Outsourcing May Create U.S. Jobs
Higher Productivity Allows
For Investment in Staffing,
Expansion, a Study Finds
By MICHAEL SCHROEDER
Staff Reporter of THE WALL STREET JOURNAL
March 30, 2004
WASHINGTON – 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.
There is a debate among economists about whether productivity increases from the outsourcing of high-paying U.S. work abroad has translated into meaningful economic improvement in the current recovery, in which job growth has been slow.
Noting that business investment has been lackluster as well, Lee Price, research director at the Economic Policy Institute, a liberal think tank in Washington, said, “I’m dubious that the boost in corporate profitability from outsourcing has contributed much to creating new jobs.”
But the study claims that twice the number of U.S. jobs are created than displaced, producing wage increases in various sectors. The report takes a rather narrow focus, tracking the outsourcing of computer-services jobs, but not other work increasingly being done abroad such as manufacturing, call centers or medical X-ray reading.
Among the study’s conclusions, spending for global outsourcing of computer software and services is expected to grow at a compound annual rate of almost 26%, increasing to $31 billion in 2008 – or 6.2% of all information-technology spending by U.S. companies – from about $10 billion in 2003.
During the same period, total savings from lower wages, among other things, are estimated to grow to $20.9 billion from $6.7 billion. The savings are expected to translate into the creation of 317,000 U.S. jobs by 2008, including in construction, education, health care and financial services. Since the beginning of 2003, 104,000 jobs were displaced because of outsourcing, the study concludes.
Demand for U.S. exports is expected to increase due to the relatively lower prices of U.S.-produced goods and services and higher incomes in foreign countries where U.S. work is done. Exports increased by $2.3 billion in 2003 because of the practice, and are expected to expand $9 billion by 2008, the study said.
Outsourcing critic Ron Hira, assistant professor of public policy at the Rochester Institute of Technology, Rochester, N.Y., said he is skeptical of the broad results because the study focuses exclusively on the outsourcing of computer software and services.
“Nearly every economist has had a very poor track record over the past three years in predicting job growth, so we should take forecasts with a grain of salt,” Mr. Hira said. “That doesn’t mean that these exercises should be dismissed.”
Nariman Behravesh, Global Insight’s chief economist, said the study was done with an updated economic model that takes into account the current unusual recovery and industry surveys. The analysis looks at the upside, not just the negatives in the outsourcing trend, he said. “We know we’re stepping into a hornet’s nest.”
Said Harris Miller, president of the Information Technology Association of America, “Clearly, the political debate has been heated, but not informed. This careful analysis has yielded special data intended to help [the public] make more-informed judgments going forward.”