Outsourcing work by British companies to India does not cause job losses but boosts employment, according to a research by economists at the University of Nottingham.

The research by the Globalisation and Economic Policy centre (GEP) at the University of Nottingham says the efficiencies it has brought has actually boosted business and led to them employing more people in the UK, not less. The report (Offshoring, Labour Market Institutions and the Elasticity of Labour Demand) analyses the evolution of the elasticity of labour demand and the role of offshoring therein using industry-level data for a large number of OECD countries. The first main finding is that the wage elasticity of labour demand has increased substantially. 

David Greenaway, Director of the centre, said: "People fear their jobs are being exported to countries like India and China where labour is cheaper, but the picture is far more complex than that and much more positive.

The finding that employment has become increasingly sensitivity to wages is shown to be robust to a wide variety of econometric specifications of labour demand, although some of this association may reflect a trend increase in the speed of adjustment rather than an increase in the long-run wage elasticity.

A second finding is that more intensive offshoring is associated with more elastic labour demand, consistent with increased offshoring having expanded the flexibility of firms to adjust the mix of domestic workers and foreign value-added in production when relative factor prices change. More in particular, the average elasticity of labour demand appears to be about 30% to 40% larger in absolute value than the counter-factual elasticity which would have prevailed had offshoring not been possible. Increases of this magnitude might well have important implications for job security and worker bargaining power. 

Finally, we find some evidence that strict employment protection legislation weakens the link between offshoring and higher labour demand elasticity. This suggests that the impact of offshoring on labour demand elasticity depends on the national institutional environment.

"It would seem that firms that off-shore part of their production process or service provision overseas becomes more efficient. This boosts productivity and turnover and as a result these firms grow and end up employing more people at home, not fewer."

The GEP research says there are losers when off- shoring takes place through higher job turnover and people are unable to adapt to new skills. Richard Kneller, who co-wrote the research, says it also explodes another myth about off-shoring.

He said: "The common perception of off-shoring is that it's largely low-paid call centre jobs being exported to lower wage economies like China and India, but that's not the case.