Unit labour costs and manufacturing returns

Abstract

I use quarterly data from the most recent 19 years to assess the existence of two hypothetical effects: a relationship between unit labour cost changes and manufacturing returns, and an effect, where offshoring firms produce higher returns than domestic counterparts. I construct a simple linear regression model using OLS estimation, and compare manufacturing results with a control group of finance returns, both analysed with the same model. The results are mixed: unit labour costs affect both samples’ returns inversely and significantly, but the finance sample’s results are weaker. In light of the results, I argue, that unit labour cost variations affect manufacturing returns particularly strongly. The second hypothesis of higher returns for offshoring firms cannot be confirmed: the results give indications of the effect, but aren’t significant.