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6. “Offshoring” Is Not a Threat to High-Tech Employment

In recent months, historical fears about vanishing manufacturing jobs have been compounded by growing anxiety about trade-related job losses in the service sector. Advances in information and communications technologies now make it possible for many jobs -- from customer service calls to software development -- to be performed anywhere.

In particular, the offshoring of information technology (I.T.) jobs to India and other low-wage countries has received a flurry of attention. According to a survey of hiring managers conducted by the Information Technology Association of America, 12 percent of I.T. companies already have outsourced some operations abroad. As for future trends, Forrester Research predicted in a widely cited study that 3.3 million white-collar jobs -- including 1.7 million back-office positions and 473,000 I.T. jobs -- will move overseas between 2000 and 2015.

Adding to the fear, I.T. employment has experienced a significant recent decline. In 2002, according to the Department of Commerce, the total number of I.T.-related jobs stood at 5.95 million, down from a 2000 peak of 6.47 million. Although some of those jobs were lost because of offshoring, the major culprits were the slowdown in demand for I.T. services after the Y2K buildup, followed by the dot-com collapse and the broader recession. Moreover, it should be remembered that the recent drop in employment took place after a dramatic buildup. In 1994, 1.19 million people were employed as mathematical and computer scientists. By 2000 that figure had jumped to 2.07 million -- a 74 percent increase. As of 2002, the figure had decreased only slightly to 2.03 million, still 71 percent higher than in 1994.

Despite the trend toward offshoring, I.T.-related employment is expected to see healthy increases in the years to come. According to Department of Labor projections, the total number of jobs in computer and mathematical occupations will jump from 3.02 million in 2002 to 4.07 million in 2012 -- a 35 percent increase. Of the 30 specific occupations projected to grow fastest during those 10 years, seven are computer-related. (See Figure 4 for the fastest-growing computer-related occupations.) Thus, the recent downturn in I.T. is likely only a temporary break in a larger trend of robust job growth.

The wild claims that offshoring will gut employment in the I.T. sector are totally at odds with reality. I.T. job losses projected by Forrester amount to fewer than 32,000 per year -- relatively modest attrition in the context of 6 million I.T. jobs. These losses, meanwhile, will be offset by newly created jobs as computer and mathematical occupations continue to boom. The doomsayers are confusing a cyclical downturn with a permanent trend.

7. Globalization of Services Creates Enormous Opportunity for American Industry

Offshoring of I.T. services to India and elsewhere has been made possible by ongoing advances in computer and communications technologies. If those advances indeed pose a threat to domestic I.T. services industries, then it should be possible to trace the emergence of that threat in trade statistics, since offshoring registers as an increase in services imports.

Yet the fact is that the U.S. runs a trade surplus precisely in the I.T. services most directly affected by offshoring. In the categories of “computer and data processing services” and “database and other information services,” American exports rose from $2.4 billion in 1995 to $5.4 billion in 2002, while imports increased from $0.3 billion to $1.2 billion. Thus, the U.S. trade surplus in these services has expanded from $2.1 billion to $4.2 billion.

Meanwhile, the same technological advances that have given rise to offshoring are facilitating the international provision of all kinds of services -- banking, accounting, legal assistance, engineering, medicine, and so on. The United States is a major exporter of services generally and runs a sizable trade surplus in services. In 2002, for example, service exports accounted for 30 percent of all U.S. exports and exceeded service imports by $64.8 billion. Accordingly, the increasing ability to provide services remotely is a commercial boon to many U.S.-based service industries. Although some jobs are doubtless at risk, the same trends that make offshoring possible are creating new opportunities, and new jobs, throughout the domestic economy.

8. Offshoring Creates New Jobs and Boosts Economic Growth

Although offshoring does eliminate jobs, it also yields important benefits. To the extent that companies can reduce costs by shifting certain operations overseas, they are increasing productivity. The process of competition ultimately passes the resulting cost savings on to consumers, which then spurs demand for other goods and services. Whether caused by the introduction of new technology or by new ways to organize work, productivity increases translate into economic growth and rising overall living standards.

In particular, offshoring encourages the diffusion of I.T. throughout the American economy. According to Catherine Mann at the Institute for International Economics, globalized production of I.T. hardware -- that is, the offshoring of computer-related manufacturing -- has accounted for 10 percent to 30 percent of the drop in hardware prices. The resulting increase in productivity encouraged the rapid spread of computer use and thereby added some $230 billion in cumulative additional GDP between 1995 and 2002.

Offshoring offers the potential to take a similar bite out of prices for I.T. software and services. Those price reductions will promote the further spread of I.T. and new business processes that take advantage of cheap technology. As Mann notes, health services and construction are two large and important sectors that today feature low I.T. intensity (as measured by I.T. equipment per worker) and below-average productivity growth. Diffusion of I.T. into these and other sectors could prompt a new round of productivity growth such as that provoked by the globalization of hardware production during the 1990s.

9. The Digital Revolution Has Been Eliminating White-Collar Jobs for Many Years

The attention now being paid to offshoring creates the impression that it is an utterly unprecedented phenomenon. But the very same technological advances that are making offshoring possible have been eliminating large numbers of white-collar jobs for many years now.

The diffusion of I.T. throughout the economy has caused major shakeups in the job market during the last decade. Voicemail has replaced receptionists; back-office record-keeping and other clerical jobs have been supplanted by computers; layers of middle management have been eliminated by better internal communications systems. In all these cases, jobs are not simply being transferred overseas; they are being consigned to oblivion by automation and the resulting reorganization of work processes.

The increased churn in white-collar jobs shows up in the Department of Labor’s statistics on displaced long-tenured workers, defined as workers who have lost jobs they held for three years or more . . . . During the 1981--82 recession blue-collar workers bore the brunt of long-tenured displacement, but by 1991-92 more than half of the long-held jobs lost were white-collar. Even in the better years that followed, innovation and job churn continued to displace white-collar workers at a higher rate than during the 1981-82 recession.

Offshoring is merely the latest manifestation of a well-established process. The only difference is that, with offshoring, I.T. is facilitating the transfer of jobs overseas. In either case, domestic jobs are lost to technological progress and rising productivity. Why is this downside taken in stride when jobs are eliminated entirely yet considered unbearable when the jobs are taken as hand-me-downs by Indians and other foreigners?