Although overshadowed by the financial crisis and the world recession right now, the debate over offshoring seems poised to stage a comeback as a public policy concern in the not-too-distant future. Indeed, with so much protectionist talk and some protectionist action in the air, fear of offshoring may force its way back onto the policy agendas of the US and other rich countries sooner than we think.
It seems axiomatic that both the economically appropriate and the politically feasible policy responses to offshoring should differ depending on whether the share of the workforce holding offshorable jobs is, say, 2%, 25%, or 75%. In the 2% case, we should probably ignore offshoring as a detail of little consequence. In the 75% case, we should perhaps be seeking radical solutions to the manifold problems caused by massive job dislocations. But if a number nearer to 25% is more plausible, as argued here, the situation probably calls for certain policy adjustments—but certainly not panic. http://www.onlinejobslover.com
Several attempts have been made to estimate this fraction in recent years. Unfortunately, they have produced a wide range of estimates. Bardhan and Kroll (2003) estimated that about 11% of US jobs are offshorable. But they explicitly restricted themselves to "occupations where at least some outsourcing has already taken place or is being planned". Van Welsum and Vickery (2005) based their estimate of offshorability in OECD countries, about 20%, on the intensity of ICT use by industry. McKinsey Global Institute (2005) used detailed consulting-style analysis of eight "representative sectors" in rich countries to estimate that only about 11% of worldwide private-sector service employment might potentially be offshored to developing countries with in the next five years. Jensen and Kletzer (2006) estimated that 38% of US workers are in tradable, and therefore offshorable, occupations. Finally, I used data on job content to assess the offshorability of each of (roughly) 800
In a recent paper, Alan Krueger and I employed standard survey methods to assess the offshorability of each job in a random sample of US workers. We experimented with three different ways to measure offshorability. In the first, professional coders used the answers to standard CPS questions to rate the offshorability of each person’s job. In the second, respondents essentially classified their own jobs by answering a single question about the need for face-to-face contact and/or physical presence on the job. In the third, we used the answers to a series of questions on face-to-face contact to create our own index of the offshorability of each job.
All three measures agreed that roughly 25% of US jobs are offshorable. In terms of major substantive results, we found that more educated workers appear to hold somewhat more offshorable jobs and that offshorability does not have many statistically significant effects on either wages or the probability of layoff. We found that routine work is no more offshorable than work that is not routine.
What might our estimate that roughly 25% of US jobs are, in principle, offshorable imply for public policy? First, this is not the same as predicting that all these jobs will move offshore. Second, the 25% estimate is roughly the same as the number of jobs that were probably offshorable in the heyday of US manufacturing (around 1960). The relative shrinkage of the manufacturing sector in the US (and elsewhere) from about 30-35% of total employment then to under 10% now was somewhat painful, especially in places where manufacturing was concentrated; it fostered some protectionist sentiment and some protectionist measures, and it induced a variety of other ill-considered policy responses. But, broadly speaking, the adjustment did not precipitate any major economic or social convulsions. This experience suggests that a similar-sized labour force adjustment can, once again, be handled by the market system—with some help from government. Third, most of the policy responses that would best prepare the workforces of the rich countries for the coming wave of offshoring are not very controversial.
The unconventional policy responses may need to come from the primary and secondary educational system. These, though well-designed to turn out factory workers for the industrial age, have not adapted very well to the information age. Our schools will have to put more emphasis on communication skills and creative thinking— and far less on rote memorisation.
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