|The Long Run Effect of Offshoring Jobs in Technology|
|Subject||Jobs in the Technology Sector|
|Topic||Employment, Unemployment, and Inflation|
|Key Words||Offshoring, Technology Jobs, and Job Migration|
Recent economic news has been good and it raises hopes that the American economy is well on the road to recovery. One remaining weakness is the continuing migration of jobs in the technology sector from the U.S. to foreign firms that offer lower cost alternatives for technological services. This trend has been described with terms like "offshore outsourcing" and "offshoring". From an economic point of view, the trend is referred to as job migration.
The concern and response to the trend is evidenced in the political arenas already: The State of Indiana pulled a state contract for technological services that previously was awarded to a company in India to save U.S. jobs. Similarly, a bill has been proposed in New Jersey that would restrict the use of offshore workers by companies who do work for the state.
As is often the case with economic events, the short-run impact and response is likely to be different from the long-run implications of the current job migration. In the short-run, it should be recognized that in pure economic terms the trend is most likely irreversible as the U.S. economy takes another step toward globalization.
The trend will present short-run challenges to industry, government and individual workers, as American jobs will have to be matched with American skills and abilities. In the process, some American workers may have to retrain to be able to provide higher- level skills to the technology industry. "To be competitive and to maintain and improve American living standards, we have to move up the technology food chain," said Craig R. Barrett, the chief executive of Intel.
In the long-run, the trend of job migration is necessary for America
to be competitive in a world market. In the new information economy, technological
services must be viewed as an "input" in the same way that glass,
steel, and rubber are parts of an automobile. If a firm can reduce its
costs of production, it serves to keep prices low while improving American
workers' efficiency and productivity. In fact, the McKinsey Global Institute
has estimated that every dollar of costs saved by an American firm by
using offshore suppliers, yields a benefit of $1.12 to $1.14 to the American
economy and steers U.S. workers toward jobs that add more value than the
jobs that were replaced.
(Updated February, 2004)
|Source||Steve Lohr, "Offshore Jobs in Technology: Opportunity or a Threat," New York Times Online, December 22, 2003.|
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