Offshoring of US Jobs - Research Paper Example

Offshoring of jobs in the US has steadily been on the rise in the last few decades. The countries to which jobs are offshored to are dependent on a number of factors but are generally less-developed one. In the past, it was just manufacturing jobs that were in danger of being offshored but with the advances in technology that have occurred, service sector jobs have been sent abroad too. Jobs can be divided into two very broad categories of personally-delivered and impersonally delivered. It has been estimated that up to 22-29% of US jobs can potentially be offshored and all of these are ones which are impersonally-delivered. This is a large number and the US is now taking measures to attempt to limit offshoring. However, while some people believe this will be effective, others see offshoring as an extension of globalisation and the start of the third industrial revolution which cannot be stopped but rather, must be accepted. Keywords: offshoring, personally-delivered jobs, impersonally delivered jobs, third industrial revolution Offshoring of US Jobs The offshoring of jobs from the United States (US) has been increasing steadily in recent years. This has led to a number of people being unemployed and the government is taking steps to deal with this issue. This paper will attempt to take a look at offshoring in the US and give an idea into what types of jobs are potentially offshorable. In addition, attention will be paid to the changes that have occurred in offshoring in the last few decades and discuss the idea that offshoring is not necessarily a bad thing and is actually the third industrial revolution. It is generally developed nations that offshore work. Crudely speaking ,offshoring is the phenomenon by which certain jobs, but not the people who were performing them, are exported from richer countries to poorer ones (Blinder, 2005). The United States is the world’s leading offshorer followed closely by the United Kingdom. Other countries like Japan, Korea, Australia and India offshore work too. Broadly, the countries that jobs are offshored to can generally be broken up into four main groupings (Aspray et al, 2006). These are as follows. 1) Countries that have many highly educated workers but have lower pay when compared with the country where jobs are being offshored from. Examples include India or China. 2) Countries that have people who fluently speak the same language as in the country where the job is being offshored from. An example is people from the Philippines working in English. 3) Countries that are fairly close by geographically have comparable work ethic and culture and lower wages than the offshorer. A good example is jobs being offshored to Canada from the US.4) Countries that are known for special skills. For example, Israel is known for its anti-virus software (Aspray et al, 2006). The number of jobs that have been offshored from the US is unknown (Blinder, 2007). There have been crude estimates that just under a million service sector jobs have been offshored. While this number seems exceptionally large, taking into account the population of the US and the numbers of people who are actually unemployed in the country, it is actually quite a small percentage of the general population (Blinder, 2006). While the exact numbers are unknown, estimates indicate that offshoring has increased by 30% in the years between 1970 and 1990 (Geishecker and Gorg, 2004). There was an interesting study done regarding the number of jobs that can potentially be offshored from the US. This study looked at 291 different types of jobs in the US workforce in 2004 and speculated that 22% to 29% of all jobs in the US were offshorable. It must be noted that this does not mean that all these jobs will in fact be offshored; it just provides an estimate of what is possible (Blinder, 2007). It was also noticed that the degree of offshorability is not dependant simply on wages or education and it is not only low-income jobs that have the potential to be offshored. There appears to be absolutely no correlation between the level of skill and offshorability (Blinder, 2007). The degree of offshorability is dependant primarily on whether a particular job can be done electronically without compromising its quality (Blinder, 2006 from Blinder, 2007). To fully understand this concept, it must be noted that jobs can be divided into two distinct types-personally-delivered and impersonally-delivered (Blinder, 2007). Personally-delivered jobs generally require face-to-face contact with the customer and examples of these include janitors, childcare workers, and surgeons to name a few. Impersonally-delivered jobs, on the other hand, do not require a personal presence and include call centre workers or scientists. Impersonally-delivered jobs can be carried out from a distance and are definitely more likely to be offshored than personally-delivered jobs (Blinder, 2007). However, the line between personally-delivered jobs and impersonal-jobs is blurred. As time passes, certain personally-delivered jobs will become impersonally-delivered, with the help of technological advances, and will have the potential to be offshored (Blinder, 2006). In contrast with Blinder’s work, other researchers have suggested that offshoring is, in fact, mainly wage-dependant. All the countries to which jobs are being offshored are low-wage countries and this has been pointed as being the primary incentive for offshoring. In addition, there is plenty of quality work produced by offshoring and plenty of talent available overseas to do these tasks (Aspray et al, 2006). Unfortunately, while there has been much political activity regarding offshoring, there has not been too much research and the real reasons for offshoring will only be clear