Outsourcing May Create U.S. Jobs


From today’s WSJ:

“U.S. companies sending computer-systems work abroad yielded higher productivity that actually boosted domestic employment by 90,000 across the economy last year, according to an industry-sponsored study.

The analysis, one of the few that attaches detailed dollar values to offshore outsourcing’s costs and benefits, was conducted for a coalition of business groups working to combat a growing backlash on Capitol Hill and in statehouses against the loss of U.S. jobs.

Expected to be released today, the study’s premise is that U.S. companies’ use of foreign workers lowers costs, increases labor productivity and produces income that companies can use to expand both in the U.S. and abroad. It was commissioned by the Information Technology Association of America, an industry membership and lobbying group, which hired the economics consulting firm Global Insight Inc. of Lexington, Mass.”

I believe it is both economically incorrect — as well as a losing argument — to focus on outsourcing as the primary culprit for the lack of job creation. Either you believe in global trade (as I do), or you don’t.

On the other hand, there’s nothing wrong with removing the incentives that encourage additional outsourcing. From a tax and regulatory perspective, it should be a level playing field without additional hurdles to creating jobs in the U.S.

When you see that actual numbers involved, they are relatively small. There are other, more significant issues impacting job creation; We will address them shortly.


Estimated new U.S. jobs created from outsourcing abroad, according to an industry study


  2003 2008
Natural Resources & Mining 1,046 1,182
Construction 19,815 75,757
Manufacturing 3,078 25,010
Wholesale Trade 20,456 43,359
Retail Trade 12,552 30,931
Transportation & Utilities 18,895 63,513
Publishing, Software & Communications –24,860 –50,043
Financial Services 5,604 32,066
Professional & Business Services 14,667 31,623
Education & Health Services 18,015 47,260
Leisure, Hospitality & Other Services 4,389 12,506
Government –3,393 4,203
Total Employment 90,264 317,367
Source: Global Insight and North American
Industry Classification System


Outsourcing May Create U.S. Jobs
Higher Productivity Allows For Investment in Staffing, Expansion, a Study Finds
WALL STREET JOURNAL, March 30, 2004; Page A2

Outsourcing creates jobs, study says
Industry report says offshore outsourcing will boost economic growth, lower inflation, create jobs

March 30, 2004: 3:53 PM EST

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  1. naum commented on Mar 31

    I’d say the numbers in those studies are dubious.

    First off, that the ITAA bankrolled the study which strongly taints it in my view. Here is an organization that had vehemently lobbied for increased H1-B immigration all the while U.S. computer programmers are being shown the door. It’s an issue that has affected me personally, so obviously, I’m unbiased. But in my job travels now (I consult with many large corporate IT departments), I can tell you firsthand that immigrant labor and offshore outsourcing is a much bigger factor than being reported. Examine diminishing ranks of Computer Science graduates as American youth see what has happened to their parents or hear the stories of others.

    Which leads me to point #2 – some sleight of hand type accounting is going on here. If we’re looking at “employee” tallies, then the numbers in the study quoted hold true. But that is deceptive since a large segement (a third to half or perhaps even more) are “contractor/consultant” base, which don’t count in the numbers from what I see. In fact, in a short drive around my home in Arizona, there’s 10K+ jobs outsourced to offshore vendors in 3-4 companies I’ve worked at in relatively recent history.

    I’m unable to read the WSJ article, but I will look for the study in detail so I can comment further.

  2. bhaim commented on Apr 1

    The GAO has criticized ITAA’s bogus reports in the past:

    “During the high-tech boom of the late 1990s, an industry association known as the Information Technology Association of America (ITAA) began to produce a series of reports asserting burgeoning gaps and shortages of information-technology workers, based on proprietary surveys of what it termed “job openings.” The first ITAA report claimed that some 190,000 information-technology jobs could not be filled in 1997. The second concluded that there were 346,000 open positions in 1998. The Department of Commerce then produced its own report, which drew heavily upon the findings of the two ITAA reports.

    The General Accounting Office (GAO) published a sharply critical assessment of these three related reports in 1998. It concluded that all of their shortfall estimates were questionable due to the studies’ weak methodologies and very low response rates. Unabashed, ITAA returned to the fray in 2000. Its third report asserted that over 843,000 information-technology positions would go unfilled that year due to a shortfall of qualified workers. Despite withering criticism from the GAO, the ITAA reports provided useful political support for the successful lobbying campaign for dramatic expansion – to the current level of 195,000 per year – of the H-1B visa, the temporary-visa program for foreign “specialty workers” that comprise the bulk of foreign science and engineering professionals being admitted to work in the United States.”

    Source: Michael Teitelbaum, Ph.D.
    The Public Interest

  3. Marc Brazeau commented on Apr 2

    I tend to be agnostic on the numbers showing that off-shoring is creating jobs and especially raising wages.

    That’s because the numbers don’t always add up.
    Outsourcing May Have Its Benefits, But Drezner Thinks It Has Magical Super Powers

    Daniel Drezner’s article in the current issue of Foreign Affairs goes a long way towards showing that outsourcing and offshoring aren’t the threat to the US economy that they’ve been made out to be. He goes further and points out some of the benefits of outsourcing. His numbers get a little suspect:

    Delta Airlines outsourced 1,000 call-center jobs to India in 2003, but the $25 million in savings allowed the firm to add 1,200 reservation and sales positions in the United States.

    Now, I don’t have a PhD in economics or an MBA or any degree for that matter ( I don’t even have a high school diploma, since I had outstanding library fines when I graduated) so could someone explain to me how the margin of savings of moving 1000 jobs could be great enough to create 1200 entire new jobs?

    I also don’t believe “that you either believe in global trade or you don’t.” I think that that is a setting up a straw man. Except for a few hundred anarchists who demonstrate where ever the WTO meets, most “critics” of globalization are really globalization agnostics. Most serious people accept that globalization will drive growth and benefit the economies that participate. The question is whether or not we bargain trade agreements that offer protections to US labor as well as US capital and encourage free labor markets with our trading partners as well as free capital markets.

    I also believe that while, the jobs lost to off-shoring though fairly small and disproportionate to the anxiety that they are creating, the off-shoring job loss is A) most likely underestimated B) creating a downward pressure on wages that is likely disproportionate to their numbers.

    In-sourcing is also a largely ignored and under-estimated phenomenon.

    I’m planning on doing something over the weekend on the jobless recovery. It will be interesting to get a cross blog discussion going on the question.

  4. paulf commented on Sep 7

    The real problem is that the US dollar is overvalued. If it weren’t overvalued, we wouldn’t have the huge trade deficits that we do.

    If the dollar falls 50% relative to the rupee, the Indian programmer just got 100% more expensive. If the dollar falls 50% relative to the yaun, those Chinese imports now cost twice as much. If the dollar kept falling, at some point, Americans would cost as much or less than the Indians and Chinese.

    Countries like China can play stupid currency games by buying dollars. This changes the situation, because now instead of a rising currency making their exports more expensive, an overheating economy and inflation make their exports more expensive. Either way, their exports get more expensive.

    Why will the dollar fall? Supply and demand. The US is flooding the world with dollars with its 500-600 billion dollars a year trade deficit. More outsourcing will increase the trade deficit.

    Some have argued that the US will export all of its jobs. The US cannot export all of its jobs to outsourcers. At that point, the US would be producing nothing and the value of the dollar would be worthless. At that point, the US companies could not afford the then infinitely expensive Indians and Chinese.

    Outsourcing will eventually go away as an issue. Outsourcing and the trade deficit will lead to a falling dollar, which will make the Indians and Chinese a lot more expensive than they are now.

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