Measuring and Understanding Trade in Service Tasks

Improvements in Information and Communication Technologies (ICT) have had differential impacts on the costs of offshoring service tasks. As a result, services with stronger tradability characteristics are at a higher risk of being offshored. This has increased the need for coming up with proper measures of service tradability and to better understand the labor market implications of service offshoring. This paper reviews a literature that has proposed measures of service tradability, investigated the causal effects of service offshoring and developed theoretical models to rationalize the associated stylized facts. The review suggests that skill-intensity and tradability are key determinants of wage and employment effects. Nonetheless, the lack of widely accepted definitions and measures of tradability, the absence of high quality data on service trade flows and the difficulty of measuring import competition at higher disaggregation levels pose difficulties to attain further empirical progress. The theoretical literature must produce a new generation of models that could rationalize the stylized facts.