8 Analysis of U.S. Offshoring Policy
8.5 Policy conclusion
Despite rising extent of ofshoring the unemployment rate in the USA is 4,5%
and average income is one of the highest in the world. This is a sign that the U.S.
economy face the international competition succesfully. TAA, ATAA and NAFTA-TAA programmes present weak stimulant for people whose jobs may be vulnerable to offshoring and they are not consistent with the American liberal economic policy.
34 Industrial Development Agency of Ireland: www.idaireland.com.
C
ONCLUSIONSI focused my paper on offshoring in the U.S. sector of services. I clarified the terminolgy, I presented several theoretical approaches to offshoring and the way of measurement of its extent. Consequently I analyzed data on output, productivity, employment, international trade to confirm or refuse the theoretical assumptions. My aim was to contribute with data and with the facts to the public debate over movements of production to low-income countries and to the dabate over assumed shortage of high-paid jobs particularly.
On the basis of my analysis I refuse the objections against offshoring based on assumptions of decrease of production, employment or welfare due to movement of service or good production abroad. I proved that the positive effects of offshoring of white-collar jobs absolutely outweigh the negative consequences. Offshoring strongly supports growth of productivity, output, employment and overall welfare. Process of offshoring is bidirecional. The USA not only „loose“ (as many people think even if it is not true) when good or service production move from the USA. There are also investments comining into the USA. These investments are naturally not coming because of lower costs but because of outcomes of American innovative capacity that many firms want to be in touch with. Conclusion of my macroeconomic analyze is very optimistic though.
The public debate over offshoring is not only the case of the most developed market economies. My conclusions are suitable also for the economies stepping out of the transition period whose inhabitants and politicians are getting used to the fact that the investments that came to the country because of the lower costs of running a plant may move easily to another country with preferential conditions. The high-income countries in western Europe, in northern America or Japan face offshoring for longer time than the economies in transition and they may serve as the examples of economic growth which lasted not in spite of offshoring but on the basis of it.
These economies are just in different phase of offshoring process which signifies that opportunity costs in these economies are too high to be wasted if people followed procedures with lower value added in the sector of services that some one else
can do cheaper or even better. The Czech republic comes in a new phase of offshoring as well. There is a great number of business service providers in Prague and Brno that secure business procedures for European firms. The Czech republic does not only attract firms from the sector of manufacturing any more.
The negative image of offshoring is artificial picture created by people from lobby who can benefit from the implementation of any governmental policy aimed at offshoring. There is a great number of them: union leaders whose power rises with the size of the threat, civil servants in the bureaus who aim at increasing budget or owners of the firms who may benefit from the state subsidiaries.
I can not recommend the implementation of additional social policy aimed at alleviating effects of offshoring in the sector of services according to the pattern of TAA since my critical analysis suggested that it is an inefficient policy and waste of sources of society. The example of high-income countries shows that there is no way to stop offshoring and it is not desirable. Offshoring is a natural process which an economy may adapt and gain from it or the economy may aim at stopping it and waste its sources.
No doubt that there are also people who can not participate in this kind of world economy which evolve still faster and which requires permanent learning. These are the loosers in the process of offshoring. These most vulnerable people are elderly and young mothers or in general people who did not learn to work with computers and people who stay aside from the labour marked without keeping in touch with its development. The part of American policy is aimed at elderly workers (ATAA).
However there is hardly any lobby that would demand special policy for young mothers who ant to join the childcare and the participation in the labour market. There is the economic policy needed.
The governmental policy should in general focus on long-run policy of smoothing the adjustment to structural changes such as aiming at education in general abilities (computer, presentations, communications skills) instead of ducation in curriculum of facts. The pattern of offshoring adjustment is applicable to high-income countries as well as to economies in transition which face offshoring movements for
shorter time and whose politicians have to reflect the questions on solutions of shortage of jobs posd by journalists.
My dissertation confirms the idea that offshoring increases welfare of societies.
My analysis stays far from the question of sense of continual growth of output and consumption. Do we need to travel to faraway countries for summer holidays? Can the inhabitants of high-income countries consume yet more food? Does the economic growth have any sense beside getting richer?
Sources
• Amiti, Mary and Wei, Shang-Jin (2005): Fear os Service Outsourcing. Is It Justified?
In: Economic Policy, April 2005 pp.307-347.
● Baicker, K., Rehavi, M. M., (2004), Policy Watch: Trade Adjustment Assistance. In:
The Journal of Economic Perspectives, Vol. 18, No. 2 (Spring, 2004), pp. 239-255.
