the impact of global human-capital outsourcing on the employment patterns in the united states...
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The Impact of Global Human-Capital Outsourcing on the Employment Patterns in the United StatesConstantin OgloblinSchool of Economic DevelopmentMarch, 2005
An established view: global economic integration tends to shift low-skilled jobs from developed to developing countries while creating high-skilled jobs in the developed world.
The new round of globalization challenges this view. Anecdotal evidence of companies in developed economies
shipping high-skilled jobs offshore piles up, raising fears of job losses among high-skilled workers in the West and sparking hot political debates. 830,000 white-collar jobs will be outsourced from the U.S. offshore
by 2005, and by 2015 the number is expected to rise to 3.4 million (Forrester Research Inc.).
The supply of IT services is the most global: 16% of all the work done by the world’s IT-services is carried out away from where these services are consumed (in the software industry the proportion is 6%).
The Problem
Why?
Growth of human capital in the developing world relative to the U.S. Undergraduate degrees in engineering
granted annually:China 195,354India 129,000Japan 103,440Russia 82,409U.S. 60,914
The K-12 system does a good job of weeding out any students interested in math and science.— Craig Barrett CEO, Intel
Low price of human capital in developing countries Typical monthly salaries:
Chip designer: $1,000 in India, $7,000 in the U.S.Info-tech support: $500 in India, $10,000 (up to) in the U.S.Financial analyst: $1,000 in India, $7,000+ in the U.S.Accountant: $300 in the Philippines $5,000+ in the U.S.
Low cost of transportation and communication
Although the literature on the labor market effects of international trade is ample, international outsourcing of human capital has been studied very little.
Direct data on the number and composition of jobs outsourced are not publicly available.
Much of the current research has been conducted or ordered by politically or financially interested groups.
Literature
One of the first independent attempts to examine the influence of human-capital outsourcing on the incidence of unemployment in the U.S.
Does belonging in an “outsourceable” occupation increase the risk of unemployment for a worker in the U.S.?
Are high-skilled workers more likely to be involuntarily unemployed than low-skilled workers?
Is the incidence of unemployment across different skill levels related to outsourcing?
The Purpose of the Study
Statistical inference based on the individual-level data from CPS combined with the best available information on occupational categories threatened by offshore outsourcing
Probit equation that estimates the expected rate of involuntary unemployment conditional on the worker’s level of education and on whether his/her occupation is at risk of outsourcing
The analysis is empirical: no formal theoretical model of job loss to outsourcing is presented.
Approach
The April basic CPS datasets for 2000 and 2004 Individuals in civilian labor force, aged 18-64, who are
either wage employed or involuntarily unemployed In all descriptive statistics and estimation procedures
observations are weighted using the CPS final weights.
The Sample
Major SOC groups threatened by outsourcing
Threatened by outsourcing Not threatened by outsourcing
11 Management 21 Community and social service
13 Business and financial operations 25 Education, training, and library
15 Computer and mathematical 29 Healthcare practitioner and technical
17 Architecture and engineering 31 Healthcare support
19 Life, physical, and social science 33 Protective service
23 Legal 35 Food preparation and serving related
27 Arts, design, entertainment, sports, and media
37 Building and grounds cleaning and maintenance
41 Sales and related 39 Personal care and service occupations
43 Office and administrative support 45 Farming, fishing, and forestry
47 Construction and extraction
49 Installation, maintenance, and repair
51 Production
53 Transportation and material moving
55 Armed forces
The Estimation Model
Average effects:
Skill specific effects of outsourcing:
P( 1) ( ) i i i iU Rα E γ C
P( 1) ( ) i i i i i iU R Rα E δ E γ C
Results – Average Effects2000 2004
Variable Coefficient
Marginal effect
Coefficient Marginal
effect No high school 0.176***
(0.049) 0.670 0.121***
(0.042) 0.794
Some college -0.089** (0.045)
-0.272 -0.102*** (0.037)
-0.576
Associate degree -0.127** (0.063)
-0.366 -0.167*** (0.050)
-0.879
Bachelor’s degree -0.271*** (0.056)
-0.735 -0.169*** (0.040)
-0.920
Graduate/professional degree
-0.234*** (0.085)
-0.614 -0.235*** (0.061)
-1.175
Occupation is at risk of outsourcing
-0.079** (0.038)
-0.255 -0.043 (0.032)
-0.257
The patterns of average effects of education on the probability of unemployment are virtually the same in 2000 and 2004.
In general, the new wave of global outsourcing has not shifted the risk of unemployment from low-skilled to high-skilled workers.
Outsourcing has no significant influence on overall involuntary unemployment.
Results – Specific Effects, Occupations not at Risk
2000 2004 Variable Coefficient Marginal
effect Coefficient Marginal
effect No high-school diploma
0.176*** (0.054)
0.668 0.100** (0.047)
0.642
Some college -0.093 (0.061)
-0.284 -0.045 (0.048)
-0.261
Associate degree -0.120 (0.086)
-0.348 -0.134** (0.064)
-0.714
Bachelor’s degree -0.214** (0.088)
-0.602 -0.308*** (0.069)
-1.543
Graduate/professional degree
-0.115 (0.139)
-0.336 -0.426*** (0.104)
-1.826
In 2004, the negative relation between the level of education and the probability of involuntary unemployment holds only for the occupational categories that are not threatened by outsourcing.
Results – Specific Effects, Occupations at Risk
2000 2004 Variable Coefficient
(δ – ά) Marginal
effect Coefficient
(δ – ά) Marginal
effect High-school diploma -0.062
(0.055) -0.201 -0.065
(0.049) -0.386
No high-school diploma
-0.151 (0.158)
-0.586 0.006 (0.129)
0.050
Some college 0.097 (0.139)
0.295 -0.066 (0.111)
-0.344
Associate degree 0.104 (0.194)
0.297 0.060 (0.150)
0.302
Bachelor’s degree 0.126 (0.192)
0.336 0.509*** (0.148)
2.919
Graduate/professional degree
-0.069 (0.297)
-0.161 0.712*** (0.221)
4.008
For the outsourceable occupations, more highly educated workers are at a greater risk of unemployment than those with lower education.
Concluding Remarks
Currently, belonging in an outsourceable occupational category does not increase the risk of unemployment for an average U.S. worker.
Global outsourcing has not shifted the risk of unemployment from lower-skilled to higher-skilled workers in general.
But more highly educated workers in the outsourceable occupations are currently significantly more likely to be involuntarily unemployed than workers with lower education .
It remains to be seen whether or not this relation continues to hold and becomes prevalent for the entire economy as the new wave of global outsourcing gets more strength.
Further research: the influence of the global human-capital outsourcing on wages in the U.S. across different skills categories.