This article was originally published on the Bud Meyers blog.
The change in the skill (educational) level of jobs being moved abroad has led some to wonder whether the offshoring of service, unlike production, activities will result in college graduates facing a dwindling supply of entry-level jobs that have traditionally served as stepping-stones to higher skilled and higher paying positions. The notion that offshoring depresses job growth in the United States appears to underlie support among some policymakers for measures meant to encourage U.S. firms to expand employment domestically rather than abroad. While some members of the public policy community also support the adoption by other countries of trade and labor policies intended to level the playing field for U.S. companies and workers in the international marketplace, still others advocate for limited government intervention as the best means of promoting economic growth.
Congressional Report on the Offshoring of Jobs (December 2012)
|Passages in this post were excerpted from the report "Offshoring (or Offshore Outsourcing) and Job Loss Among U.S. Workers" [The extension of task fragmentation] by Linda Levine, Specialist in Labor Economics, December 17, 2012. This is a CRS Report prepared for members and committees of Congress. The full report is here in PDF. Please read this very comprehensive (and somewhat disturbing) report on the future of offshoring American jobs to low-wage countries.
The overseas relocation of manufacturing work predates by decades the recent wave of services offshoring. Major U.S. companies, initially responding to heightened competition from Japanese and European multinational corporations, opened facilities abroad during the 1970s and 1980s that turned out goods formerly produced by comparatively well paid, often unionized U.S. factory workers (e.g., assembly-line workers in the auto industry).
U.S. companies reacted to the back-to-back recessions of the early 1980s by focusing on their core missions and contracting out activities that specialized domestic enterprises could perform more efficiently (e.g., janitorial services). Firms also restructured their operations by outsourcing jobs to employees of temporary help agencies, professional and business services establishments (e.g., accounting firms), and independent contractors located in the United States. The persistence of these changes over time indicates that domestic outsourcing of formerly in-house functions is a permanent reorganization of how work is performed in the United States.
Another development was the educational systems of low-wage foreign nations graduating an abundant supply of well educated (sometimes English-speaking) individuals. In some cases, the number of persons with IT and accounting skills reportedly exceeded the immediate needs of their local economies (e.g., China, Eastern Europe, India, and the Philippines). With English the language of the computer industry worldwide, IT services can be provided from many non-English-speaking, comparatively low-wage nations (e.g., Argentina, Brazil, Bulgaria, China, the Czech Republic, Hungary, Jordan, Lithuania, Mexico, Slovenia, Russia, and Ukraine).
Research suggests that the extension of task fragmentation to service activities accounts for the greater relative contribution of offshoring to increased wage dispersion (inequality) in the United States in recent decades. Technological change and de-unionization appear to have accounted for relatively more of the so-called polarization of wages that occurred during the1980s and 1990s.
Researchers have mostly focused on determining which jobs are susceptible to being moved abroad and then on estimating U.S. employment in these potentially offshorable activities in a given year. One such empirical analysis was undertaken in the early years of services offshoring by Bardhan and Kroll. They estimated that more than 14 million jobs in 49 service occupations, representing about 11% of total U.S. employment in 2001, have attributes that could allow them to be sent overseas.
The occupational groups identified as being vulnerable to offshoring include office support (e.g., data entry and payroll clerks), auditors and tax preparers, computer programmers and software engineers, medical transcriptionists and paralegals, and technical writers. They are concentrated in such industries within the service sector as information, finance and insurance, and professional and business services.
The researchers also took an occupational approach and created an index of offshorability for hundreds of blue-collar, white-collar, and service occupations based on the degree to which the jobs required personal interaction that necessitated workers to be in close proximity to customers. It was estimated that a majority of occupations (533) and employed persons (92.6 million in 2004) are non offshorable—that is, they are completely immune to offshoring. Conversely, it's estimated that a minority of U.S. occupations (about 200) and workers (almost 30 million) fall in the highly offshorable and offshorable categories. Two categories were considered, which included 22.2% of U.S. workers in 2004, too conservative an estimate of potentially offshorable jobs in light of technological and other advances expected to arise in the coming years...and totals almost 40 million workers --- or 29% of all U.S. jobs.