Outsourcing Spurs Economic Growth, Creates Jobs
March 23, 2004
Gregory Mankiw, chairman of the President's Council of Economic Advisers, has recently come under fire for suggesting that outsourcing jobs to areas where they can be done cheaper will ultimately enhance U.S. productivity. The basis for his assertion -- one long supported by economists -- is that each country should concentrate on jobs that it does best, with lower prices and greater productivity to flow as the result.
A new study by the Institute of International Economics on the information technology (IT) industry reinforces the assertion that outsourcing has been a boon to the economy. Over the last decade, which has been characterized by the globalization of software and IT services, the study found that:
- Despite significant outsourcing, U.S. jobs demanding IT skills surged by 22 percent throughout the boom of the 1990s -- double the rate of job creation in the economy as a whole.
- Since 1999, employment in business and financial occupations has risen by 9 percent, while computer and mathematical occupations has increased by 6 percent.
- Globalized production reduced IT hardware prices by 10 to 30 percent -- translating into about a 2.5 percent yearly increase in productivity growth and an accumulated $230 billion in additional GDP (1995-2002).
Clearly, globalization and economic progress do not come without some disruption: low-skilled IT jobs will tend to decline as they are replaced with higher skilled (and higher paying) employment. However, the study notes that overall IT employment growth is expected to increase by 43 percent by 2010 -- more than three times the rate of job growth in the overall economy.
Source: Catherine L. Mann, "Globalization of IT Services and White Collar Jobs: The Next Wave of Productivity Growth," International Economics Policy Briefs No. PB03-11, Institute for International Economics, December 2003.
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