A Report of the Panel of the

NATIONAL ACADEMY OF

PUBLIC ADMINISTRATION

For the U.S. Congress and the Bureau of Economic Analysis

 

January 2006

 

 

OFF-SHORING:

AN ELUSIVE PHENOMENON

 

Panel

 

Janet Norwood, Panel Chair*

Carol Carson

Manuel Deese*

Norman J. Johnson*

Franklin S. Reeder*

John E. Rolph

Susan Schwab*

 

* Academy Fellow

 

Officers of the Academy

 

Valerie A. Lemmie, Chair of the Board

G. Edward DeSeve, Vice Chair

C. Morgan Kinghorn, President

Franklin S. Reeder, Secretary

Howard M. Messner, Treasurer

 

Project Staff

 

J. William Gadsby, Vice President, Academy Studies

Terry Buss, PhD, Responsible Staff Officer

Kenneth F. Ryder Jr., Project Director

Harry Meyers, PhD, Senior Advisor

Gwyneth H. Caverly, Senior Research Analyst

Bryce Stephens, Senior Research Analyst

Jennifer L. H. Belvins, Senior Research Associate

Mark D. Hertko, Senior Project Analyst

Noel A. Popwell, Senior Research Associate

Martha S. Ditmeyer, Senior Administrative Specialist

 

 

_____________________________________________________________________________

 

 

The views expressed in this report are those of the Panel. They do not necessarily reflect the views of the Academy as an institution.

 

National Academy of Public Administration

1100 New York Avenue, N.W.

Suite 1090 East

Washington, D.C. 20005

www.napawash.org

 

First published January 2006

 

Printed in the United States of America

ISBN 1-57744-123-0

 

Academy Project Number: 2051-000

 

FOREWORD

 

 

Off-shoring business operations is a difficult, elusive and exceedingly complex phenomenon.  It produces myriad and widespread economic impacts, with U.S. employment and workers’ earnings being among the most sensitive. Concerns about off-shoring are not new.  For decades they have been central to the debate over the benefits and costs of economic growth and trade expansion.  What distinguishes off-shoring concerns today is the focus on the services sector, particularly white collar, high-technology jobs previously considered less vulnerable to migration overseas.

 

There is little consensus about off-shoring.  The disparity and intensity of viewpoints stem from many factors.  They include the lack of a commonly accepted definition; differences in how the phenomenon has been reviewed; varied reliability of data and their use; the wide range of potential entities affected; and the inherent difficulty in directly measuring off-shoring and estimating its impacts.  Indeed, recent studies have cited the need for better data to understand the extent and economic effects of off-shoring.

 

This is the first of several reports by an Academy Panel formed to assess off-shoring, including the adequacy of current data and their usefulness in ascertaining its extent and economic effects.  The Panel finds that the use of multiple terms to describe off-shoring has hindered a meaningful understanding of this phenomenon.  It recommends simplifying the discussion by focusing on three basic terms:  “outsourcing,” “off-shoring” and “off-shore outsourcing.”  It also recommends a broad definition for off-shoring to avoid the pitfalls of narrow definitions that create ambiguity over particular activities stemming from artificial distinctions or changes over time.

 

I want to thank the Panel for its thoughtful and insightful report that provides a better understanding of the difficulty in identifying off-shoring activities and estimating its economic effects, especially the impact on jobs and worker incomes.  Let me also commend the project staff for their efforts to assimilate and review the extensive literature and to develop analyses that support the Panel’s work to date.  Finally, I want to thank Congress, particularly Chairman Frank Wolf, the Bureau of Economic Analysis, Bureau of Labor Statistics and Bureau of the Census for the opportunity to examine this important issue and for their support and cooperation in this endeavor.

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

FOREWORD................................................................................................................................ iii

 

ACRONYMS................................................................................................................................. ix

 

EXECUTIVE SUMMARY........................................................................................................... xi

 

CHAPTER 1: INTRODUCTION................................................................................................. 1

 

      Origins of the Academy Study..................................................................................................... 1

      Objectives of the Academy Off-Shoring Study............................................................................. 2

 

      Study Methodology..................................................................................................................... 3

 

Issue 1: How Should Off-Shoring Be Defined?....................................................................... 3

Issue 2: What Do Currently Available Data Indicate about the Extent

      of U.S. Off-Shoring?....................................................................................................... 4

Issue 3: What Additional Data are Needed to Provide a More Complete

      Assessment of the Economic and Employment Effects from Off-Shoring?......................... 4

Issue 4: What Factors Account for Current U.S. Off-Shoring?............................................... 5

