Offshore outsourcing of IT-enabled services and the U.S. economy: evidences from secondary data.

Chakraborty, Kalyan

Abstract

This study attempts to assess the impact of offshoring of IT-enabled services on employment and wages, trade in business, professional, and technical services (BPT), and balance of payments using indirect evidences from secondary data from the U.S. economy. The Study found that U.S. trade data mostly shows that imports in business, professional, and technical services (BPT) has increased over time, however, the export of this type of services has increased even more creating net trade surplus. The study concludes that for equitable distribution of the gains from trade the government needs to expand its current safety net, trade adjustment assistant, to cover more of the services workers and need to reform the current education system.

Keywords: Offshoring, Outsourcing, BPT, IT-enabled

JEL Classification: F10, F20

I. INTRODUCTION

Slow job recovery after the 2001 recession, the growing importance of international transaction in services, and vast number of jobs relocated in India and China has raised the question of the impact of offshore outsourcing on U.S. economic growth, and the growth of output and employment of domestic industries. Service offshoring is the use of workers located abroad to provide routine/sophisticated services to the local customers. Typically outsourced services include software production, information and data processing services, computer systems design, professional scientific and technical services, and administrative and support services. Unprecedented growth in information technology and internet, and the growth of highly skilled and educated workers abroad have provided opportunities to the domestic companies to outsource to low-wage countries services ranging from routine call centers to high-value medical diagnosis and research and analytical activities. Globalization and technological advancement has generated gains to the U.S. economy but it has also caused dislocation to the domestic workers. Since technology and trade are independent and mutually reinforcing it is hard to identify which causes the gain or the loss (Mann, 2005).

While international outsourcing (offshoring) (1) is not a new phenomenon because material inputs constitute a significant volume of international trade for all industrialized economies, the current trend is mostly in outsourcing of services. The immunity of U.S. white collar jobs from global competition has started to erode from early 1990's. Rapid advancement in transportation and communication technology, liberalization of trade and investment environment, and adoption of universal accounting standards world wide have increased the tradability of many service activities. As stated by Grossman and Rossi-Hansberg (2006), "when instructions can be delivered instantaneously, components and finished goods can be moved quickly and cheaply, and the output of many tasks can be conveyed electronically, firms can take the advantage of factor cost disparities in different countries without sacrificing the gains from specialization." Offshore outsourcing has made possible for many countries to participate in global supply chains in which many complex tasks of a product or service are performed in different locations including abroad. Many service based companies in the IT-sector hiring workers in other countries to do the work typically done by their domestic staff. As the production of IT-enabled services are becoming increasingly location independent the service sector activities are also becoming increasingly internationalized. The expanding pace of offshoring of 'tradable' services which were formerly 'non-tradable' which began in early 1990's has been described as the current phase of 'Third Industrial Revolution" by Alan Blinder (2006).

There are several studies conducted by independent research organizations, management firms, and researchers in academic institutions on the impact of offshoring of services on the U.S. GDP growth, inflation, trade, consumers, labor productivity, wages, and employment (McKinsey, 2003; Forrester, 2002; Bardhan and Kroll, 2003). However, the estimates for most of these studies rely on U.S. government data sources which at present capture very little about the magnitude and the extent of offshore outsourcing. No study has been able to precisely estimate how many white collar jobs have relocated overseas. Empirical evidences need to understand the dimensions of offshore outsourcing are very limited due to non-availability of primary data. However, increasing international transaction in IT-enabled services has raised questions on the effect of offshore outsourcing on U.S. overall economic growth, and its impact on output, employment, and productivity growth. The central economic question is whether increased offshore outsourcing increases or decreases the overall economic wellbeing of the U.S. economy. Since no public time series data is available to assess the impact of offshoring, analysis of this phenomenon necessitates the use of indirect evidences.

