The Economist cites studies and claims that the affect of offshoring
on domestic employment is minimal:
The Economist
The great hollowing-out myth
2/19/04
http://www.economist.com/agenda/displayStory.cfm?story_id=2454530
"Outsourcing (or ?offshoring?) has been going on for centuries, but
still accounts for a tiny proportion of the jobs constantly being
created and destroyed within America's economy. Even at the best of
times, the American economy has a tremendous rate of ?churn??over 2m
jobs a month. In all, the process creates many more jobs than it
destroys: 24m more during the 1990s. The process allocates
resources?money and people?to where they can be most productive,
helped by competition, including from outsourcing, that lowers prices.
In the long run, higher productivity is the only way to create higher
standards of living across an economy."
"Will the trend lead to jobs going overseas? You bet, but that is not
a disaster. For a start, America runs a large and growing surplus in
services with the rest of the world. The jobs lost will be low-paying
ones, such as bank tellers and switchboard operators. Trade protection
will not save such jobs: if they do not go overseas, they are still at
risk from automation.
By contrast, jobs will be created that demand skills to handle the
deeper incorporation of information technology, and the pay for these
jobs will be high."
Another article claiming that offshoring doesn't lead to domestic unemployment:
News.com, 2/23/04
http://news.com.com/2010-1028-5162847.html
"It is true that America has lost jobs in the last three years, and
the technology sector has been harder-hit than many others. But the
job loss has not been as huge as some politicians and news reports
would have you believe. America's unemployment rate currently is
around 5.7 percent, not especially high by historical standards, and
among the lowest in the world. It's certainly the envy of France (9.3
percent), Germany (9 percent), and Canada (6.8 percent)."
A recent CNN article takes the opposite position, claiming that
offshoring jobs has a significant impact on U.S. employment, citing a
new study:
CNN
March 5, 2004
http://money.cnn.com/2004/03/04/news/economy/outsourcing_costs/index.htm
"In a survey of 500 human resources executives by Hewitt Associates
(HEW: Research, Estimates), a global outsourcing firm based in
Illinois, 92 percent of the firms that had moved jobs overseas said
they did so to cut costs. But according to the study, many companies
are ignoring some of the problems of offshoring, which offsets
ostensibly cheaper labor costs."
IEEE-USA argues that offshoring has devastating effects on U.S.
employment in a position paper
Offshore Outsourcing
http://www.ieeeusa.org/forum/POSITIONS/offshoring.html
<<The offshoring trend is particularly unsettling for American
high-tech workers. The economy lost 3 million manufacturing jobs in
the past decade. American high-tech firms shed 560,000 jobs between
2001 and 2003, and expect to lose another 234,000 in 2004. The
Commerce Department reports that the number of U.S. IT workers
employed in all industries has declined by 8 percent since 2000.
Although initially concentrated in the manufacturing sector and in
low-skilled jobs, the Commerce Department says that "recent job losses
have been widespread across most IT-goods and services producing
industries, and across all IT skill levels." Some jobs are expected to
return with a stronger economy, but the majority are probably gone for
good. Offshore outsourcing will further compound that shrinkage.>>
Wired Magazine agrees that outsourcing leads to unemployment in the U.S.:
The Outsourcer, 2/04
http://www.wired.com/wired/archive/12.02/india.html?pg=8
"US companies are expected to ship more than 200,000 service jobs to
countries like India every year for the foreseeable future. The simple
concept at the root of this trend: A trained third world brain is
every bit equal to a trained American brain, at a fraction of the
price."
A great blog on offshoring (this has tons of recent articles and
excerpts on outsourcing):
Outsourcing Times
http://www.blogsource.org/blog/unemployment/
Effect of offshoring on IT jobs:
Information Week, Oct. 20, 2003
Is Offshoring The Major Reason For IT Unemployment?
http://www.informationweek.com/story/showArticle.jhtml?articleID=15500291
"Much of offshore outsourcing involves programming, and the
unemployment rate for programmers during the first nine months of 2003
averaged 7.1%, the highest among all categories of IT workers. In
addition, the type of computing outsourced overseas doesn't
necessarily require the latest technology skills. With younger IT pros
more likely than their older cohorts to master new skills, it's the
aging technologists with dated skills who are most threatened by
offshore outsourcing. Indeed, IT unemployment increases with age, with
nearly 6.9% of workers in their 50s unemployed."
Offshoring will continue:
The Standard
April 19, 2004
HEADLINE: OUTSOURCING HERE TO STAY, SAY BIG COMPANIES
(LexisNexis)
"More than three-quarters of executives at large North American and
European companies that currently outsource one or more major human
resources functions said they would do so again, according to a survey
released by The Conference Board. The HR Outsourcing: Benefits,
Challenges and Trends'' survey of 120 companies in North America and
Europe with annual revenues of at least US $ 1 billion (HK$ 7.8
billion) found that outsourcing is now firmly embedded as part of
human resources service delivery."