• Berman, Eli, Bound, John and Machin, Stephen (1998): Implication of Skill-Biased Technological Change: International Evidence. In: The Quarterly Journal of Economics, Vol. 113, No. 4. (November, 1998), pp. 1245-1279.
● Brainard, S., L. (1997): An Empirical Assesment of the Proximity-Concetration Tradeoff between Multinational Sales and Trade. In: American Economic Review 87:
520-544.
● Decker, Paul, T., Corson, Walter (1995), International Trade and Worker Displacement: Evaluation of the Trade Ajustment Assistance Program. In: Industrial and Labor Relations Review, Vol. 48, No. 4 (Jul., 1995), pp. 758-774.
• Di Prete, Thomas A., de Graaf, Paul M., Luijkx, Ruud, Tahlin, Michael and Blossfeld, Hans-Peter (1997): Collectivist Versus Individualist Mobility Regimes?
Structural Change and Job Mobility in Four Countries. In: The American Journal of Sociology, Vol. 103, No. 2 (Sep, 1997), pp. 318-385.
● Dornbusch, R., Fischer, S., Samuelson, P., A. (1977): Comparative Advantage, Trade, and Payments in a Ricardian Model with a Contunuum of Goods. In: American Economic Review 67: 823-839.
• Feenstra, Robert C. and Hanson, Gordon H. (1996a): Globalization, Outsourcing, and Wage Inequality. In: The American Economic Review, Vol. 86, No.2, Papers and Proceedings of the Hundredth and Eight Annual Meeting of the American Economic Association San Francisco, CA, January 5-7, 1996 (May, 1996), pp. 240-245.
• Feenstra, Robert C. and Hanson, Gordon H. (1999): The Impact of Outsourcing and High-Technology Capital on Wages: Estimates for the United States, 1979-1990. In:
The Quaterly Journal of Economics, Vol. 114, No. 3 (Aug, 1999), pp. 907-940.
• Friedman, Thomas L. (2005), The World is Flat: a Brief History of the Twenty-first
Century. New York: Farrar, Strauss and Giroux.
● Helpman, E., Melitz, M., Yeaple, S., R. (2004): Exports versus FDI with Heterogenous Firms. In: American Economic Review 94: 300-316.
● Markusen, J. (1983): Factor Movements and Commodity Trade as Complements. In:
Journal of International Economics 14: 341-356.
● Markusen, J. (1984): Multinationals, Multi-Plant Economies, and the Gains from Trade. In: Journal of International Economics 16: 205-226.
● Melitz, M. (2003): The Impact of Trade on Intra-Industry Rellocations and Aggregate Industry Productivity. In: Econometrica 71: 1695-1725.
● Mundell, R., A. (1957): International Trade and Factor Mobility. In: American Economic Review 47: 321-335.
● Murphy, Michelle (2007): Protecting Yourself from Offshoring. Advice for U.S.-based Technical Communicators. February 2007
• Nussbaum, Bruce (2004): Where Are the Jobs? In: Business Week, 3/22/2004 Issue
3875, p. 36-37.
● OECD (2006): Information Technology Outlook. Chapter 3: ICT-enabled Globalisation of Services and Offshoring. Paris: OECD Publishing.
• OECD (2005a): Economic Globalisation Indicators. Paris: OECD Publishing.
• OECD (2005b): Science, Technology and Industry Scoreboard. Paris: OECD Publishing.
• OECD (2005c): Trade and Structural Adjustment. Ebracing Globalisation. Paris:
OECD Publishing.
• Rosencrance, Linda (2004): Offshore Moves Can Bring Benefits, but Not Without Pain. In: Computerworld, 4/19/2004, Vol. 38 Issue 16, pp. 17-17.
• Sachs, Jeffrey D. and Schatz, Howard J. (1996): U.S. Trade with developing Countries and Wage Inequality. In: The American Economic Review, Vol. 86, No.2, Papers and Proceedings of the Hundredth and Eight Annual Meeting of the American Economic Association San Francisco, CA, January 5-7, 1996 (May, 1996), pp. 234-239.
• Sakbani, Michael (2005): The Global Economic System: Asymetries and Inconsistencies. In: Foresight: the Journal of Future Studies, Strategic Thinking and Policy, Vol. 7, No. 1 2005, 11-25.
• Schneiderman, Ron (2005): IEEE Cites Outsourcing As Wages Drop and U.S.. Loses 221,000 Jobs. In: Electronic Design 04.14.05, ED Online 10062.
• Scholte, Jan Aaart (2000), Globalization, a Critical Introduction. New York:
Palgrave.
