Offshoring (a.k.a. Offshore Outsourcing) and Job Insecurity Among U.S. Workers

Publication Date: May 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Labor

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Abstract:

Offshoring or offshore outsourcing is the term now being applied to describe the nascent practice among U.S. companies of contracting out the jobs of white-collar workers in service sector industries to firms located beyond our borders. The term is equally applicable to U.S. employers' outsourcing blue-collar workers' manufacturing jobs to other nations. As often is the case with a potential trend, however, few facts are available; instead, anecdotal accounts and varying estimates have been trumpeted in the media. No regularly collected series currently provides data on the number of workers who have lost their jobs to offshore outsourcing.

The outsourcing of service sector jobs to specialized U.S. firms began in response to the early 1980s recessions. Employers increased their focus on the company's core mission and contracted out peripheral activities to other U.S. businesses. The 2001 recession prompted employers to achieve further efficiencies by utilizing now widely disseminated technologies that permit low cost, good quality, and high speed transmission of voice and data communications to extend offshore outsourcing beyond blue-collar manufacturing jobs to white-collar service sector jobs. Events also transpired during the intervening decade of the 1990s that enhanced other countries' ability to export services.

Despite the labor market's turnaround, the state of mind that continues to prevail in the U.S. workforce is one that characterized an earlier "jobless recovery" when white-collar workers first became aware that their jobs had become more insecure. White-collar workers, who are the majority of all U.S. workers and of service sector employment, again have become anxious about their losing jobs. Although offshore outsourcing has been blamed for the employment cutbacks that followed the 2001 recession, it might have caused (at most) 10% of those job losses.

Some believe we have seen just the tip of the offshoring iceberg, with perhaps a total of 3.4 million service sector jobs moving overseas by 2015 in a range of fairly well paid white-collar occupations. If true, the number of jobs sent offshore over the long projection period might account for just 2% of U.S. employment in a single year. In contrast, others expect that for a variety of reasons many companies will lose their enthusiasm for the business practice and use it more strategically.

Congress has a longstanding interest in assisting workers who lose jobs through no fault of their own. In addition to unemployment benefits, policymakers traditionally have provided extra help through the Trade Adjustment Assistance (TAA) program to workers who lose jobs due to international trade. TAA generally does not apply to trade-induced layoffs in the service sector, however. Laws already exist to help workers undertake additional education and training (e.g., the Workforce Investment Act) should that be necessary for their reemployment. The most commonly suggested new proposal involves provision of wage insurance to displaced workers.

This report will be updated as warranted.