once more work is done (Blinder, 2007). In the past, it was mainly only manufacturing jobs that were being offshored from the US. However, is now an increasing trend of service sector jobs being offshored as well (Amiti and Wei, 2009). There are two primary reasons for this namely that there has been a huge advance in technology (such as telecommunication over the internet) (Freund and Weinhold, 2002 from Amiti and Wei, 2009). In fact, service jobs were offshored at an average rate of 6.3% annually between 1992 and 2000 (Amiti and Wei, 2009). The second reason for the increase in service sector jobs being offshored is the entrance of several lesser developed countries, such as China and India, into the Global economy (Blinder, 2007). An advantage that has been observed due to offshoring is that appears to point towards an increase in productivity. In service related offshoring, there was a 10% increase in labour productivity and 5% increase for material offshoring (Amiti and Wei, 2009) The process of offshoring changes the dynamics of the workforce of both the country offshoring and of the country where jobs are being offshored to. This results in jobs being created in some countries while jobs are lost in other countries (Aspray et al, 2006). In addition, it has been seen that offshoring has a marked effect on wages. The effect of offshoring was investigated with regards to individual people in a study done by Geishecker and Gorg in 2004. Three different skill levels were identified and the effect of offshoring on wages in these levels was looked into. It was seen that offshoring reduced the average wage for people in the lowest skill group by up to 1.8%. In sharp contrast, people in the highest level of skill group actually experienced an increase in wages as a result of offshoring. Wages increased on average by up to 3.3% (Geishecker and Gorg, 2004). It must be mentioned that the results of this study are from Germany which has in general a much more flexible labour market on comparison with the US (Geishecker and Gorg, 2004). The US has adopted several measures to deal with the issue of offshoring. Even if the view expressed by Blinder, 2007 that the level of skill and education does not affect the offshorability of a job, it is undoubtedly the case that education is the primary tool that can be used to prepare a country for offshoring(Aspray et al, 2006). Countries like the US who are the exporters of jobs will have to deal with the issue of changing its education system so that more people will be educated in fields where there are actually jobs available. In contrast, countries like India, who are importers of jobs, will possibly place emphasis on education in fields where more jobs are being brought into the country (Aspray et al, 2006). In addition to changes in the education structure, the US, may also adopt certain political changes. There have been certain laws introduced to limit the amount of work that is moved out of the country. There have even been bills passed that issue strict guidelines as to the citizenship or visa status of workers who are allowed to work for US based organisations. In addition, the worker visa systems have been overhauled in order to be able to find skilled workers to work in the US though this strategy has not shown much success (Aspray et al, 2006). Another approach taken by the US government to limit offshoring of jobs had been that there are no tax incentives given to companies who move jobs overseas. Unfortunately, tax laws are extremely difficult to follow through on as there are disparities in the costs of benefits such as healthcare in between the countries in which jobs were being offshored to and the US (Aspray et al, 2006). Another step by the US government to deal with offshoring has been to lend support to Americans who have lost their jobs as a result of offshoring. Job training is now being offered and unemployment benefits are provided for an extended period of time (Aspray et al, 2006). The final approach taken by the government is the idea of ‘innovation’. What this basically means is that while several jobs are lost to offshoring, new jobs can be created in the US so that the workers who used to work the older jobs can then fill this niche in the industry. This strategy involving innovation has been broken up into four main parts: 1) encouraging foreigners such as scientists to work in the US, 2) making improvements to the educational structure of the US, 3) encouraging more Americans to go into the fields of science and engineering and 4) providing an increase in support for research and development. While the US has been taking measure to deal with the issue of offshoring, there seems to be a school of thought that believes that offshoring is not necessarily a negative and is a dynamic that was bound to occur in light of increasing globalization. In fact, offshoring has been likened to being the third industrial revolution. The US did not lose anything by way of the last two industrial revolutions and there will be much to gain from offshoring. However, instead of trying to stop it, there should be a mentality of ‘going with the flow’ and government policies, trade policies, educational strategies and welfare systems amongst others will all have to constructed to meet this challenge (Blinder, 2006). It has been pointed out that the first industrial revolution did not signify a termination of the agricultural field. Instead, many more Americans chose to move from the farm to factories in large numbers. There was a fewer number of people working on farms needed to feed the population due to an increased productivity on farms so this made sense. Perhaps, the most important point to be taken is that this shift from farm to factory did not lead to massive unemployment. There was