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Wednesday, November 23, 2011

Offshoring (or Offshore Outsourcing) and Job Loss Among U.S. Workers

Linda Levine
Specialist in Labor Economics

Offshoring, also known as offshore outsourcing, is the term that came into use a decade ago to describe a practice among companies located in the United States of contracting with businesses beyond U.S. borders to perform services that would otherwise have been provided by in-house employees in white-collar occupations (e.g., computer systems designers). The term is equally applicable to U.S. firms offshoring the jobs of blue-collar workers on textile and auto assembly lines, for example, which has been taking place for many decades. The extension of offshoring from U.S. manufacturers to service providers has heightened public policy concerns about the extent of job loss and forgone employment opportunities among U.S. workers. This concern is especially pertinent to policymakers because of a national unemployment rate of 9% for much of 2011, despite the end of the 2007-2009 recession more than two years ago.

The outsourcing of service sector jobs within the United States was a response to the early 1980s recessions when employers narrowed their focus to the company’s core mission and contracted out peripheral activities (e.g., janitorial duties) to other U.S. businesses. The 2001 recession prompted employers to seek further efficiencies by tapping into the global supply of labor. U.S. businesses were able to outsource abroad the jobs of white-collar workers in some serviceproviding industries as a result of widely disseminated technological advancements that permit low cost, good quality, and high speed transmission of voice and data communications. Other developments, such as the educational systems of comparatively low-wage nations graduating large supplies of highly educated individuals, also took place in the intervening years which enhanced the ability of other countries (e.g., India and China) to export services to the United States.

U.S. workers reportedly have become more concerned about the security of their jobs due to increased global economic integration since the early 2000s. Offshore outsourcing, which is one manifestation of globalization, is reported to have adversely affected the employment situations of U.S. white-collar workers in information technology (IT) jobs (e.g., computer systems analysts and software engineers) and IT-enabled jobs (e.g., telemarketers and accounting clerks). Data from the U.S. Bureau of Labor Statistics’ Displaced Worker Survey (DWS) indicate that the risk of job loss has increased among white-collar workers, but the increase preceded the expansion of offshoring from jobs in manufacturing industries to jobs in professional and business services, administrative support services, and financial services industries. In addition, the DWS data that include the 2007-2009 recession suggest that macroeconomic conditions rather than offshoring have accounted for most of the rise in job losses in recent years.

Congress historically has tried to assist workers who lose jobs through no fault of their own, whether the job losses are caused by economy-wide downturns (i.e., cyclical unemployment) or by shifts in the industry composition of jobs performed in the United States (i.e., structural unemployment). Some observers have expressed concern that federal employment policies may not be up to the task of assisting unemployed workers who must adjust to the changing mix of U.S. jobs in order to obtain new jobs. The wide-ranging estimates that have been developed of the number of workers in jobs that are vulnerable to being offshored provide limited guidance to Congress in its deliberations about whether existing programs to assist displaced workers are sufficient or should be expanded.

Date of Report: November
15, 2011
Number of Pages:
Order Number: RL32
Price: $29.95

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