NCPA - National Center for Policy Analysis

THE FUTURE OF OUTSOURCING

July 1, 2005

American jobs will be increasingly vulnerable to competition from the cheap labor pools of the developing world, but even if millions of tasks can be done by cheaper labor on the other side of the planet, businesses will not rush to move every job to wherever the cost is lowest, says the New York Times.

In a new report, researchers at the McKinsey Global Institute conclude that only a small fraction of service jobs will actually be sent away. Researchers estimate:

  • By 2008, multinational companies in the entire developed world will relocate only 4.1 million service jobs in low-wage countries, up from about 1.5 million in 2003, which is equivalent to only one percent of the total number of service jobs in developed countries.
  • Some sectors are less likely to outsource, like health care, which would outsource less than 0.007 percent of jobs in 2008; but even designers of packaged software, whose work can easily be done abroad, will outsource only 18 percent of their jobs.
  • Meanwhile, only about 13 percent of young, college-educated professionals in big developing countries are suitable to work for multinationals, and competition from local companies reduces the pool.

Researchers say many factors will keep businesses domestic. For example, many business processes are difficult to separate and many insurance companies use complex information technology systems that would be difficult to manage remotely. Furthermore, managers can be unwilling or unprepared to work oversees and sometimes the tasks that can be sent offshore are too small to make the move worthwhile.

Source: Eduardo Porter, "True or False: Outsourcing Is a Crisis," New York Times, June 19, 2005; and "The Emerging Global Labor Market," McKinsey Global Institute, June 2005.

 

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