Services Offshoring, American Jobs, and the Global Economy

Lael Brainard and
Lael Brainard National Economic Advisor - National Economic Council

Robert E. Litan

December 1, 2005


Americans are worried the economy is permanently shedding jobs and compressing wages, not only in blue-collar manufacturing but also now in white-collar services once assumed immune to foreign competition. The digitization of information and expanded bandwidth abroad are enabling companies to outsource to low-wage countries services ranging from routine call center and clerical activities to higher-value software programming, medical diagnosis, and research and analytical activities.

The offshoring debate has hit in the middle of a recovery that has produced few gains for workers, at a time when anxiety about employment and trade are at fever pitch. Concern runs across political and demographic lines, with growing calls for measures to slow or even halt offshoring.

The nation still has much to learn about services offshoring; existing data provide incomplete clues. Economic theory and past performance suggest that although offshoring provides overall economic gains, it is also redistributive, with affected workers facing the prospect of job loss and wage pressures. A powerful set of policy tools can help navigate the ups and downs of this new global force, but so far most have not been deployed.