Back to offshore outsourcing

Keen readers of danieldrezner.com may have noticed that I haven’t blogged much about offshore outsourcing since my NYT op-ed in late September. This has been for several reasons:

a) I had a book manuscript to finish; b) There was an election occupying my attention; c) I was a bit burned out on the topic.

Well, the election is over, the book manuscript is off my desk, and a few months have passed since I’ve blogged about the topic. So… I’m back, baby!! So what’s been written that’s worth reading on the topic since I’ve been away? A couple of selections:

1) Mary Amiti and Shang-Jin Wei, “Fear of Service Outsourcing: Is It Justified?” Their answer would appear to be no:

The recent media and political attention on service outsourcing from developed to developing countries gives the impression that outsourcing is exploding. As a result, workers in industrial countries are anxious about job losses. This paper aims to establish what are the hypes and what are the facts. The results show that although service outsourcing has been steadily increasing it is still very low, and that in the United States and many other industrial countries “insourcing” is greater than outsourcing. Using the United Kingdom as a case study, we find that job growth at a sectoral level is not negatively related to service outsourcing.

Here’s a link to a more accessible precis, which closes with the following:

Although service outsourcing is growing rapidly, it still remains a small fraction of industrial countries’ GDP. And it is not dominated by lopsided, one-way outsourcing from developed to developing countries. In fact, most industrial countries do not outsource more (when adjusted for economic size) than many developing countries. The United States, for example, which is a large importer of business services, is also a large exporter of these services and, as has been noted, has a growing net surplus in business service trade. As for fears about job loss, our studies show that jobs are not being exported, on net, from industrial countries to developing countries as a result of outsourcing. In fact, the evidence suggests that job losses in one industry often are offset by jobs created in other growing industries. (emphasis added)

One problem with this study is that the data stop in 2002 — and, to be fair, most opponents of offshore outsourcing argue that the phenomenon didn’t really heat up until the last two years. 2) Kate Bronfenbrenner and Stephanie Luce, “The Changing Nature of Corporate Global Restructuring.” This report was prepared for the US-China Economic and Security Review Commission (USCC) and argues that existing estimates of job losses due to offshoring have been underestimated. From the executive summary:

Despite the increasing amount of trade between China and the US, and the increase in foreign direct investment from the US into China, there is no government body that collects information detailing the incidence of production shifts out of the US to China or any other country…. In order to conduct this research we developed a methodology that involves a combination of online media tracking and corporate research and the creation of a database including information on all production shifts announced or confirmed in the media during that period. In July 2004 the USCC asked us to update that research, starting with an initial period of January 1 through March 31, 2004…. Altogether we found announcements or confirmations for shifts of 48,417 jobs out of the US to other countries in January-March including 23,396 to Mexico, 8,283 to China, 3,895 to India, 5,511 to other Latin American countries, 4,419 to other Asian countries, and 2,933 to all other countries. Based on our estimates that media tracking captures approximately two-thirds of production shifts to Mexico and about a third of production estimates to other countries, these data suggest that in 2004 as many as 406,000 jobs will be shifted from the US to other countries compared to 204,000 jobs in 2001.

This is a serious study, and does a good job of suggesting that the Bureau of Labor Statistics has underestimated the raw number (though not necessarily the percentage) of jobs lost through offshoring in the first quarter of this year. However, that topline number seems based on some dodgy assumptions and serious guesstimation. And be sure to read pages 8-16 to get a sense of their methodology — it’s still unclear to me whether their count includes all actual and announced plant closings/layoffs during that time period, or just one or the other. 3) The University of South Florida’s Globalization Research center commissioned Innovation Insight to produce a report, “Baseline Analysis of Offshoring in the Tampa Bay Region.” From the executive summary:

The Tampa Bay region is estimated to have imported approximately $627 million in “other” private services from the US and abroad in 2002, including $33 million in fi nancial services, $97 million in business and professional services, and approximately $12 million in information technology (database plus computer services). However, the Tampa Bay has a signifi cant import/export surplus when it comes to private services; for all “other” private services combined, the region exported $478 million more than it imported in 2002. Offshoring practices are increasing the demand for selected “soft skills” in US employees, in particular project management and defi nition skills, fl exibility, cultural sensitivity and facility, training, creativity, and organization skills.

Take those numbers with a small grain of salt. This paragraph best expresses the sentiment of the report:

We explored analysis, statistics, and relations between a number of other data sources for evidence of employment shifts caused by offshore outsourcing. Unfortunately, the US economy has demonstrated some large employment shifts away from agriculture, mining, and manufacturing into service and professional industries, and has also has seen its unemployment levels rise and fall during recent recessions. Tampa Bay’s economy refl ects national economic trends; our findings suggest that if an intra-sector shift (from one occupation or industry category to another) due to offshoring exists, it is so small compared to ongoing large scale (macro) employment shifts that it is effectively obscured. In other words, given existing data sources, it is difficult to tell which occupations are changing specifically due to offshoring or just the evolution of the national economic structure.

4) Finally, do check out Corante’s new blog on outsourcing, which takes a critical view of the phenomenon (link via Tyler Cowen).

Thanks to Bruce Bartlett and Amardeep Singh for being good enough to help keep me up to speed.