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As regards labor market effects of International Outsourcing, empirical results differ strongly. This is not only due to different data, the use of different indices adds to the puzzle. This paper investigates the importance of measurement differences for analyzing labor market effects of International Outsourcing. To this end, several indices are compared with respect to their design, their descriptive properties, their quality in proxying International Outsourcing activities, and their econometrical performance. As the results show, International Outsourcing effects depend strongly on measurement differences and the level of industry aggregation. Considering these results, different empirical findings can be reconciled.

Since International Outsourcing moved into the focus of political and social discussion, it has been blamed to reduce relative demand for low skilled labor. Thus, beside skill-biased technological change, International Outsourcing is seen as one main culprit for labor market disruptions in industrialized countries. While outsourcing is defined as the procurement of inputs from an external supplier, it is the international component, namely the use of a production fragment produced abroad, that achieves most attention in public discussion as well as in economic research. Even if International Outsourcing is already seen as a world-wide phenomenon, Kierzkowski (2005, p. 235) correctly mentions that “it is only the beginning of what seems an inexorable process”.

The results of empirical contributions investigating labor market effects of International Outsourcing differ strongly. While some of them significantly support the importance of International Outsourcing to explain changes on the labor market, others yield only insignificant effects. The different results depend on different data situations, however, the use of different indices to proxy International Outsourcing activities adds to the puzzle. This paper examines the importance of measurement differences for empirical contributions investigating International Outsourcing effects. As it turns out, measurement differences may be the reason for the different empirical results. An aggregation bias emerges showing that the performance of different indices strongly depends on the level of industry aggregation. While the IITM index achieves significant results for more aggregated industry levels, the VS index supports significant effects of International Outsourcing within more disaggregated industry levels. The IIGO index, by contrast, shows significant effects for aggregated as well as disaggregated industry levels, while the IITI index confirms the importance of International Outsourcing for affecting the wage differential in the manufacturing industry. While the IITI, the IIGO, and the VS index are very capable of capturing International Outsourcing activities, difficulties with respect to the theoretical design arises for the IITM index. Thus, the IITM also shows a lower quality in emphasizing intrinsic International Outsourcing activities. On the other hand, as IITM measures the fraction of International Outsourcing in general trade flows, the index can be of high interest when examining this special issue.