NCPA - National Center for Policy Analysis

COSTS OF OUTSOURCING LARGELY EXAGGERATED

August 4, 2004

Some predict that the volume of offshore outsourcing will increase 30 to 40 percent a year over the next five years. Moreover, the dourest predictions have more than 3.3 million white-collar jobs moving overseas by 2015. Yet when one looks inside these numbers, it's apparent that relatively few American jobs will be affected, says political scientist Daniel W. Drezner.

  • Total employment is roughly 130 million in the United States, thus even the most dire estimates mean only 0.2 percent of employed Americans are affected by outsourcing.
  • Predictions of job losses are gross numbers, not net losses -- a dynamic market economy creates and destroys tens of millions of jobs every year.
  • About 90 percent of U.S. jobs require geographic proximity -- retail industry, restaurants, marketing and so forth -- so outsourcing them overseas is not an option.

Moreover, the claim that outsourcing has been the primary cause for the decline of manufacturing jobs in recent years is similarly exaggerated. After all, if outsourcing were the cause, one would expect a corresponding increase in manufacturing employment in developing countries, says Drezner:

Between 1995 and 2002 -- a period in which U.S. manufacturing jobs decreased by 11 percent -- China saw a 15 percent decrease and Brazil a 20 percent decrease; globally, manufacturing employment fell by 11 percent.

As with agriculture a century ago, say observers, technological innovation in manufacturing has generated productivity gains that have outstripped demand for additional workers.

Source: Daniel W. Drezner, "The Outsourcing Bogeyman," Foreign Affairs, June 2004.

 

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