VideoAdditional exports. Indian companies that provide offshore services also buy goods and services ranging from computers and telecommunications equipment to legal, financial, and marketing expertise. Often, they buy these from US companies. A call center in Bangalore, for instance, could use HP computers, Microsoft software, and telephones from Lucent Technologies, and it may be audited by PricewaterhouseCoopers. We estimate that for every dollar of corporate spending that moves offshore, companies that provide the offshore services buy five cents of goods and services from the United States in return. On top of that, young Indian workers employed by outsourcing firms buy imported goods. Thanks to such corporate and individual buyers, exports from the United States to India stood at $5 billion in 2003, compared with $3.7 billion in 2000; they rose by 22 percent from 2002 to 2003 alone.
Repatriated profits. Many Indian outsourcing firms are owned in whole or in part by US companies, such as GE and EDS, and repatriate some of their earnings. Operations owned by foreign (mostly US) companies generate 30 percent of the Indian offshore industry's revenues. In this way, an additional four cents of every dollar spent on offshoring returns to the US economy.
Productivity and new jobs. The direct benefits to the United States from corporate savings, new exports, and repatriated profits total 67 cents — twice the benefit to India. But the gains don't end there. Corporate savings can be invested in new business opportunities, and this investment will boost productivity and create new jobs. Experience suggests that these jobs will on average have higher value added, as auto assemblers did when they replaced carriage makers and factory workers when they replaced farmers.
Indeed, this is exactly the pattern that developed over the past two decades as manufacturing jobs moved offshore. US manufacturing employment shrank by 2 million jobs over 20 years — but net employment increased by 43 million jobs in other areas, such as educational and health services, professional and business services, trade and transport, government, leisure and hospitality, and financial services. Over the same period, manufacturing output increased despite the decline in the number of manufacturing workers, because factories became more productive. Higher productivity means a higher national income and a higher standard of living.
As jobs in call centers, back-office operations, and some IT functions move offshore, the same thing is likely to happen again. Opportunities to generate higher-value-added jobs by redeploying labor and investing capital will appear, though we can't predict exactly where. The Bureau of Labor Statistics estimates that 22 million new US jobs, mostly in business services, health care, social services, transportation, and communications, will be created in the period from 2000 to 2010. It also predicts that computer-related occupations — often thought to be at high risk of moving offshore — will be among the fastest-growing job categories in the country, for while code can be written abroad, many IT functions, such as systems integration, can't be exported. And there will undoubtedly be jobs we can't even fathom today. Twenty years ago, for example, no one could have imagined the ubiquity of the cellular phone, yet it spawned an industry that now employs almost 200,000 workers in the United States.
That new jobs will be created as old ones disappear is not an article of faith; it is based on experience. Most recently, in the 1990s, trade expanded rapidly, and the offshoring of manufacturing and service jobs increased. At the same time, overall employment soared, unemployment fell to 4 percent, and real wages rose.
Even on conservative estimates, for every dollar offshored, an extra 45 to 47 cents of value will be created in the US economy as labor is redeployed. (Lori Kletzer, of the University of California-Santa Cruz (and formerly of the Bureau of Labor Statistics), reports that from 1979 to 1999, 69 percent of nonmanufacturing workers who lost their jobs because of free trade found new ones within a year, and on average they earned 96.2 percent of their previous wages. These figures, combined with the fact that 72 cents of every dollar offshored had previously been spent on US wages, mean that the additional value to the US economy from redeploying workers would be 45 to 47 cents.) White-collar employees who hold the types of jobs now being moved offshore are generally more highly educated and tend to find jobs faster than do workers in the service sector as a whole. Far from being bad for the United States, offshoring creates net value for its economy — to the tune of $1.12 to $1.14 for every dollar that goes abroad.
Putting Offshoring in Perspective
Offshoring's impact on employment calls for a rational assessment. Forrester Research predicts that, by 2015, roughly 3.3 million US business-processing jobs will be performed abroad. (John C. McCarthy, "3.3 Million US Services Jobs to Go Offshore," Forrester Brief, November 11, 2002.) Although this number might seem startlingly large, it is only a small piece of a much larger picture.
The United States today has more than 150 million employed workers. Technological change, economic recessions, shifts in consumer demand, and other changes make jobs turn over constantly, so that each month roughly two million people in the United States change them. Even the gloomiest predictions suggest that the number of jobs lost to offshoring will be far lower. It will also be small compared with the mass layoffs prompted by corporate mergers and restructuring when the economy grows. (The Bureau of Labor Statistics defines a mass layoff as 50 or more worker claims against an establishment's unemployment-insurance account during a five-week period.) In 1999 alone — at the peak of the economic bubble — 1.15 million workers lost their jobs through mass layoffs as companies restructured operations. Job churn is part of life, even in a growing economy.
Reader Comments» Post a comment