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Brookings Trade Forum 2005 (2005) 75-116

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Tradable Services:

Understanding the Scope and Impact of Services Offshoring

Institute for International Economics
University of California–Santa Cruz and Institute for International Economics
[Comments and Discussion]

Globalization, particularly globalized production, is evolving and broadening from manufacturing into services. Services activities now account for a larger share of global trade than in the past. Services trade has almost doubled over the past decade: in the period 1992 to 2002, exports increased from $163 billion to $279 billion, and imports increased from $102 billion to $205 billion. These changes, and their implications for American firms and workers, have attracted widespread attention.

Coincident with the broadening of global economic integration from manufacturing to services, the face of job displacement in the United States is changing. While manufacturing workers have historically accounted for more than half of displaced workers, over the period 2001–03, nonmanufacturing workers accounted for 70 percent of displaced workers.1 The share of job loss accounted for by workers displaced from information, financial services, and professional and business services nearly tripled, from 15 percent during the 1979–82 recession to 43 percent over the 2001–03 period. The industrial and occupational shift [End Page 75] in job loss has been associated with a rise in the probability of job loss for more-educated workers.2

Bringing these two trends together, the changing mix of industries exposed to international trade in services may have deep implications for the structure of U.S. industry and labor markets in the future. Currently, there is little clear understanding of the role of services globalization in domestic employment change and job loss. More fundamentally, there is little clear understanding of the size and extent of services offshoring, how large it is likely to become in the near-term future, or what impact it is having on the U.S. economy.

Fueled by the 2004 presidential race and continued slack in the labor market, the services offshoring debate became headline material. The literature on services offshoring is expanding rapidly. A nonexhaustive list of recent contributors includes: Amiti and Wei (2004); Arora and Gambardella (2004); Bardhan and Kroll (2003): Bhagwati, Panagariya, and Srinivasan (2004); Brainard and Litan (2004); Bronfenbrenner and Luce (2004); Dossani and Kenney (2003, 2004); Kirkegaard (2004); Mann (2003); Samuelson (2004); and Schultze (2004). Despite the attention, relatively little is known about how many jobs may be at risk of relocation or how much job loss is associated with the business decisions to offshore and outsource.

There are a few prominent projections, advanced mostly by consulting firms. The dominant and most widely quoted projection of future job losses due to movement of jobs offshore is Forrester Research's estimate of 3.3 million.3 Others include: Deloitte Research's estimate that by 2008 the world's largest financial service companies will have relocated up to 2 million jobs to low-cost countries offshore; Gartner Research's prediction that by the end of 2004 10 percent of IT jobs at U.S. IT companies and 5 percent of IT jobs at non-IT companies will have moved offshore; and Goldman Sachs's estimate that 300,000 to 400,000 services jobs have moved offshore in the past three years, and that 15,000 to 30,000 jobs a month, in manufacturing and services combined, will be subject to offshoring in the future.4

It is clear that changes in technology are enabling more activities to be traded internationally. What is unclear is how large these trends are likely to become, [End Page 76] the sectors and occupations affected to date and going forward, and the impact on workers of the resulting dislocations. Without understanding the nature and scope of the changes, it is difficult to formulate effective public policy to address emerging needs.

This paper develops a new empirical approach to identifying, at a detailed level, service activities that are potentially exposed to international trade. We use the geographic concentration of service activities within the United States...


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pp. 75-116
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Archived 2012
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