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OFFSHORING OF SERVICE JOBS

Demiroglu, Ufuk (2006): OFFSHORING OF SERVICE JOBS.

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Abstract

Many previously-nontraded services have become tradable (or are expected to become so) as a result of the technological advances in information technology. That has raised concerns about the future of U.S. jobs and workers' incomes. However, a review of the evidence shows that the current extent of service offshoring is very modest, not only as a share of GDP but also in terms of its contribution to worker displacements in the United States. Service offshoring is currently a minor part of the overall international economic competition that the United States faces. Service offshoring appears to have been relatively intense for IT occupations, but the employment and wage trends in those occupations still compare favorably to U.S. averages. While offshoring might become much more significant in the future, a closer look at occupation details reveals that most U.S. service jobs are not suitable for performing remotely from abroad, even when some significant cultural and institutional barriers are ignored. In addition, a range of transaction and adjustment costs slow offshoring growth, and it would take a long time, possibly decades, for offshoring to attain its potential limits. However, the available estimates regarding how fast and how far offshoring will grow are very uncertain. This paper's assessment is that the exposure to service offshoring in the United States will be limited to 10 to 20 percent of current jobs, with an impact that is sufficiently gradual to blend with other ongoing structural changes in the U.S. economy.

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