The primary objective of this study is to measure the impact of offshoring of IT-enabled services on employment, wages, trade in business, professional, and technical services (BPT), and balance of payments using indirect evidences from the secondary data from the U.S. economy. However, for assessing the impact of offshoring this study reviews some of the most recent studies in the offshoring literature and attempts to find if current U.S. data shows trends or patterns as predicted by those studies. The paper is organized as follows. The next section discusses the findings from some of the impact studies done in the outsourcing literature including some empirical studies based on econometric models attempted to capture the effect of outsourcing on employment, wages, and productivity growth. The third section provides some indirect evidences on the extent of the impact of offshoring using latest available data on (i) employment and wages, (ii) input-output tables, (iii) trade in intermediate inputs, (iv) trade in services, and (v) balance of payments account. Summary and conclusions are in the last section.

II. THE NEW ERA OF OFFSHORING-THE LITERATURE

Almost all of the modern trade theorists agree that the issue of offshore outsourcing is not fundamentally different from international trade in goods and services based on the principle of comparative advantage (see Mankiw and Swagel, 2005; Bhagwati et al., 2004). The theoretical literature on offshore outsourcing has been mainly positive and some of the empirical evidences suggest that increased employment in the overseas affiliates of the U.S. multinationals is associated with more employment in the U.S. parent company rather than less (Learner, 2006). There are costs to the society for offshore outsourcing of services, some workers face dislocation. Some economists' views that when a white collar technology-intensive job is offshored the value of an American worker's industry-specific and firm-specific knowledge is destroyed this is quite contrary to when an unskilled worker is displaced. Baicker and Rehavi (2004) found that retraining programs are not effective for displaced workers. This means displaced unskilled workers need income transfers to handle trade shocks. In addition, the disruption in the labor market caused by the growth of service offshoring may make it less worth while for firms to make long-term investment in human capital (Trefler, 2005).

Improvement in communication technology such as, low delivery cost has made jobs such as customer service calls, radiology, software engineers, tax preparation, and even heart surgeons outsourced to India (see Pollak, 2003; Thurm, 2004; Robertson et al., 2005; Baker et al., 2006). Since it is increasingly becoming possible to separate the 'tasks in time and space,' international trade involves both complete goods and individual tasks (Grossman and Rossi-Hansberg, 2006). Jensen and Kletzer (2005) found that workers with higher wage and skill in 'tradable' services will be more affected by offshore outsourcing than 'non-tradable' services. The authors found that between 2001 and 2003 in the U.S. the share of displaced workers in non-manufacturing accounted for 70 percent and job loss for the workers displaced from information, financial services, and professional and business services accounted for 43 percent. A firm can gain most if a major part of the task performed by its domestic labor can readily be substituted by the workers abroad. Increasing profitability of such firms acts as an incentive to expand its output which in turn increases the derived demand for labor domestically who performs tasks which are mostly 'non-tradable.'

Amiti and Wei (2005) explained why increasing productivity and not offshoring perhaps the main cause of job loss for the U.S. IT-enabled service sector. By offshoring relatively inefficient task of the production process a firm can expand its output in which it has comparative advantage. As the inefficient task is relocated offshore the average productivity of the remaining workers increases due to the change in composition of the workforce. Productivity increase of the remaining workers can also occur due to structural changes. These productivity increases are more visible in the service sector from offshoring of IT-services inputs. Although the direct impact of productivity improvement is loss of jobs, because fewer workers are needed to produce same level of output, higher productivity will also lead to lower prices, higher competition, and demand for output and labor. There is a lack of empirical work determining to what extent domestic employment effect is due to restructuring, productivity growth, and recession.

Empirical studies investigating offshore outsourcing of materials and its overall impact on the U.S. economy generally found a steady increase in international outsourcing (see Yeats, 2001; Borga and Zeile, 2004). Egger and Egger (2001) found a negative relation between material offshoring and productivity of low-skilled workers in the short-run, but positive relation in the long-run. Feenstra and Hanson (1999) found offshore outsourcing of materials contributed 17 to 40 percent of the increase in skill wage premium. In an empirical study using U.S. data for offshore outsourcing Jorgenson et al., (2006) found the contribution of IT-producing industries accounted for more than 30 percent of the increase in aggregate total factor productivity growth which is far above the 3.9 percent share of IT equipment and software in aggregate output.

