OFFSHORING OF SERVICE JOBS

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

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: offshoring, outsourcing, India, worker displacement
• Subjects: F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; F - International Economics > F1 - Trade

References

Amiti, Mary, and Shang-Jin Wei 2004, “Fear of Service Outsourcing: Is It Justified?” IMF Working paper 04/186.

Amiti, Mary, and Shang-Jin Wei 2005, “Service Offshoring, Productivity, and Employment: Evidence from the United States,” IMF Working paper 05/238.

Atkinson, Robert D.,“Apocalypse Soon? Why Alan Blinder Gets it Wrong on Offshoring,” July 6, 2006, commentary by the Information Technology and Innovation Foundation.

Baily, Martin N, and Robert Z. Lawrence, “What Happened to the Great U.S. Job Machine? The Role of Trade and Electronic Offshoring,” Brookings Papers on Economic Activity, 2004, v. 0, iss. 2, pp. 211-70.

Bartel, Ann, Saul Lach and Nachum Sicherman, “Outsourcing and Technological Change,” February 2005 NBER Working Paper No. 11158.

Bardhan, Ashok and Cynthia Kroll, 2003, “The New Wave of Outsourcing,” Fisher Center Research Report No. 1103, University California, Berkeley.

Bednarzik, Robert W., “Restructuring Information Technology: Is Offshoring A Concern?”, Monthly Labor Review, August 2005, 11-21.

Bernanke, Ben, “Trade and Jobs”, Federal Reserve Speech dated March 30, 2004.

Bhagwati, Jagdish, Arvind Panagariya and T. N. Srinivasan, 2004. “The Muddles over Outsourcing,” Journal of Economic Perspectives, Volume 18, Number 4, Fall 2004, pp. 93-114.

Blinder, Alan, 2006, “Offshoring: The Next Industrial Revolution,” Foreign Affairs, Mar/Apr, Vol. 85, Iss.2, pg113.

Borga, Maria, 2005. “Trends in Employment at U.S. Multinational Companies: Evidence from Firm-Level Data,” Brookings Trade Forum 2005.

Brainard, Lael, and Susan M. Collins, 2005, “Offshoring White-Collar Work: Editor’s Summary,” Brookings Trade Forum 2005.

Bronfenbrenner, Kate, and Stephanie Luce 2004, “The Changing Nature of Corporate Global Restructuring: the Impact of Production Shifts on Jobs in the Us, China, and Around the Globe,” a report commisioned by the U.S.-China Economic and Security Review Commission.

Brown, Sharon P., and Jeremy Siegel, 2005, “Mass Layoff Statistics Data in the United States, and Domestic and Overseas Relocation,” Monthly Labor Review, August 2005, 1-10.

Borjas, George J, Richard B Freeman, and Lawrence F Katz, 1997, “How Much Do Immigration and Trade Affect Labor Market outcomes?” Brookings Paper on Economic Activity, no.1.

Business Week, 2006, “The Future of Outsourcing,” January 30.

Davis, Steven, John Haltiwanger, and Scott Schuh (1996), Job Creation and Destruction Cambridge, Mass.: MIT Press.

Deardorff, Alan V., “A Trade Theorist’s take on skilled-labor outsourcing,” Research Seminar in International Economics, Discussion Paper No. 513, University of Michigan.

Department of Commerce, “Technical Appendix to Chapter II” in Digital Economy 2003.

Drezner, Daniel W, “The Outsourcing Bogeyman”, Foreign Affairs, May/June 2004.

Feenstra, Robert C., and Gordon H. Hanson, 2001, “Global Production Sharing and Rising Inequality: A Survey of Trade and Wages,” NBER Working Paper No. 8372.

Forrester Research Inc., 2004, “Near-Term Growth of Offshoring Accelerating: Resizing U.S. Services Jobs Going Offshore,” Cambridge, Massachusetts.

The Economist, Nov 13 2004, “A World of Work: A Survey of Offshoring”, p12.

Garner, Alan, 2004, “Offshoring in the Service Sector: Economic Impact and Policy Issues,” Federal Reserve Bank of Kansas Economic Review, Third Quarter.

GAO, 2005, “International Trade: U.S. and India Data on Offshoring Show Significant Differences,” Report no. GAO-06-116, October.

GAO, 2005b, “Offshoring of Services: An Overview of the Issues,” Report no. GAO-06-5, November.

Goldman Sachs, “Offshoring: Where Have All the Jobs Gone,” Sep 19, 2003.

Griswold, Daniel T., 2004, “Why We Have Nothing to Fear from Foreign Outsourcing,” CATO Free Trade Bulletin no. 10, http://www.freetrade.org/pubs/FTBs/FTB-010.html

Griswold, Daniel T., 2005, “Outsource, Outsource, and Outsource Some More,” CATO article, http://www.freetrade.org/pubs/articles/dg-05-03-04.html

Hanson, Gordon H., Raymond J. Mataloni, Jr., and Matthew J. Slaughter, 2003, “Expansion Abroad and the Domestic Operations of U.S. Multinational Firms,” mimeo.

