Outsourcing White Collar Jobs: How Big a Problem?

The outsourcing of white collar jobs has been a hot topic lately. The chair of the President’s Council of Economic Advisors, Greg Mankiw, made the front pages last week with his comments that outsourcing is “probably a plus for the economy in the long run.” There were lots of weekend articles about the issue, and a fair amount of blog writing, too. Brad DeLong, for example, has put up several posts about the brouhaha.

There are lots of good questions to ask about the outsourcing phenomenon. So I thought I would take a look at some of the relevant data to answer them.

1. Is outsourcing the cause of the poor labor market in white-collar sectors of the economy?

Probably not. The table below shows the change in employment in several industries between 1999 and 2003. The industries in the top part of the table are some that are often mentioned as being possibly outsourced. Employment has indeed declined in many of those industries. Likewise, employment has declined in manufacturing.

However, the industries listed toward the bottom of the table are by their nature completely insulated from international trade and outsourcing – and they all show declines in employment as well. In fact, they’ve lost more jobs than most industries subject to outsourcing. The conclusion is that the weak labor market is unrelated to the outsourcing phenomenon.

Because jobs have been lost equally in industries subject to international competition and those that aren’t, most economists think that the real cause of the weak labor market, in white collar jobs as well as all others, is the combination of fast productivity growth and weak demand – something that could have been fixed with proper fiscal stimulus, but wasn’t by the Bush administration. Outsourcing probably has caused additional employment drops in some select industries (such as call centers and data processing), but most of the US labor market’s troubles are not due to outsourcing.

By the way, the table also points out that by far the most serious jobs problem is in manufacturing. Job losses in white collar industries pale in comparison to the sharp fall in manufacturing jobs, in both absolute and relative terms.

2. Does outsourcing send the best-paying jobs overseas?

Not necessarily. The table also shows the average hourly wage by industry. 4 of the 5 lowest-paying “outsourceable” industries have been hard hit by job losses. But 3 of the 4 highest-paying outsourceable industries have actually gained jobs, despite the overall fall in jobs in the economy. This data suggests that outsourcing is primarily affecting relatively low-skill white collar jobs that pay relatively poorly.

3. Do outsourced white collar employees have an especially hard time finding new employment?

No. Blue collar workers have a far more difficult time finding new jobs after being displaced. The BLS does a survey every 2 or 3 years of “displaced workers” – workers who lost their jobs due to plant or company closings or moves, insufficient work, or the abolishment of their positions or shifts. Of the 441,000 workers in “Professional Services” who were displaced during the period 1999 – 2001 (the most recent data available), only 9.4% were still unemployed as of January 2002. And of those that found new jobs, 55% found jobs that paid at least as much as their old job, and 45% moved into lower-paying jobs. On the other hand, of the 1.32 million manufacturing workers who were displaced over the same period, 25.5% were still unemployed as of January 2002. Of those who found new jobs, only 35% found new jobs that paid higher than their old manufacturing jobs, while 65% moved into lower-paying jobs.

None of this means that we shouldn’t worry about the effects of outsourcing, or that we shouldn’t do something to help those affected. However, this data may provide a bit of perspective on the size of the problem. As far as economic dislocation goes, the manufacturing problem is far, far bigger in size, duration, and severity.