Editors' Summary

Offshoring of services burst into America's public consciousness in 2003, raising concerns about the nation's future competitiveness. For the first time, highly skilled white-collar workers in the United States perceived themselves to be in direct competition with lower-paid foreign workers. Viewed from across the Indian Ocean, services offshoring appeared to promise accelerated development—where poor countries could compete successfully with much richer ones by focusing their talent pool on a select group of high-value activities. For the first time in many decades, mainstream economists launched a serious debate over the possibility that trade could be zero sum (albeit only in special circumstances).

With the media stoking the popular imagination through dramatic, though often anecdotal or inconsistent "statistics," the Brookings Institution embarked on an effort to analyze the offshoring phenomenon. First, seeking to separate fact from speculation, we convened a full-day conference in 2004 that focused narrowly on the available data, their implications, and their limitations. We then launched a broader research project aimed at illuminating offshoring from a variety of complementary views: those of theory and empirics, industries and labor markets, and developed and developing countries. Participants with diverse perspectives presented their analyses at the Brookings Trade Forum Conference in May 2005. This volume contains the fourteen revised papers, as well as invited commentary by fourteen additional experts and summaries of the conference discussions. Here we highlight some of the key themes and conclusions that emerged from the project, and then briefly summarize the papers.

The term offshoring has itself been the source of some confusion. In this volume, we distinguish between questions of location (whether an activity is undertaken in the home market or offshore) and questions of ownership (whether an activity is undertaken within an enterprise or is outsourced to an arm's-length provider. Thus, by offshoring we mean the assignment of part or all of the value chain to an offshore (foreign) location, where an activity could be done either within the firm (in-house) or by a third party (at arm's length). In contrast, we use the term outsourcing to mean the assignment of services to a third party, whether domestic or foreign. The research focused on the new dimensions of offshoring, which reflect both sector and occupation: offshoring of services, as well as offshoring of white-collar work.

The contributors to this volume demonstrate that existing economic theory can go a long way toward capturing key dimensions of the services offshoring phenomenon. In particular, trade theory can explain why production processes that rely on skilled workers may migrate to locations in developing countries where such workers are relatively scarce; lack of complementary factors such as know-how may make them relatively inexpensive in these markets. In many respects, the issues raised by the new wave of offshoring parallel those that arose from the globalization of manufacturing that began some decades ago. But recent developments affect workers who tend to be more educated and to earn higher salaries. They often involve only a fragment of the value chain. And because of the nature of the relevant processes, recent theory suggests that levels of institutional development might constrain the extent to which developing countries can participate. Under quite sensible assumptions, standard trade models do not necessarily predict that high-wage economies such as the United States will gain from greater offshoring of services. One contribution of the project is to clarify the channels through which gains and losses might occur.

Since existing evidence consistently shows that relatively few service and white-collar jobs have been offshored to date, concerns focus on what might happen in the future. How much of the labor force in the United States and elsewhere is really vulnerable? As the 2004 workshop made clear, the answer is difficult to discern from existing data. Thus a contribution of this project is to present and discuss alternative approaches to constructing such indicators—one based on quantitative analysis across U.S. industries and occupations and the other...