Studies on offshore outsourcing of U.S. firms have primarily addressed its impact on overall GDP, balance of payments, aggregate employment, and business sector productivity (Borga, 2005; GAO, 2005; Kozlow and Borga, 2004). Desai et al. (2005) found a strong correlation between growing foreign investment and domestic capital accumulation. Their study found a 10 percent foreign capital investment by multinational companies (MNC) is associated with 2.2 percent greater domestic investment, and 10 percent foreign employee compensation is associated with 4 percent greater domestic employee compensation. Studies on services outsourcing and employment effects have been conducted by McKinsey (2003), Mann (2003), Forrester (2002), Bardhan and Kroll (2003), Blinder (2005), van-Welsum and Reif (2006), van-Welsum and Vickory (2005), however, there are significant variations in the number of jobs and type of tasks that are potentially offshorable among these studies.

Some recent studies have developed robust econometric models to capture the offshore outsourcing of services on labor productivity, wages, and employment levels. For example, Grossman and Rossi-Hansberg (2006) developed a model they called the 'new paradigm' for international trade in which they defined the production process in terms of sets of 'tasks' rather than a combination of bundles of inputs. Using the 'non-routine' and 'routine' tasks based on a study by Autor et al (2003) they found for U.S. since 1970 the 'routine' task is falling while 'non-routine' tasks are rising with acceleration. Which implies U.S. is importing more of the tasks (at all skill levels) that can be offshored easily and specializing in those tasks that cannot be performed remotely. Decomposing the offshoring effect on low-skill wages into productivity effect, relative price effect, and labor supply effect the study found between 1997 and 2004 for U.S. data the combined productivity and labor supply effect on low-skill wages has been the cause of raising their wages by 0.25 percent per year.

Amiti and Wei (2005) using U.S. data found between 1992 and 2000 services offshoring accounted for 11 to 13 percent of labor productivity growth and material offshoring accounted for 3 to 6 percent of labor productivity growth. Using information from the input-output tables they found material offshoring is far more important than services offshoring for U.S. The study found no evidence that suggests offshoring is the cause for job losses during 1995 to 2001. van-Welsum and Reif (2006) investigated the relationship between the share of employment affected by offshoring and factors such as, economic and structural factors, trade in business services, and foreign direct investment for U.S., Canada, Australia, and the European Union. They found share of 'non-clerical' and "clerical' occupations potentially affected by offshoring to positively related to export of business services and negatively related to import of business services.

III. IMPACT OF OFFSHORING-EVIDENCES FROM SECONDARY DATA

Trade in services has becoming increasingly important worldwide and accounts for almost 20 to 25 percent of total international trade for most of the industrialized countries. For U.S. the contribution of services to domestic production, international trade, and foreign investment is growing. Services account for about 60 percent of real personal consumption expenditure, 84 percent of private industry production, about 30 percent of exports, and about 15 percent of imports (Mann, 2004). Advances in information and communication technology made it possible that instructions be delivered instantaneously and task performed at a remote location can be delivered electronically at a minimum cost. Many of the services that are increasingly traded across boarders include business and professional services, financial services, and telecommunication services-commonly know as IT-enable services.

The share of U.S. imports of 'private services' (which include most of the IT-enables services) in GDP increased from 1.7 percent in 1997 to 2.5 percent in 2005, and import of 'BPT services' increased from 0.2 percent to 0.4 percent during the same period. Although it is quite small at this time but it is growing fast and is hard to predict its possible impact on labor market. This section uses the available data to assess the extent of offshoring impact on wages and employment, trade, and balance of payment. Since this study focuses on offshore outsourcing of IT-enabled services we have defined the occupations and the industry that will be covered in the discussion on the impact on employment and wages. Table i lists the occupations that cover the IT-workers across company and the two industries primarily cover those occupations.

