New Outsourcing, Demand Uncertainty and Labor Usage

Abstract

We examine the decisions by small and medium-sized Australian firms to undertake new outsourcing. We hypothesize that new outsourcing may be related to demand uncertainty. We test this hypothesis at the firm level, making use of unique longitudinal data on Australian manufacturing. We find an asymmetric relationship between new outsourcing and demand uncertainty. For the larger firms in our sample, positive demand shocks are related to more new outsourcing. For all firms, negative demand shocks are related to less new outsourcing. New outsourcing appears to be related to demand uncertainty and to the firm’s overall approach to labor utilization Show more