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In addition, some analysts say a greater share of the costs of insuring workers should be borne by the companies that benefit from offshoring. Some 70 percent of the U. Among those workers who are vulnerable to trade-related displacement, however, not all end up with new or improved work. Between and , the Bureau of Labor Statistics found that 31 percent of workers displaced by trade--mostly in the manufacturing industries--were not fully re-employed.

Only 36 percent of workers soon found jobs that matched or increased their wages. Twenty-five percent saw pay cuts of 30 percent or more. But she argues that rather than trying to stop offshoring--a practice that she argues increases wealth in the U. Global Governance. G20 Group of Twenty. Southeast Asia. Blog Post by Shannon K. In Brief by Philip H. Gordon July 8, In Brief by Lindsay Maizland July 9, Skip to main content.

Offshoring (or Offshore Outsourcing) and Job Loss among U.S. Workers (RL) - Bates College

Backgrounder Current political and economic issues succinctly explained. More on: Trade Pakistan This publication is now archived. Why has outsourcing become a major political issue? Why has outsourcing been in the news recently?


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What are the numbers behind this trend? How do these numbers compare to the total number of jobs in the economy? Is offshoring to blame for the slow job growth in the U. These economists say the drop in employment, however, is primarily explained by factors other than outsourcing, such as: the bursting of the tech bubble and its effects on Wall Street; the general downturn in the business cycle; the consolidation of retailing under mega-companies like Wal-Mart; technological advances that have made some jobs obsolete; and the chilling economic effects of the September 11 attacks and subsequent events.

What is the reaction of economists to these ideas? Why do economists say outsourcing is good for the economy? What can be done for U. How many workers will not be able to find new or better work? These numbers are predicted to rise. By , Forrester predicts, roughly 3. Economists say they are relatively small. The United States employs some million non-farm workers, according to the U. Department of Labor. Over the past 10 years, even factoring in the recent economic downturn, the U.

On the other hand some analysts argue that, in the longer term, the latest wave of outsourcing will lead to a significant shift in the kinds of U.

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Just as the loss of U. Many economists say that outsourcing of white-collar jobs is not the primary, or even a major, reason the U. Some argue that the practice is helping to stimulate the economy. However, these economists also concede that the low level of job creation in recent years has made it more difficult for workers who lose their jobs to outsourcing to find new ones.

Some 3 million private-sector jobs have been lost since the U. These economists say the drop in employment, however, is primarily explained by factors other than outsourcing, such as:. Not all analysts agree with this assessment. And, she says, "outsourcing is one of the causes for the truly dismal job performance since the recession has ended.

“Offshoring” Service Jobs: Bane or Boon and What to Do?

There have been a variety of responses. Kerry is sponsoring legislation that would require operators answering help-desk calls for U. He also wants to give tax incentives to American companies to keep jobs in the United States, close tax loopholes that he says encourage U. Some states have proposed bills barring the export of some kinds of taxpayer-funded work, such as the processing of welfare checks.

In addition, a Senate bill sponsored by George V. Many economists say that these steps are a form of economic protectionism that will only further slow the U. As an example, Benn Steil , the acting director of the Maurice R. Greenberg Center for Geoeconomic Studies at the Council on Foreign Relations, points to the overall negative economic effect that subsidies for the struggling U.

Protecting the industry from lower-cost imported steel hurt U. While some workers will lose jobs because of outsourcing and other forms of foreign competition, he said the U. Many economists argue that outsourcing is just another form of free trade, which increases wealth in the economy. They say that employing workers at lower cost allows U. Just how redistributive is off-shoring likely to be?

Here, both the theory and the evidence only give partial answers.

Why has outsourcing become a major political issue?

As an example, the McKinsey study estimates that for every dollar of U. Indeed, this plays into a broader set of distributive trends that have been quite negative for workers since the end of the recession, although current data are not adequate to determine how big a role offshoring has played.

Figure 1 page 4 shows that on a pre-tax basis, the profit share has grown much more strongly in the current recovery than in the recovery of , while worker compensation has suffered a more pronounced decline than in any previous recovery in the last four decades, a point also highlighted by Jared Bernstein of the Economic Policy Institute. This new allocation may be only temporary. Over the longer run, competition among firms should drive down profits, and consumers should benefit from lower prices. Historically, as shown in figure 2, there does not appear to be a long-term trend in the share of income going to profits relative to labor compensation.

Even so, longer term averages often conceal what is happening to individual workers. Economic research has established that the wages of low-skilled workers—those in the bottom of the income distribution—were pushed down in the s and early s by a combination of foreign trade, immigration, and a drop in demand caused by changes in technology that favor greater skills. This downward pressure increased income inequality during this period until the mids, when the rising tide of the overall economy lifted all boats. At the same time, however, wages within sectors may diverge.

In services, for example, some workers whose jobs are vulnerable to offshoring could suffer erosion of their wages while others in supervisory positions may see compensation gains. With all these possible changes, it is no wonder that fears about foreign outsourcing resonate across a broad spectrum of society. One thing is clear. Unless policymakers get out ahead of the offshoring debate, they will find themselves reacting to a host of band-aid proposals that do more harm than good.

They should be proactive and take five important steps:. Improve the data that the government collects. Despite the challenges associated with gathering accurate, official data on offshoring, policymakers must make it a priority to greatly improve the statistics on this phenomenon so that policymakers, education and training experts, companies, and workers can make informed decisions sooner rather than later.

Data collection on services must be expanded to include smaller transactions and be conducted on a more regular basis. Both the Bureau of Economic Analysis and the Bureau of Labor Statistics should look at developing additional survey questions to better measure the extent of services activity moving offshore and the concomitant changes to domestic employment, wages, and productivity.

What’s the debate over outsourcing?

Because of the importance of this challenge, the Brookings Institution is organizing a data workshop to explore gaps between the key policy questions and the existing data available to address them. Ensure that America remains the most attractive location in the world for high-value services and manufacturing. Policymakers should take a hard look at distortions in the tax code that may artificially encourage offshoring, such as the current corporate tax system that permits deferral of taxation on foreign earnings but not on domestic earnings, and that results in the highest corporate tax burden among industrialized countries.

Recent proposals that would end the preferential tax treatment of foreign earnings and lower the corporate tax on domestic earnings merit special attention.

A second critical priority is to strengthen support for research and development—the key to creating jobs of the future. Finally, it is important to reduce reliance on an employer-based system of health insurance that adds to costs of U. Give American workers the knowledge and skills they need to compete in the global economy.

Cultivating a competitive, highly skilled workforce means strengthening the kindergarten through twelfth-grade curriculum, investing in science and engineering higher education, and restoring funding to community colleges and retraining programs that have suffered large cuts in recent years. America will not be able to hold onto the highest paying jobs in the world if the number of college graduates with degrees in physical sciences, math, and engineering continue on a downward trend. Designing policies to strengthen the skills of the American workforce is particularly critical because the American economy is likely to confront a rapidly increasing skill shortage on the heels of the offshoring debate.

In separate reports, Anthony Carnevale and Donna M. This is attributable both to the aging American workforce and to the expectation that increases in average educational attainment achieved over the past two decades will level off over the next two decades. Meanwhile, the demand for skills will continue growing at a rapid pace.

Do more on trade, not less. Policymakers must make sure trade agreements are being enforced and must also regain the market-opening momentum that has disappeared in recent years.