Employment and Wages

Growth in employment in the non-farm business sector slowed down from 2000 to 2003 by 1.35 percent mainly due to increase in productivity by 3 percent and recession in early part of 2001. The number of jobs in the IT-sector now is 3.4 million, which is 2.46 percent of total non-farm jobs (Table 2). Prior to recession in 2001, IT-sector has 4.1 million jobs and accounted for 3.1 percent of total non-farm jobs. The data that are currently available from BLS it is hard to identify what portion of this job loss is due to recession or for offshoring. The data in Table 2 also shows between 1997 and 2006 the share of services jobs in the IT-sector increased from 40 percent in 1997 to 50 percent in 2003, and 56 percent in 2006. During the same period there is a steady shift of jobs from the manufacturing to services within IT-sector (i.e., 60 percent in 1997 to 43 percent in 2006). However, job gains in IT-sector do not indicate offshoring could be a probable cause. Lower pay in manufacturing jobs accounted for almost 8.3 percent of job loss in the IT-sector between 2000 and 2006. (2)

[FIGURE 1 OMITTED]

Figure 1 shows a steady downturn in IT-enabled services' employment in manufacturing from the start of the recession in 2001 and remained lower than the employment in IT-services until 2006. Study by Groshen et al (2005) found the net effect of offshoring of U.S. jobs has modestly affected the weak performance of the labor market between 1992 and 2003. In brief, they found no evidence to support the claim that surge in offshoring played a large role in the jobless recovery. A deeper look into the detail employment by occupation data reveals that employment in IT-sector declined steadily from its peak in 2000 and following are the occupation that were hard hit: computer programmers; system analysts; hardware engineers; computer support persons; network administrators and analysts; computer operators; and data entry keyers (Figure 2).

Trade theories suggest that the job losses from offshoring would be mainly in low-skilled and low-paid jobs in the IT-sector. (3) Mann (2005) found one-third of the low-wage jobs in the IT-sector disappeared between 1999 and 2004 while jobs for occupations involving high-skill, judgment-oriented, and problem-solving increased by almost 17 percent during the same period. Table 3 shows although current unemployment rate for IT-sector is 3.7 percent and the rate remained high for low-wage jobs such as, computer operators, (4.2) and data entry keyers (6.1). For 2006 for most of the occupations the unemployment rate either decreased or remained same compared to 2001 (See Table 3).

We analyzed whether the job losses between 2002 and 2006 are due to the effect of recession or offshoring using BLS business employment dynamics data. This data can provide some intuitive explanation for the job losses and job gains in the IT-sector during that period. The data on gross job loss and job gain for private non-farm business shows from early 2001 until 2002 gross job gains was less than gross job losses. However, from 2002 job creations exceeded job destructions, reaching peak in 2004. This implies unusual low rate of job growth during expansion is mainly due lack of job growth rather than high rate of job destruction from offshoring. This conclusion is further reinforced in Figure 3 where job loss and job gain in professional and business services followed the mirror image of gross job gains and job losses in private non-farm business. Business and professional services are the most vulnerable to offshoring jobs. Bednarzik (2005) in his study found similar trend and concluded that offshoring might have contributed modestly for the poor job recovery.

BLS extended mass layoffs data (after 2004) provide some information useful for understanding the underlying offshore outsourcing of services. This data reports job loss in major IT-sector associated with offshoring. However, there are some limitations of the data because it does not cover establishments or layoffs less than 50 workers and layoffs less than 30 days. From 2004 this data identify if the job loss is associated with movement of work from within a company to another company, and from U.S. to another country. Mass layoffs in IT-sector reached its peak in 2001 when its share rose to 13.3 percent of all private non-farm layoffs (Table 4). Between 2002 and 2006 computer hardware and communications services are the two major IT-sectors where mass layoffs occurred.

