Vertical disintegration and training: evidence from a matched employer–employee survey

The mechanism through which outsourcing favourably impacts on workplace performance, particularly productivity, is still unclear. I explore the hypothesis that it does so by impacting workers’ training. I use AWIRS‐1995, a matched employer‐employee survey that reports ample information on the extent of technology and organizational change in Australian workplaces. I find that there is a positive and significant impact of outsourcing on training when I do not control for the correlation between ununobservable factors in these two binary outcomes. However, once I control for this correlation using a bivariate probit estimator, the training impact of outsourcing becomes negative. I then assess the sensitivity of the outsourcing effect to endogeneity by using the method advocated by Altonji et al. (2005) to find that this latter result persists even in the presence of a low correlation between unobservables.