Issue 5: What are the Major Impacts of Off-Shoring on U.S. Workers and the

      Economy, and the Implications for the Educational System?.............................................. 5

 

      Road Map to the First Report...................................................................................................... 5

 

 

CHAPTER 2: OVERVIEW AND CONCEPTUAL FRAMEWORK......................................... 7

 

      Major Elements of Off-Shoring.................................................................................................... 8

Outsourcing versus Off-Shoring............................................................................................. 8

Key Off-Shoring Components............................................................................................... 9

 

      Potential Economic Effects from Off-Shoring.............................................................................. 10

Employment Effects............................................................................................................. 11

Other Potential Economic Effects......................................................................................... 13

 

      Two Separate Dimensions of Off-Shoring.................................................................................. 14

The International Trade Perspective..................................................................................... 14

U.S Trade Changes and Off-Shoring............................................................................. 16

Trade Benefits and Costs and Off-Shoring Implications.................................................. 19

The Domestic Labor-Market Perspective............................................................................ 19

Annual U.S. Job Losses and Off-Shoring....................................................................... 20

Assessing the Significance of Direct Short-Term Off-Shoring Job Losses........................ 26

 

      Distinguishing Characteristics of Current Off-Shoring Effects....................................................... 27

 

      Conclusions............................................................................................................................... 29

 

 

CHAPTER 3: ALTERNATIVE DEFINITIONS OF OFF-SHORING..................................... 35

 

      Multiple Off-Shoring Terminology.............................................................................................. 35

Outsourcing, Off-Shore Outsourcing, and Off-Shoring......................................................... 35

International Sourcing.......................................................................................................... 36

Global Resourcing............................................................................................................... 37

The Panel’s Choice of Terms............................................................................................... 38

 

      Alternative Off-Shoring Definitions............................................................................................. 38

 

      Import Substitution Definitions................................................................................................... 38

Definition Limited to U.S. Imports........................................................................................ 38

Definition Limited to Intermediate U.S. Imports.................................................................... 39

 

      Relocation Definitions................................................................................................................ 39

Single-Event Limitations....................................................................................................... 40

Definition Limited to a Single Relocation Event Combined with the

      Movement of Portions of a Firm’s Production Chain...................................................... 41

Definition Limited to a Single Relocation Event and U.S. Imports.......................................... 41

 

      The Panel’s Definition of Off-Shoring......................................................................................... 42

 

CHAPTER 4: Measuring the Impacts of Services Off-Shoring—Estimates,

      Methodologies, and Data Implications................................................................................. 49

 

      Introduction............................................................................................................................... 49

 

      Estimates of the Impact of Off-Shoring on Jobs.......................................................................... 50

Estimates of Occupations and the Number of Jobs Potentially at Risk of

      Being Off-Shored.......................................................................................................... 51

Forecasts of Number of Jobs Likely to be Off-Shored......................................................... 55

Estimates of Number of Jobs Off-Shored to Date................................................................ 57

 

      Methodologies.......................................................................................................................... 60

Theoretical Models.............................................................................................................. 60

Overviews........................................................................................................................... 61

Case Studies....................................................................................................................... 65

Direct Measurement............................................................................................................ 67

Department of Commerce’s Bureau of Economic Analysis............................................. 67

Department of Labor’s Bureau of Labor Statistics.......................................................... 69

Web and Media Search....................................................................................................... 71

Private Research Surveys and Estimates............................................................................... 71

Model Estimation and Inferences......................................................................................... 72

Technical Analyses........................................................................................................ 72

Econometric Analyses................................................................................................... 73

Microdata and Longitudinal Analysis.................................................................................... 76

Implications of Methodologies for Data Needs..................................................................... 77

 

 

CHAPTER 5: PROPOSED ADDITIONAL RESEARCH........................................................ 79

 

Need for Additional Research.................................................................................................... 79

 

Industry Study Objectives.......................................................................................................... 81

 

      Industry Study Selection Criteria................................................................................................ 82

 

      Critical Issues Concerning Off-Shoring Effects........................................................................... 83

Off-Shoring Adjustment Problems....................................................................................... 83

In-Shoring Effects................................................................................................................ 84

Role of Temporary Workers and Foreign Students............................................................... 84

Demographic Trends and Worker Quality Issues.................................................................. 85

Off-Shoring Implications for Education and Training............................................................. 86

 

 

TABLES AND FIGURES

 

Figure 2-1:  Growth in Volume of World Merchandise Trade and Gross Domestic Pro