Offshoring’s hidden toll: mental distress among onshore employee

Abstract

The article explores the impact of offshoring on the mental health of employees who remain in domestic operations, known as onshore employees. Previous studies have shown that offshoring can lead to negative outcomes like wage cuts and job dissatisfaction. However, there is limited understanding of whether offshoring causes psychological stress and mental distress, such as anxiety or depression, among onshore employees. This is important because mental distress can lead to productivity loss and employee turnover, which can undermine the success of offshoring initiatives. This article uses the Transactional Theory of Stress and Coping, which suggests that stress arises when individuals perceive an event as threatening and hard to manage. The study argues that offshoring is perceived as a threat due to job insecurity and is difficult to cope with because employees have little control over the decision. The research uses data from 1.1 million employees working at 2500 firms in the Netherlands from 2011 to 2018, examining the use of psychotropic medication (drugs used to treat mental health issues) as an indicator of mental distress. The study employs a staggered difference-in-difference approach, a statistical method that compares changes over time between groups exposed to offshoring and those not exposed. The results show that the odds of onshore employees using psychotropic medication increases by about 10% after offshoring, with effects lasting two to three years. The study also finds that the impact is stronger for employees facing higher risk of job loss (when offshoring is accompanied by layoffs or when employees are low-to-medium-skilled) and for those with fewer re-employment opportunities (when employees are older or migrants). The study highlights the need for organizations to consider the psychological impact of offshoring and suggests that interventions to support affected employees could improve the success of offshoring initiatives. Future research could explore the effectiveness of such interventions and examine the impact of offshoring in different cultural and economic contexts.