[This is a summary by Larry Blakeley of this report]
The jobs being created in India and elsewhere are in a wide range of services sectors such as geographic information systems services for insurance companies, stock market research for financial firms, medical transcription services, legal online database research, and data analysis for consulting firms, in addition to customer service call centers, payroll and other back-office related activities.
In this short overview we address the following questions:
Have jobs been transplanted from the US?
How significantis this phenomenon and how sustainable is it?
What is the potential impact on future job creation and wage inequality in the US?
How is it likely to impact the real estate sector?
Indeed, one of the attributes of the modern stage of globalization for advanced industrialized countries is the offshore production of intermediate inputs, usually in low-cost developing countries. The motivation, on the part of US firms, has been driven by the low costs of manufacturing abroad, primarily in the East Asian countries, such as Taiwan, China, South Korea, Malaysia and others, as well as the availability of skilled labor, the promotion of a business-friendly environment and the existence of production and supply networks in those countries. At the same time, the higher value-added, better paying jobs in management, finance, marketing, research and development have been retained in the home country.
As pointed out by Bardhan, Jaffee and Kroll in their forthcoming book, "Globalization and a High-Tech Economy," the outsourcing of parts of the supply chain of manufacturing has resulted in a shift of demand, and hence jobs, from blue-collar to white collar and from manufacturing to services, increased wage inequality between blue-collar and white-collar jobs, and increased profitability of US firms. They also note that recessionary downturns seem to prod firms into making major restructuring moves, and that a recession might be the mother of innovation and dynamism.
Note: Most economists believe, however, that outsourcing should not lead to job loss in the long run but to a reshuffling of jobs and a new composition of occupations in the economy. This recovery of jobs lost to outsourcing still requires major changes in the industrial and employment structure of the economy.
There have been many different estimates of potential job losses in the US from future business services outsourcing. A report by Forrester Research forecasts that by the year 2015, approximately 3.3 million jobs will have been irretrievably lost, almost one fourth of our estimate of total employment in outsourcing occupations at risk in 2001. This translates to a little over 250,000 per year, a number which seems conservative, based on the rate of outsourcing over the last few years, the experience of outsourcing in manufacturing, the increasing ability of an increasing number of countries to compete for these jobs, the higher tradability of services due to better communications, increasing use of English and US standards in business and commerce, and the obvious benefits to US firms and employers, the primary decision-makers in this process. This outsourcing of jobs could result either in net job loss in some occupations and sectors or in a slower pace of job expansion than would otherwise occur.
The office building sector faces considerable uncertainty going forward. CB Richard Ellis reports that close to 17% of for-lease US office space is vacant. Rosen Consulting Group (RCG) figures show at least 700 million square feet are vacant in the office-leasing market of major US metropolitan areas. The most vulnerable sectors have been computer related industries, telecommunications, and employment services, the temporary employment services that helped fuel the technology expansion. Many of these are the same sectors now undergoing extensive outsourcing.
The US economy underwent a major wave of outsourcing in manufacturingi ndustries, a process that gathered momentum in the 1980s and 1990s and continues today. The experience of that phenomenon provides a useful benchmark for evaluating the current wave of outsourcing in the services sectors. Business process and business services outsourcing will have a significant impact on the economic landscape in the US.
Several major differences distinguish services outsourcing from the previous wave of outsourcing of manufacturing jobs.
Services outsourcing is structurally simpler than manufacturing outsourcing in terms of resources, space and equipment requirements and thus may proceed much more quickly.
Services outsourcing affects overwhelmingly white-collar middle class jobs and occupations, unlike manufacturing outsourcing, which impacted primarily blue-collar workers.
In addition,this time around it is a different set of countries that are in contention for these jobs.
- "Fisher Center Research Reports: The New Wave of Outsourcing," (full report in DjVu format here) Ashok D. Bardhan and Cynthia Kroll, Institute of Business and Economic Research Fisher Center for Real Estate & Urban Economics (University of California, Berkeley)
This paper is posted at the eScholarship Repository, University of California. http://repositories.cdlib.org/iber/fcreue/reports/1103
Ashok Deo Bardhan is Senior Research Associate and Cynthia A. Kroll is Senior Regional Economist at the Fisher Center for Real Estate and Urban Economics. Further information on outsourcing trends in high-tech manufacturing and services sectors and more generally on globalization and the high-tech economy is available in their forthcoming book, Globalization and a High-Tech Economy, coauthored with Professor Dwight M. Jaffee, Willis Booth Professor of Banking, Finance and Real Estate at the Haas School of Business and Co-Chair of the Fisher Center for Real Estate and Urban Economics.