• Slaughter, Mattew J. (1998): International Trade and Labour-Market Outcomes:
Results, Questions, and Policy Options. In: The Economic Journal, Vol. 108, No. 450 (Sep, 1998), 1452-1462.
• Steelman, Aaron and Weinberg, John A. (2005): What´s Driving Wage Inequality?
In: Economic Quaterly – Federal Reserve Bank of Richmond, Volume 91/3 Summer 2005, 1-17.
• Wood, Adrian (1998): Globalisation and the Rise in Labour Market Inequalities. In:
The Economic Journal, Vol. 108, No. 450 (Sep, 1998), pp. 1463-1482.
Internet Sources
• Amiti, Mary and Wei, Shang-Jin (2006): Service Offshoring and Productivity:
Evidence from the United States. Working Paper 11926, National Bureau of Economic Research. On-line (cited March 17th 2006).
URL: http://www.nber.org/papers/w11926
● Atkinson, R., Wial, H. (2007), The Implications of Service Offshoring for Metropolitan Economies. Metropolitan Policy Program. The Brookings Institution. On-line (cited March 17 2007).
URL: http://www.brookings.edu/metro/pubs/20070131_offshoring.htm
• Bardhan, A.B. and Kroll, C. (2003): The New Wave of Outsourcing. Fisher Center Research Report, Paper 1103. On-line (cited March 7th 2005).
URL: http://repositories.cdlib.org/iber/fcreue/reoprts/1103
• Borga, Maria and Mann, Michael (2002): U.S. International Services. Cross-Border Trade in 2001 and Sales Through Affiliates in 2000. Survey of Current Business.
October 2002. On-line (cited March 7th 2005).
URL:http://www.ita.doc.gov/td/sif/Detailed%20Trade%20(2001)%20and%20Affiliates'%20Sales%20(2000).pdf
• Borga, Maria and Mann, Michael (2003): U.S. International Services. Cross-Border Trade in 2002 and Sales Through Affiliates in 2001. Survey of Current Business.
October 2002. On-line (cited February 26th 2005).
URL: http://www.bea.gov/scb/pdf/2003/10October/1003intlserv.pdf
• Borga, Maria, Mann, Michael, Nephew, Erin and Koncz, Jennifer (2005): U.S.
International Services. Cross-Border Trade in 2004 and Sales Through Affiliates in 2003. Survey of Current Business. October 2005. On-line (cited March 7th 2005).
URL: http://www.bea.gov/bea/ARTICLES/2005/10October/1005_xborder.pdf
• Farell, Diana (2006): U.S. Offshoring: Small Steps to Make It Win-Win. Economist´s Voice. March 2006. The Berkeley Electronic Press. On-line (cited March 7th 2007).
URL: http://www.mckinsey.com/aboutus/mckinseynews/pressarchive/pdf/EV_1140_Farrell_3_7.pdf
• Feenstra, Robert C. and Hanson, Gordon H. (1996b): Foreign Investment, Outsourcing and Relative Wages. In: Feenstra, Robert C., Grossman, Gene M. (eds.), Political Economy of Trade Policy: Essays in Honor of Jagdish Bhagwati. Cambridge:
MIT Press, 1996, pp. 89-127. On-line (cited March 7th 2005).
URL: http://www.nber.org/papers/w5121.pdf
● Foldvari, P. (2006): The Economic Impact of the European Integration on the Netherlands. Dissertation, Universiteit Utrecht. On-line (cited April 17th 2007).
URL: http://igitur-archive.library.uu.nl/dissertations/2006-0328-200011/c6.pdf
● FY08 Budget Request Overview. On-line (cited March 22nd 2007).
URL: http://www.doleta.gov/budget/FY08_Budget_Request_Overview.pdf
● Gartner, A. C. (2004a), Offshoring in the Service Sector: Economic Impact and Policy Issues. Federal Reserve Bank of Kansas City – Economic Review, Third Quarter 2004. On-line (cited March 17 2007).
URL: http://www.kansascityfed.org/publicat/econrev/Pdf/3Q04garn.pdf
• Gartner (2004b): Outsourcing Goes Global in Difficult Market. Press release, 16 March.
URL: http://www4.gartner.com/resources/116300/116318/116318.pdf
● International Trade. Current Government Data Provide Limited Insight into Offshoring of Services. United States Government Accountability Office. GAO Report to Congressional Requesters 2004. On-line (cited April 3 2007).