[FIGURE 4 OMITTED]

A study by U.S. Government Accounting Office (GAO, 2004) found a small number of workers laid off between 2000 and 2003 indicated 'overseas relocation' as the cause of mass layoff. In 2004 IT-producing industries accounted for 235 layoff events associated with 40,409 workers (out of total 382 events and 55,122 workers) however, movement of work was reported in 42 events for these industries affecting 10,347.

Overall in 2004 there were 103 out-of-country relocations involving 16,197 jobs but how many of these jobs are in IT-sector in not known. For 2005 out-of-country movements are 91 involving 12,030 jobs. For both 2004 and 2005 Mexico and China were cited 68 percent of the time as the destination to which the work was relocated (Brown and Seigel, 2005).

Industry Account

Studies assessing the impact of offshoring on domestic industries are very limited. Bureau of economic analysis' (BEA) annual industry accounts (AIA) provides some insights on how outsourcing impacts on the composition of gross output, intermediate inputs, and value added based on 1997 North American Industrial Classification System (NAICS). Import of services in 2005 is $267 billions which accounts for 15 percent of total U.S. imports of goods and services. Business, professional and technical services in BAE's international transactions account is most closely associated with offshoring of IT-services. Share of BPT in imports of all services increased from 12.7 percent in 1997 to 15.4 percent in 2005.

[FIGURE 5 OMITTED]

BEA's balanced Input-output use-table provides information on commodity composition of intermediate inputs by industry and by final demand. Intermediate inputs used by major industries are aggregated into their cost categories-energy, materials, and purchased services. These estimates are prepared by KLEMS production framework to BEA's estimate of industry production (for detail see Yuskavage et al. 2006). In BEA's industry account intermediate purchased services inputs include outsourcing related services such as, computer, engineering, and accounting services. It also includes other purchased services such as utility and transportation. Figure 5 shows for outsourcing related services purchased in the U.S. increased from $417 billion in 1998 to $705 billion 2005, an increase of 69 percent. However, purchased services as a percent of gross output for all industries increased slowly from 23.5 percent in 1998 to 25.2 percent in 2005. Yuskavage et al. (2006) suggests faster growth in the use of purchased services is a better indicator of possible outsourcing because it implies changes in the production process, rather than changes in the relative input prices.

Using data (4) for imported purchased services by major industries this study found the share of imported purchased services as total intermediate inputs increased from $98.5 billions to $188.2 billions between 1997 and 2004. The share of imported purchased services for 'business and professional services' remained low but the share increase from 6.4 percent in 1997 to 8 percent in 2001 and then decreased to 6.4 percent in 2005. It is noticeable that for 'manufacturing' the share of imported purchased services although high is decreasing and for 'financial services' the share of imported purchased services increasing fast since 2001 (Figure 6). In conclusion, increased share of BPT services in imported purchased services over time indicate imported services are being substituted for domestic output.

Trade Account

BEA data on imports of services provide some insight into the trend and magnitude of relocation of services operations abroad. This study focuses on import of BPT services which is a part of "other private services." BPT services include many of the activities associate with task trade. Trade in BPT services does not include education, financial services, insurance and telecommunications which are included in a broader category of "other private services." Table 5 shows between 1997 and 2005 U.S. has positive trade balance in IT-enabled service sectors except for computer and information services. U.S. is the global leader in business services except for computer and information services. Trade balance in finance, BPT services, and other BPT services categories show U.S.'s competitive position.

[FIGURE 6 OMITTED]

Positive net export balance in services suggests U.S. competitive position in IT-enabled services even when more countries are involved in cross-border trade in services (Mann, 2006). In an empirical study van-Welsum and Reif (2006) found a positive relationship between increase in export of BPT services and the share of employment potentially affected by offshoring. Their study did not find any negative relation between import of BPT services and the share of employment potentially affected by offshoring.

