Study: Offshore outsourcing helps U.S. economy

The outsourcing of U.S. IT jobs to foreign workers is good for the U.S. economy and will result in the creation of twice as many jobs as are displaced, according to a study released March 30 by the Information Technology Association of America (ITAA).

Offshore outsourcing, which the study calls “global sourcing,” created 90,000 more jobs in 2003 than it sent outside of the U.S., according to a study conducted by economic analysis firm Global Insight Inc. Offshore outsourcing lowers costs to U.S. companies, allowing them to spend money on new U.S. workers, plus it increases the efficiency of the U.S. economy and results in higher wages and increased exports, said the study.

“The use of offshore resources lowers costs, frees domestic resources to pursue other productive ends, yields high quality software and services, and increases labour productivity among end-users,” said the executive summary of the study. “These benefits flow through to lower prices, lower interest rates, and higher spending throughout the economy.”

The study estimates that 104,000 U.S. software and services jobs were moved overseas in 2003, but 90,000 more jobs were created as a result of the cost savings associated with offshore outsourcing. The study estimates that in 2008, 317,000 new U.S. jobs will be created as a result from the savings and efficiencies created by offshore outsourcing.

IT worker groups have taken a different view on offshore outsourcing, and in recent months, the U.S. Congress has been looking at legislation to limit offshore outsourcing. Early this month, Representative Bernie Sanders, a Vermont independent, announced legislation that would prohibit federal grants and loans from going to some companies that send jobs out of the country.

A representative of the Institute of Electrical and Electronics Engineers-USA (IEEE-USA), which has questioned the benefits of offshore outsourcing in the past, said the organization had just seen the study and it was too early to comment. But the IEEE-USA has previously criticized offshore outsourcing defenders.

“Their interest is in profits,” Ron Hira, chairman of the IEEE-USA’s research and development committee, said during an interview in December. “They don’t feel a responsibility to their workforce.”

The unemployment rate for electrical and computer hardware engineers was near seven per cent in late 2003, in part because of offshore outsourcing, according to the IEEE-USA.

But the ITAA study suggests that other factors, including the dot-com bust and recent recession, have contributed more heavily to IT job losses. Of the 372,000 IT software and services jobs lost since 2000, less than a third can be pinned on outsourcing, according to the study.

The study predicts that total savings from the use of offshoring are estimated to grow from US$6.7 billion to US$20.9 billion between 2003 and 2008. “The cost savings and use of offshore resources lower inflation, increase productivity, and lower interest rates,” the study said. “This boosts business and consumer spending and increases economic activity.”

The ITAA study recommends against “protectionist legislation or regulations as a result of the political pressures being created by this economic transition.” The U.S. government should take action to help displaced IT workers and encourage students to enter the IT field, the study recommends.

“Offshore IT software and services outsourcing is rapidly creating a new competitive reality for employers, employees, government agencies, and academia,” the study said. “The analysis presented here finds that the U.S. economy has much to gain from global sourcing and an environment of free trade, open markets, and robust competition.”

Among the study’s recommendations to the U.S. government:

— Make IT and service sector workers eligible for government assistance when their jobs are moved offshore.

— Consider offering paid training to displaced workers, plus job search and relocation allowances and other benefits.

— Investigate countries that are not following international trade agreements by using tariffs and other barriers to limit trade.

— Review current law and legislation to assure that everything possible is being done to support and enhance the U.S. educational system.

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Jim Love, Chief Content Officer, IT World Canada

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