URL: http://www.gao.gov/new.items/d04932.pdf
• Jensen, J, Bradford and Kletzer, Lori G. (2005): Tradable Services: Understanding
the Scope and Impact of Services Outsourcing. Working Paper Series, Institute for International Economics, Washington, September 2005. On-line (cited March 7th 2005).
URL: http://www.iie.com/publications/wp/wp05-9.pdf
• Kirkegaard, Jacob F. (2004): Outsourcing – Stains on the White Collar? Institute for International Economics. On-line (cited March 9th 2005).
URL: http://www.iie.com/publications/papers/kirkegaard0204.pdf
• Koncz, Jennifer, Mann, Michael and Nephew, Erin (2005): U.S. International Services. Cross-Border Trade in 2005 and Sales Through Affiliates in 2004. Survey of Current Business. October 2006. On-line (cited February 26th 2007).
URL: http://www.bea.gov/scb/pdf/2006/10October/1006_intlserv.pdf
• Lindsey, Brink (2004): Job Losses and Trade. A Reality Check.Center for Trade
Policy Studies. Cato Institute. On-line (cited March 7th 2005).
URL: http://www.freetrade.org/pubs/briefs/tbp-019es.html
• Mac Carthy, John et al. (2002): 3,3 Million U.S. Services Jobs to Go Offshore.
Forrester Research Tech Strategy Brief, November 11, 2002.
URL: www.forrester.com
● Mann, Catherin (2003): Globalization of IT services and White Collar jos: The Next Wave of Productivity Growth. International Economics Policy Briefs. Number PB03-11. December 2003. On-line (cited March 27th 2005).
URL: http://www.iie.com/publications/pb/pb03-11.pdf
• Markusen, James (2005): Modeling the Offshoring of White-collar Services: From Comparative Advantage to the New Theories of Trade and FDI. Working Paper 11827, National Bureau of Economic Research. On-line (cited February 19th 2007).
URL: http://www.nber.org/papers/w11827
• Nordhaus, William (2005): The Sources of the Productivity Rebound and the Manufacturing Employment Puzzle. Working Paper 11354 National Bureau of Economic Research. On-line (cited March 7th 2005).
URL: http://www.nber.org/papers/w11354
● Olsen, K. B. (2006): Productivity Impacts of Offshoring and Outsourcing: A Review.
OECD Science, Technology and Industry Working Papers, 2006/1, OECD Publishing.
On-line (cited 15th March 2007).
URL: http://www.oecd.org/dataoecd/16/29/36231337.pdf
• Pastore, Dennis and Dalton, Donald (2003): International Sales of Information Technology Goods and Services. In: Digital Economy 2003. Economics and Statistics Administration, U.S. Department of Commerce. On-line (cited April 3rd 2005).
URL: https://www.esa.doc.gov/reports/DE-Chap3.pdf
• Rowe, Jeffrey (2004): Is offshoring necessarily evil?In: Advanced Manufacturing Magazine. On-line (cited March 1th 2005).
URL: http://www.advancedmanufacturing.com/July04/colDesignInsight.htm
● Schiff, M. (2006): Migration, Investment and Trade: Substitutes or Complements?
On-line (cited April 28th 2007).
URL: http://www.eudnet.net/download/Schiff.pdf
● TAA Year End Performance Highlights, U.S. Department of Labor. On-line (cited March 1th 2007).
URL: http://www.doleta.gov/Performance/results/Quarterly_report/PerformanceHighlights06.pdf
● The Estonian Economy. Competitiveness & Future Outlooks. R&D and Innovation Policy Review. Research and Development Council. Tallin 2003. On-line (cited 12 th April 2007).
URL: http://www.esis.ee/ist2004/text/images/review.pdf
● Trade Adjustment Assistance. Labor Should Take Action to Ensure Performance Data Are Complete, Accurate, and Accessible. Report to the Committee on Finance, U.S. Senate. United States Government Accountability Office. April 2006. On-line (cited March 30 2007).
URL: http://www.gao.gov/htext/d06496.html
• UNCTAD World Investment Report 2005. Transnational Cosporations and the Internalization of R&D (2005). Geneve and New York: United Nations. On-line (cited March 7th 2005).
URL: http://www.unctad.org/en/docs/wir2005_en.pdf
● van Welsum, Desiree, Reif, Xavier (2006): We Can Work It Out – the Globalisation of ICT-Enabled Services. Working Paper 12799. National Bureau of Economic Research. December 2006. On-line (cited March 30 2007).
URL: http://www.nber.org/papers/w12799
Bureau of Labot Statistics: www.bls.gov
U.S. Department of Labor. Employment & Training Administration: www.doleta.gov