Outsourcing may cease to be a scare word in US

In the 2004 political season, offshore outsourcing ' the practice of hiring lower-paid service workers in places like India to carry out tasks previously done by higher-paid American workers ' became an important issue.  N. Gregory Mankiw, then the chairman of the White House’s Council of Economic Advisers, made a statement which led to a furore in the US.  The crux of the statement was this: ‘‘Outsourcing is just a new way of doing international trade’’.

The phrase was translated into headlines, as well as politically motivated press releases, that accused Mankiw, and hence president Bush, of supporting the wholesale export of jobs from Bangor to Bangalore.  Democrats and Republicans hastened to condemn the remark.

For Mankiw, the episode, which he recounts in a recent working paper stands as a case study of what happens when an academic economist is tossed into the meat grinder of the news cycle — and of the public’s general lack of economic education.  ‘‘This is the sort of stuff I talk about in the first week of my introductory economics class,’’ he said.  Outsourcing has yet to make a significant appearance in this year’s political campaign.  The furore surrounding the practice seems to have subsided quickly once the ballots were tallied in November 2004.

In the years since Mankiw’s encounter with the buzz machine, economists have been crunching data on short-term trends in outsourcing in the vast service sector, which accounts for about 80 per cent of domestic jobs.  While there are some exceptions, they generally find more reason for concern than alarm.

In December 2005, the McKinsey Global Institute predicted that 1.4 million jobs would be outsourced overseas from 2004 to 2008, or about 2,80,000 a year  creative destruction, more jobs are created and lost in a few months than will be outsourced in a year.

Diana Farrell, director of the McKinsey Global Institute, notes that in May 2005 alone, 4.7 million Americans started new jobs with new employers.

According to a McKinsey study, only 3 per cent of retail jobs and 8 per cent of health care jobs can possibly be outsourced.  By contrast, McKinsey found that nearly half the jobs in packaged software and information technology services could be done offshore.  But those sectors account for only about 2 per cent of total employment.  The upshot: ‘‘Only 11 per cent of all US services job could theoretically be performed offshore,’’ Farrell says.

Economists have also found that jobs or sectors susceptible to outsourcing aren’t disappearing, resulting to greater job insecurity in the tradable job categories amongst Americans.

However, there is evidence that within sectors, lower-paying jobs are being outsourced while the more skilled ones are being kept here.  In a 2005 study, Catherine L. Mann, senior fellow at the Institute for International Economics, found that from 1999 to 2003, when outsourcing was picking up pace, the US lost 1,25,000 programming jobs but added 4,25,000 jobs for higher-skilled software engineers and analysts.

Posted online by Daniel Gross in New York times.

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