A deeper look into the trade data on BPT services reveals although BPT accounts only 16.9 percent of total private services import in 2005, in real terms it has more than doubled between 1997 ($20.8 billions) and 2005 ($47.7 billions). U.S. has maintained strong and stable net balance in BPT services as of 2005. Between 1997 and 2005 export of BPT services (also called "other private services" in U.S. balance of payment account) has grown over 84 percent while imports has grown by 128 percent. However, the trade surplus in BPT services increased by 43 percent during this period at an annual average of 4.7 percent. These services account for about 6.8 percent of total export and 2.6 percent of total imports of all goods and services in the U.S. in 2005.

U.S. competitive advantage of BPT services is further analyzed using intrafirm trade in BPT services. In Figure 7 "U.S. parent, net receipts" and "U.S. affiliates, net receipts" shows U.S. MNC's are expanding overseas and integrating their operations globally, not at the cost of shrinking their operations at home. Studies have found that although U.S. parents have increased their reliance on purchased goods and services, but no significant association has been found between this increased dependence on purchased inputs and decreases in parent employment. The growth of U.S. parents and their foreign affiliates are closely and positively linked (Borga, 2005; Kozlow and Borga, 2004).

Foreign Direct Investment and Private Fixed Investment

For most of the industrialized nations international trade and foreign direct investment (FDI) are the two fastest growing economic activities. Interestingly, the nature of trade and FDI flows are increasingly in services and intermediate inputs. A recent study by Helpman (2006) found that systematic relationship exists between the characteristics of business firms and their participation in trade and investment.

U.S. foreign direct investment is growing which shows how fast the firms are changing locations to take advantage of the specialized services and inputs abroad. Between 1997 and 2005 overall U.S. FDI grew by almost 138 percent while for BPT services the growth is only 6 percent (Table 6). There has been a tremendous increase in foreign direct investment in the U.S. from $7.7 billions to $42 billions during this period. U.S. FDI in 2005 grew only by 1 percent (smallest recorded since 1982) compared to 16 percent growth in 2004 this is because of shift of U.S. outflows to U.S. inflows of direct investment capital (Koncz and Yorgason, 2006).

According to Mann (2005) the direct investment related to IT-enabled services which are coming more into the U.S compared to U.S. investment abroad is mainly because of liberal environment for foreign investment in the U.S. van-Welsum and Reif (2006) found net FDI is positively related to the share of employment potentially affected by offshoring. Using firm level U.S. data between 1994 and 2002 Borga (2005) found foreign operations of the U.S. MNCs are centered in high income countries, and that most of the output of foreign affiliates is sold to local or other foreign markets rather than exported to the U.S.

Finally U.S. private fixed investment position is reported in Table 7. Between 1997 and 2006 private fixed investment increased by 64 percent and the fixed investment for the IT-enabled services grew by 50 percent. The fastest growth in investment occurred in 'software' around 95 percent while the slowest increase occurred in 'computer and peripheral equipment.' Information processing equipment and software accounts for about 50 percent of total equipment and software investment in 2005.

Jorgenson et al. (2006) concluded from their study that almost two-third of the increased capital deepening occurred in the IT-sector which is the major factor for the strong productivity growth between 1995 and 2004. Their study found that fixed investment in information technology equipment and software was only 16 percent of total fixed investment in the IT-services.

IV. SUMMARY AND CONCLUSIONS

In summary it is evident that U.S. trade data most closely connected to offshoring shows that U.S. imports in BPT services has increased over time. In contrast, the export of this type of services has been increased even more creating net trade surplus. As long as trade and direct investment in services continue to grow both in the U.S. and other countries of the world, U.S. will benefit from outsourcing and globalization. Since global elasticity of demand for U.S. services export (BPT services) exceeds U.S. elasticity of demand for services imports, this implies as global GDP expands U.S. balance of payments surplus in services will expand and will neutralize the negative balance on goods trade (Mann, 2006).

Having said that, it is also true that the fraction of service jobs potentially offshorable will increase at a faster pace as technology improves and more and more 'personal' services becomes tradable and 'impersonal.' Since the gains from trade always come with pains from trade, offshoring will create winners and losers and the pains from dislocation and loss of earnings will cause discontent among workers and their families. The issue of offshoring demands a careful response from the policy makers ensuring that the benefits of offshoring are distributed equitably among firms and workers. The role of government is two fold--to reduce the pain the government should expand the safety net to cover more of these displaced workers, and improve the quality of education to meet the future challenges.

