The New York Fed tackles offshore outsourcing

The following is excerpted from Erica L. Groshen, Bart Hobijn, and Margaret M. McConnell, “U.S. Jobs Gained and Lost through Trade: A Net Measure” in the August 2005 edition of the Federal Reserve Bank of New York?s Current Issues in Economics and Finance:

In the aftermath of the 2001 recession, the perception has grown that vast numbers of U.S. services jobs are being relocated to India, China, and other developing countries. Anecdotes abound of companies using overseas call centers, computer programmers, help desk workers, and accountants while closing down whole departments here. The alleged surge in relocations after 2001 coincided for some years with a sluggish job recovery, prompting many to conclude that the ?offshoring? of jobs accounted for much of the persistent weakness in the U.S. labor market. While concerns about job relocations were fueled by the slow job growth during the recovery, the belief that U.S. workers are losing jobs to foreign competition has a much longer history: Indeed, the current concerns echo those voiced in many earlier periods about the impact of international trade on domestic workers. In this edition of Current Issues, we explore the relationship between trade and job creation in the United States…. [W]e find no evidence to support the claims that a surge in offshoring played a large role in the jobless recovery. Jobs embodied in net imports did not grow at an accelerated pace after the 2001 recession. In fact, the increase in U.S. jobs sent abroad has averaged about 30,000 per month since 2001?a deceleration from the monthly average increase of 45,000 jobs during the period from 1997 to 2001. More broadly, our results show no clear or necessary relationship between a pickup in jobs lost to trade and weakness in the U.S. labor market. A case in point is the 1997-2001 acceleration in offshoring, which occurred when U.S. payrolls were expanding steadily.

This is the part I found of particular interest:

[One common] assumption is that sectors that are heavily or increasingly exposed to trade suffered disproportionate job losses during the recession and recovery. To test this assumption, we examine job growth rates in this period relative to growth rates during the 1990s expansion for both trade-sensitive and trade-insensitive industries. Starting with goods-producing industries, we find that manufacturing?one of the sectors most exposed to trade?did indeed lose a disproportionate share of jobs during the downturn and subsequent recovery. However, mining and natural resources, another heavily traded industry, performed better in this period than in the preceding expansion, while the nontraded construction industry experienced disproportionate job losses. Turning to services, we find that the results are even more mixed. Business services?an industry in which outsourcing is believed to have taken a large toll on domestic jobs?saw above-average job losses during the recession and recovery. However, finance, insurance, wholesale trade, and management and engineering jobs did relatively well, despite often-voiced concerns about outsourcing. Moreover, a number of services industries that are not exposed to trade incurred above-average employment losses; the leisure and hospitality trades, for example, do not transfer jobs to overseas workers but still experienced heavy payroll shortfalls relative to the preceding period. The absence of any consistent pattern in the fortunes of individual industries suggests that while trade-related competition may have driven job losses in some sectors, layoffs in many other sectors occurred for reasons unrelated to trade. Indeed, in a number of industries, forces such as technological change, investment overhangs, and changing consumption behavior are much more likely to have caused job losses.