Trade in Tasks and the Organization of Firms

We incorporate trade in tasks l a Grossman and Rossi-Hansberg (2008) into the international trade theory of fi rm organization of Marin and Verdier (2012) to examine how off shoring aff ects the way fi rms organize. We test the predictions of the model based on firm level data of 660 Austrian and German multinational firms with 2200 subsidiaries in Eastern Europe and we show that the data are consistent with the theory. We fi nd that o ffshoring of production tasks leads firms to reorganize to more decentralized management improving competitiveness of offshoring firms. We show further that offshoring of skilled managers relaxes the 'war for talent' constraint but toughens competition and thus has an ambiguous impact on the level of decentralization and CEO wages of offshoring firms. In sufficiently open economies, however, managerial offshoring unambiguously leads to more decentralized management.