3.3 million white-collar jobs predicted to be offshored:
Indian Express
July 15, 2003
(LexisNexis)
"Forrester Research Inc predicts that American employers will move
about 3.3 million white-collar service jobs and $ 136 billion in wages
overseas in the next 15 years. Concern about the impact on the
nation's economy and its workers is prompting union protests and
congressional hearings. At least five states introduced legislation
aimed at keeping jobs in the US, among other things, by blocking
companies from using foreign workers on state contracts. Outsourcing
took off in the 1990s when companies, mainly manufacturers, wanted to
cut costs and concentrate on their core high profit-margin tasks. The
labour market was tight. Companies, looking for ways to further slash
costs in the face of global competition, sent more work overseas, and
laid off workers at home."
Unemployment is spurring new proposals to limit offshoring:
The Economic Times
April 18, 2004
HEADLINE: EXCHANGE FOR PROFIT
(LexisNexis)
"The contours of the US Presidential Election debate on 'outsourcing'
risks putting back the USA to its also-ran status right at the onset
of the Twentieth Century. The big performers then were Britain, France
and even Argentina - well before the OECD had even been thought of!
But the debate on the matter is dragging on dangerously in the US;
and, given that they have long been unused to 5.7% unemployment, or
investments fleeing their shores, the risk is that the American polity
might even capitulate.
State legislatures and the federal government are, even now, weighing
proposals to punish US MNCs that 'outsource' by denying them contracts
or altering their tax code. That would choke-off competition, hike
costs, and eliminate more jobs than will ever be lost via outsourcing.
Offshoring or outsourcing, on the other hand, promises to augment $
124 bn to the economy and create new jobs, finds Global Insight, a
research firm sponsored by the leading IT trade group ITAA which has
more than 500 large US high-tech companies (IBM, Microsoft Corp,
Hewlett-Packard Corp, Amazon.com, Accenture and others) as members.
Outsourcing anyway generated almost 90,000 net new US jobs in 2003 - a
number Global Insight puts at 317,000 by 2008."
However, offshoring may actually produce jobs domestically:
<<The Annual Report of the Council of Economic Advisers to the
President thus quite rightly says "... free trade benefits the nation
as a whole even when it includes 'outsourcing' of white-collar jobs
overseas - a prominent example of a new type of trade."
We end by quoting Donohue's prescription for creating more US jobs,
and note that just the same panacea will hold in India: "The way to
spur job creation here at home is by reducing indirect business costs
- excessive and duplicate regulations; junk lawsuits; lingering tax
and accounting uncertainties and by expanding R&D initiatives.">>
Historically, offshoring jobs leads to shifts in the job market, but
not unemployment:
Computer Reseller News
January 26, 2004
(LexisNexis)
"In 1810, 85 percent of the U.S. population worked in agriculture. By
1910, this figure had dropped to 30 percent, as the United States
shifted to a manufacturing-based economy. In the 1950s and early
1960s, many blue-collar workers feared they would lose their jobs as
automation became widespread in American industry. But while some jobs
were lost, automation also heralded the rise of the computer industry,
and the percentage of workers defined as middle class grew steadily.
Erecting barriers to labor movement is not the answer to stemming job
losses. Labor and capital must be free to migrate to areas where
returns are higher from areas where returns are lower for the economy
to operate as efficiently as possible, including creating jobs.
Lowering costs is a factor in businesses moving jobs overseas, but
those funds then can be redirected toward new and emerging
technologies."
Unemployment rate is growing among jobs most frequently outsourced to asia:
Financial Times (London, England)
March 4, 2004
"They work in a sector that faces unprecedented levels of
unemployment. Joblessness among electrical engineers reached 7 per
cent in the first quarter of 2003 and 7.5 per cent among computer
software engineers, according to the US Department of Labor. The
national unemployment rate last month was 5.6 per cent."
Additional Sources:
Out Sourced America
http://outsourcedamerica.blogspot.com/
Business Pundit
http://www.businesspundit.com/
Salon.com (article on offshoring)
http://www.salon.com/tech/feature/2004/01/27/amy_dean/
Silicon.com (on UK offshoring)
http://www.silicon.com/management/itdirector/0,39024673,39118025,00.htm
MSNBC (article on offshoring to India)
http://www.msnbc.msn.com/id/4449759/
Multilateral Contracting and the Employment Relationship
Source: Quarterly Journal of Economics v117, n3 (August 2002): 1075-1103
The Impact of Outsourcing and High-Technology Capital on Wages:
Estimates for the United States, 1979-1990
Source: Quarterly Journal of Economics v114, n3 (August 1999): 907-40
Google Search Terms Used:
offshoring or outsourcing and unemployment
://www.google.com/search?q=offshoring+or+outsourcing+and+unemployment&hl=en&lr=&ie=UTF-8&oe=UTF-8&start=20&sa=N
and
Lexis-Nexis
Thanks again for your question. As you can see, this issue is really
open to debate and different studies can be used to support either
side. Offshoring jobs obviously directly costs some jobs domestically,
but the process of cutting costs by offshoring some jobs may lead to
greater profit and in turn a growing economy that produces more jobs.
It basically comes down to a debate over free trade etc I hope this
helps. Let me know if you need any clarification.
Regards,
Anthony (adiloren-ga) |
