New Outsourcing, Demand Uncertainty and Labor Usage

It has been theorized that businesses are more likely to outsource when demand uncertainty is large in order to gain flexibility in production. We provide the first firm-level test of this hypothesis, making use of unique longitudinal data on Australian manufacturing. We find that new outsourcing is related to lower net job growth and an increase in work intensity within the firm. Overall, we find no relationship between unexpectedly high demand and new outsourcing. The inly exception is for large firms who expect sales to decrease. New outsourcing appears to be related to the firm's overall approach to labor utilization rather than a response to demand fluctuations