Lost to offshoring

Despite the political near-hysteria about offshoring in the US, it is estimated that fewer than a million American service sector jobs have been lost to offshoring to date, which is just two weeks or less of gross job losses for the world's biggest economy. Even so, the future threat of offshoring may be even greater than is currently feared. As well as virtually all 14 million manufacturing jobs, 30 to 40 million service jobs in the US could be vulnerable to offshoring.

by Foreign Affairs
Last Updated: 23 Jul 2013

Over time, increasing numbers of 'impersonal services' will become deliverable electronically over long distances with little or no degradation in quality - tradeable and therefore offshorable. High-skilled jobs will be vulnerable to the degree that they are electronically deliverable, so the idea that upskilling workforces will automatically save jobs is questionable.

But jobs involving personal face-to-face service will still need to be done locally, whether waitressing, medical examinations, childcare or the police.

Equally, the 7 million-plus US jobs in construction and mining will remain in the US.

The dividing line between personal and impersonal services will also move over time as IT improves, making more services impersonal and therefore offshorable. But the US's 22 million government jobs - many of which provide impersonal services - are unlikely to be offshored for political reasons.

Its 15 million retail jobs will be under threat to the degree that online retailing grows, but also protected to the degree that shoppers still require a face-to-face service.

The vast majority of health jobs seem likely to be delivered in person for a very long time, with exceptions such as radiology, laboratory testing and even surgery performed remotely using robots. Education is also best-delivered face-to-face, although electronic teaching is likely to grow.

In business services, more functions such as accounting may be shifted offshore. In contrast, the leisure and hospitality industries seem much safer.

Currently, the financial services sector actually 'onshores' more jobs (by selling services to foreigners) than it offshores, but this could change dramatically. Most IT jobs are by definition electronically deliverable.

Personal service jobs may seem the safest haven for rich country workers.

However, the rising relative cost of such services is also likely to take out some demand. And, as more people seek jobs in this sector, wages may fall.

Putting up protectionist barriers to retain offshorable jobs is hard enough with physical goods, it will be even harder with electronically delivered impersonal services. Rich countries would be better off exploiting their proximity to wealth by specialising in the delivery of personal services: more divorce lawyers and fewer attorneys dealing in routine contracts, for example.

Given this growth in the offshoring of impersonal services, India may well prove to be a bigger threat than China, particularly for the US and other rich English-speaking countries.

Offshoring: the next Industrial Revolution?
Alan S Blinder
Foreign Affairs, March/April 2006

Review by Steve Lodge

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