instead a mass re-location of labour (Blinder, 2006). Likewise, the second industrial revolution did not lead to massive unemployment rates either. There was simply a move from manufacturing industries towards service-based ones. There were three primary reasons for this shift and they are an increasing productivity meaning that more goods are produced in less time with less labour; people now choose to spend more of their income on services and there has been an increase in the number of manufactured goods imported into the US over the years (Blinder, 2006). If this is in fact the third industrial revolution, a look back at history would indicate that there will not be mass unemployment in countries like the US where jobs are being offshored. Instead, there will be a shift in the types of jobs that people occupy over the year. It must be said that the world gained quite a lot from the first and second industrial revolutions and it may be the case for the third one too (Blinder, 2006). If in case, offshoring does continue to increase at a steady rate including the offshoring of service jobs, the future generations in the US will undoubtedly be affected. Societies will possibly be affected at large in many different ways. Some recommendations that have been made for countries like the US are as follows. They are wholly different from the approach taken by the US at the moment The US will possibly need to focus on gearing its population towards more personally-delivered services such as doctors and lawyers. Despite the increasing importance of technology, it appears that people skills will have a huge role to play in the job market in the years to come in countries like the US (Blinder, 2005). There will need to be a re-modelling of the education system which should be designed to guide the youth of today towards jobs which will be present when they actually join the workforce. This process does not simply mean that people will have to be more educated as offshoring does not seem to be dependent on skill level (Blinder, 2005). Accepting offshoring as a part of globalisation has been suggested. Attempts to fight it might end up resulting in more harm than good in the long run (Blinder, 2005). It must be recognised that offshoring is not a ‘threat’. It will definitely bring about change but some of this change may be for the better as in the first and second industrial revolutions. The idea that it will result in massive unemployment is possibly misleading (Blinder, 2005). Society as a whole in the US seems unprepared for offshoring in that governmental laws, trade policies and politics. These must all be remedied before too long (Blinder, 2005). All of the above points and others need to be taken into consideration by lawmakers when deciding how to best deal with the issue of offshoring (Geishecker and Gorg, 2004). Further research examining the exact extent of offshoring will be undeniably helpful as this will help determine exactly how many Americans have been affected and possibly will be affected in the future. Encouragingly, it has been predicted that the United States will probably be able to do better in the long run when compared to other Western countries that practice offshoring due to its flexibility (Blinder, 2005). In conclusion, offshoring of jobs from developed countries to less developed countries has been increasing over the years. The US is the world’s largest offshorer of jobs. Service jobs are now being offshored as well as the traditional manufacturing ones. This seems to have taken place largely as a result of increasing technological advances which promote easier communication and the entrance of lesser-developed countries in to the global economy. There has been a distinction made between personally-delivered jobs and impersonally-delivered ones. Impersonally delivered jobs are more likely to be offshored as there is little or no need for interaction with the customer. It has been estimated that up to 29% of US jobs can potentially be offshored in the next few decades. Offshoring seems to have a negative impact on wages with the lowest skilled workers having to face average pay decreases while the highest level of skilled workers actually experienced an increase. However, it must be noted that the offshorability is not necessarily linked with the level of skill or education needed for that particular job, but appears to be primarily dependent on lower wages in countries where jobs are being offshored to. The US has been doing a number of things to combat offshoring in recent times, all with limited success. It has been suggested that offshoring is an inevitable part of globalisation and may even signify the third industrial revolution. If this is the case, there will most likely be a shift in the types of jobs available in the US in the next few years and the country needs to be prepared for that change. The single most important tool the country has in dealing with offshoring is education. The future generation should be guided towards fields where personally-developed jobs are more prominent as this is where the job market is headed. Bibliography Amiti, M & Wei, S. (2009). Service Offshoring and Productivity: Evidence from the US. The World Economy,10, 203-220. Aspray, W.; Mayadas,F. & Vardi,M.Y. (2006). Globalization and Offshoring of Software. Association for Computing Machinery. 1-36. Blinder, A.S. (2005) Fear of Offshoring. CEPS Working Paper No. 119. Blinder, A.S. (2006). Offshoring: The Next Industrial Revolution? Foreign Affairs, Vol. 85,( 2): 113-128. Blinder, A.S. (2007). How Many U.S. Jobs Might Be Offshorable? CEPS Working Paper No. 142. Geishecker, I. & Gorg, H. (2004). International outsourcing and wages: Winners and losers. Retrieved from http://www.etsg.org/ETSG2004/Papers/Geishecker.pdf. 008 Read More