulting from a growing reliance on outsourcing. Outsourcing is the process whereby a specialised service company now operates an activity that was previously performed in-house. These outsourced activities  are as diverse as IT, human resources, accounting, marketing, communication, transport, security and cleaning (see Goldschmidt and Schmieder, 2017 for a description in the German context). Outsourcing results in restructuring companies increasing their focus on their core competencies, i.e., activities directly involved in the production process.

Weil suggests that technological change may be one of the determinants of workplace fragmentation: new information and communication technologies offer numerous possibilities for coordinating and controlling work inside and outside the firm. In a recent article (Bergeaud et al., 2021), we test this hypothesis by studying the effect of technological change on the outsourcing decisions of firms, and further explore the consequences for externalised workers. We do this by leveraging a large-scale technological shock: the progressive roll-out of high-speed broadband internet (BI) in France, from 1999 to 2007.

The roll-out of broadband internet in France

The diffusion of BI has been very gradual. As shown in Figure 1, large urban centres were equipped in the early 2000s, while rural and remote areas had to wait almost 10 additional years. One reason for the gradual deployment of BI is the eligibility of telephone network lines for this new technology. In 2000, only 11 million lines (i.e. 1/3 of the network) could be equipped with BI technology and significant infrastructure investments were required to modernise the remaining two-thirds of the network. Therefore, the gradual roll-out of BI provides an ideal empirical framework for studying the causal impact of this technological shock: the significant spatial and temporal variations in broadband access, even within the same county, make it possible to compare firms that have access (treated firms) with similar firms that do not (control firms).

Figure 1. Gradual deployment of broadband internet in France

Note: This figure presents the geographical distribution of the measure of local broadband availability at the city level in 4 different years. Source: Bergeaud et al. (2021)

The reaction of firms: increasing outsourcing and higher concentration of occupations

Measuring changes in firms’ outsourcing strategies is not easy because external (subcontracted) workers are not generally linked to the firms buying their services in social security data, which is the administrative source most frequently used to study the labour market (in France, the DADS). To get around this methodological difficulty, …….

Source: https://blogs.lse.ac.uk/businessreview/2021/12/13/by-allowing-work-to-be-done-externally-broadband-technology-has-increased-outsourcing/

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