Harrison, Ann E. and Margaret S. McMillan, “Outsourcing Jobs? Multinationals and US Employment,”NBER Working Paper No. 12372.

Hirschman, A. 1958. The Strategy of Economic Development. New Haven, Conn.: Yale University press.

Jensen, Bradford J., and Lori Kletzer, 2005, “Tradable Services: Understanding the Scope and Impact of Service Offshoring,” Brookings Trade Forum 2005.

Kletzer, Lori, 2001a, Job Loss from Imports: Measuring the Costs, Institute for International Economics.

Kletzer, Lori, 2001b, Measuring the Costs of Trade-Related Job Loss, Testimony prepared for the Committee on Finance, U.S. Senate.

Kletzer, Lori, 2005, “Globalization and Job Loss, from Manufacturing to Services,” Economic Perspectives, Chicago Federal Reserve Bank, 2nd Quarter, pp. 38-46.

Kozlow, Ralph and Maria Borga ““Offshoring” and the U.S. balance of payments”, BEA working paper 2004-05.

Landefeld, J. Steven, and Raymond Mataloni, 2004. “Offshore Outsourcing and Multinational Companies,” BEA working paper WP2004-06, July 16, 2004.

Levy, Frank, 2005, “Offshoring and Radiology,” Brookings Trade Forum 2005.

Lindsey, Brink, “Job Losses and Trade, A Reality Check,” CATO Institute Trade Briefing Paper, no:19, March 17, 2004.

Mankiw, Gregory, and Philip Swagel, “The Politics and Economics of Offshore Outsourcing,” Carnegie-Rochester Series on Public Policy, November 2005.

Mann, Catherine, 2003, “Globalization of IT Services and White Collar Jobs: The Next Wave of Productivity Growth”, Institute of International Economics Policy Brief, No. PB03-11.

Mann, Catherine, 2004, “Prices for International Services Transactions: Issues and a Framework for Development”, a prepared for the Bureau of Labor Statistics.

Markusen, James R., 2005, “Modeling the Offshoring of White-Collar Services: From Comparative Advantage to the New Theories of Trade and FDI,” Brookings Trade Forum 2005.

McKinsey, 2005a, The Emerging Global Labor Market: Part I—The Demand for Offshore Talent in Services. Executive Summary.

McKinsey, 2005b, The Emerging Global Labor Market: Part II—The Supply of Offshore Talent in Services. Executive Summary.

NAPA (National Academy of Public Administration), 2006, “Off-Shoring: An Elusive Phenomenon,” http://www.napawash.org/Pubs/Off-ShoringJan06.pdf .

NASSCOM-Evalueserve, October 2003, The Impact of Global Sourcing on the U.S. economy, 2003-2010.

Nordhaus, William D., 1994, “Do Real Output and Real Wage Measures Capture Reality? The History of Lighting Suggests Not;” Yale University, Cowles Foundation Discussion Paper no. 1078.

OECD, “Globalisation of the ICT Sector”, Information Technology Outlook, Chapter 2.

Parry, Robert, 2004, “Globalization: Threat or Opportunity for the U.S. Economy?”, FRBSF Economic Letter 2004-12, May.

Reserve Bank of India, 2005, “Computer Services Exports from India: 2002-2003,” available at http://www.rbi.org.in/scripts/BS_ViewBulletin.aspx , September 2005 RBI Bulletin.

Rogoff, Kenneth S., 2003, “Disinflation: An Unsung Benefit of Globalization?” Finance and Development, December, pages 54-55.

Samuelson, Paul, 2004, “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization,” Journal of Economic Perspectives, 18 (3), 135-146.

Samuelson, Paul, 2005, Response to Comments, Journal of Economic Perspectives, 19 (3), 242-243.

Schultze, Charles L, 2004, “Offshoring, Import Competition, and the Jobless Recovery,” Brookings Institution Policy Brief #136.

Siems, Thomas F., 2006, “Beyond the Outsourcing Angst: Making America More Productive,” Economic Letter, Federal Reserve Bank of Dallas, Vol. 1, No. 2, February.

Slaughter, Matthew J. And Phillip Swagel, 1997, “The Effect of Globalization on Wages in the Advanced Economies,” IMF Working Paper 97/43.

Stokes, Bruce, “Outsourcing Jobs: U.S. Dilemma,” Great Decisions, 2005. New York Foreign Policy Association, 2005.

Trefler, Daniel, 2005, “Service Offshoring: Threats and Opportunities,” Brookings Trade Forum 2005.

van Welsum, Desiree and Xavier Reif, 2005, “Potential Offshoring: Evidence from Selected OECD Countries,” Brookings Trade Forum 2005.

Wood, Adrian, “How Trade Hurt Unskilled Workers,” Journal of Economic Perspectives, Summer, vol.9, issue 3, pp.57-80.