Outsourcing impacts less than 0.2% of US Employment

Outsourcing often receives much media and political notoriety. One possibility as to why outsourcing is the receipt of such attention is because outsourcing strikes a negative reaction amongst the general population. The impact of outsourcing on US employment is however unjustifiably over-exaggerated.

For the jobs that can be outsourced, if even the most dire-sounding forecasts come true, the impact on the US economy will be negligible. If we take the Forrester prediction of 3.3 million lost jobs, spread across 15 years. That would mean 220,000 jobs displaced per year by outsourcing, a number that sounds impressive until one consider that total employment in the US is roughly 137 million. Annually, outsourcing would affect less than 0.2% of employed Americans. More importantly this figure is calculated with the view that outsourced jobs are lost forever. But that outsourcing jobs means that those jobs are lost forever is ludicrous. The creation of new jobs overseas will eventually lead to more jobs in the US and higher incomes in the US. Accordingly the figure of 0.2% is itself a vast over-exaggeration for it fails to take into consideration the new jobs that are created by outsourcing, insourcing of foreign firms, US firms competitiveness and new innovations in industry and retraining.

If the predicted numbers are accurate, outsourcing remains a drop in the ocean of a $14 trillion economy that employs 137 million people and produces and loses millions of jobs every month. In times of economic prosperity 350,000 people still file for unemployment insurance every week. The Labor Department estimates that in the last decade 32.8 million new jobs were created each year, whilst 31.0 million were lost, resulting in a net gain of 1.8 million.

A considerable greater number of Americans lose jobs to technology or domestic competition than in comparison to outsourcing. Computers and other technologic advancements eliminated high volumes of typists, telephone operators and bank tellers jobs. Half a million jobs for typists and word processors were lost from 1988 to 2000 not as a consequence of outsourcing but as a result of technical progression. This does not mean that advancement in computer technology is detrimental. With the advent of digital cameras Kodak removed 15,000 workers because of the decrease in film popularity. But the US economy is both resilient and innovative, job loss will be compensated with job created. However, it is only when jobs are outsourced do the job losses appear to make the news.

Gartner assumed that more than 60% of financial-sector employees directly affected by outsourcing would be let go by their employers. But Boston University professor Nitin Joglekar has examined the effect of outsourcing on large financial firms and found that less than 20% of workers affected by outsourcing lose their jobs; the rest are repositioned within the firm. Even if the most negative projections prove to be correct, then, gross job loss would be relatively small.

According to the Bureau of Labor Statistics, the number of IT-related jobs is expected to grow 43% by 2010. The case of IBM reinforces this lesson: although critics highlight the recent offshore outsourcing of 3,000 IT jobs, they fail to mention the company's plans to add 4,500 positions to its US payroll.

Large software companies such as Microsoft and Oracle have simultaneously increased outsourcing and domestic payrolls. Delta Airline outsourced 1,000 call-center jobs to India in 2003, but the $25million savings allowed the firm to add 1,200 reservation and sales positions in the US.

Furthermore, it is undoubtedly apparent that most jobs will remain unaffected altogether: close to 90% of jobs in the US require geographic proximity. Such jobs include everything from retail and restaurants to marketing and personal care - services that have to be produced and consumed locally, so outsourcing them overseas is not an option. Lastly there is also little evidence that educated workers, overall, are worse off than they were after the last recession 25 years ago. Outsourcing to India has been happening for almost a decade, the 130 million plus strong US workforce remains in tact.

The economy and especially job growth is sluggish at the moment, commentators are accordingly attempting to draw a connection between offshore outsourcing and high unemployment. But believing that outsourcing causes unemployment is the economic equivalent of believing that the sun revolves around the earth: intuitively compelling but clearly wrong.