NCPA - National Center for Policy Analysis

EFFECT OF OUTSOURCING IS POLITICAL HYPE

August 12, 2004

Outsourcing predictions tossed around by politicians are vague and overstated, and often ignore hard data suggesting the minimal effect it has on the overall U.S. economy, says Daniel Drezner (University of Chicago).

For example:

  • It is estimated that 3.3 million jobs will be displaced by outsourcing over the next 15 years -- about 220,000 jobs per year; however, 22 million jobs are expected to be added over the same time period, according to Forrester Research,.
  • Less than 20 percent of workers whose jobs are outsourced actually become unemployed; most are repositioned within the firm, according to Boston University.
  • Since 1983, the number of "insourced" jobs has increased from 6.5 million to 10 million in 2000.

Furthermore, the Institute for International Economics estimates that globalizing information technology (IT) production has boosted America's gross domestic product (GDP) by $230 billion over the past seven years.

Individual companies that have turned to outsourcing have had mixed results that have generally benefited domestic workers:

  • Delta Airlines outsourced 1,000 call-center jobs to India and saved $25 million, which allowed them to add 1,200 domestic jobs in reservations and sales positions.
  • IBM is outsourcing 3,000 IT jobs, but is adding 4,500 more U.S. jobs to its payroll.
  • Customer complaints prompted Dell and Lehman Brothers to move some of their customer call centers from India back to the United States.

One of the problems in forecasting the impact of outsourcing is that many predictions are based on 1999 to 2000 figures, when Y2K scares prompted a technology bubble and pushed employment numbers artificially high.

Source: Daniel W. Drezner, "The Outsourcing Bogeyman," Foreign Affairs, May/June 2004, McKinsey Global Institute, "Exploding the Myths about Offshoring," April 2004.

 

Browse more articles on Economic Issues