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The Impact of Global Human-Capital Outsourcing on the Employment Patterns in the United States. Constantin Ogloblin School of Economic Development March, 2005. The Problem.

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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 states l.jpg

The Impact of Global Human-Capital Outsourcing on the Employment Patterns in the United States

Constantin Ogloblin

School of Economic Development

March, 2005


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The Problem

  • 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%).


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Why?

  • Growth of human capital in the developing world relative to the U.S.

    • Undergraduate degrees in engineering granted annually:China 195,354India129,000Japan103,440Russia82,409U.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


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Literature

  • 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.


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The Purpose of the Study

  • 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?


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Approach

  • 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.


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The Sample

  • 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.


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Major SOC groups threatened by outsourcing


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The Estimation Model

  • Average effects:

  • Skill specific effects of outsourcing:


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Results – Average Effects

  • 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.


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Results – Specific Effects, Occupations not at Risk

  • 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.


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Results – Specific Effects, Occupations at Risk

  • For the outsourceable occupations, more highly educated workers are at a greater risk of unemployment than those with lower education.


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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.


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