With technological improvements and accelerating job turnovers from offshoring, workers' job-specific skills are losing value. Government's safety net should cover these displaced workers and insure their livelihood. Unfortunately, studies found that the nation's safety net for easing job transformation for American workers is one of the poorest among the industrialized nations. Brainard et al (2005) found that in 2003 only 40 percent of all jobless workers received federally mandated unemployment insurance, about half of all petitioners for trade adjustment assistance (TAA) were denied, and one-quarter of workers eligible received income support. The authors proposed a wage insurance that would cost $25 per worker per year which would provide incentives for more rapid reemployment and on-the-job training that insures earning for permanently displaced workers who secure reemployment at lower pay. On his testimony to the House Committee on Education and Labor Hearing on March, 2007 Brainard proposed a trade adjustment assistance for the displaced workers in service industries that would expand the training and insurance while unemployment and insuring wage once reemployed (Brainard, 2007).

On reforming the education policy, some researchers view that for preparing American labor force for the future what is needed is more quality of education rather than quantity of education. Blinder (2006) suggests that we need to focus on training more college students for high-end jobs that are less likely to move offshore and developing a creative workforce that will innovate new products and processes, and even new industries to lead the U.S. in this 'third industrial revolution'.

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Notes

(1.) Offshoring or offshore outsourcing is defined in this paper as tasks formerly performed in one country are now being performed in another country which includes relocation of some of the activities abroad by a multinational corporation which used to be performed domestically.

(2.) Following Bednarzik (2005) this study defines computer support specialist (151141), computer operator (439011), data entry keyers (439021), and computer automated teller and office machine repairer (492011) as low wage jobs (see Figure 2).

(3.) A study by Levy and Murnane (2004) found tasks using low-skill labor can be offshore more economically than high-skilled labor tasks however, both can be performed remotely.

(4.) Data used in this part is mainly used from a study by Yuskavage et al., (2006)

Table 1
IT-sector Occupational and Industry Definition

Code Standard Occupational Classification (SOC)

113021 Computer and Information Systems Managers
151011 Computer and Information Scientists, Research
151021 Computer Programmers
151031 Computer Software Engineers, Applications
151032 Computer Software Engineers, Systems Software
151041 Computer Support Specialists
151051 Computer Systems Analysts
151061 Database Administrators
151071 Network and Computer Systems Administrators
151081 Network Systems and Data Communications Analysts
172061 Computer Hardware Engineers
439011 Computer Operators
439021 Data Entry Keyers
492011 Computer, automated Teller and Office Machine Repairer

Code North American Industry Classification System (NAICS)
3341 Computer and Electronic Product Manufacturing
3342 Communication Equipment Manufacturing
5112 Software publishing
5181 Internet Service Providers and Web Search Portals
5182 Data Processing, Housing, and Related Services

Source: Monthly Labor Review, Bednarzik (2005)

Table 2
Employment and Hourly Wages in the Economy and IT-sector by
Industry (Thousand), Selected Years 1997-2006

 1997 2000

Industry Jobs Wages Jobs Wages

Total non-farm employment 122,776 12.51 131,785 14.02
IT-sector employment 3,407 -- 4,093 --
 Manufacturing IT
Computer equipment 1,803 15.10 1,820 18.39
manufacturing
Communications equipment 244 13.84 248 14.39
manufacturing
 Services IT
Software publishing 195 23.8 261 28.48
Computer services 827 23.62 1,254 27.13
Internet services 70 24.71 194 25.60
Data processing 268 14.82 316 16.97
Non-IT 119,369 -- 127,692 --

 2003 2006

Industry Jobs Wages Jobs Wages

Total non-farm employment 129,999 15.37 136,171 16.75
IT-sector employment 3,268 -- 3,360 --
 Manufacturing IT
Computer equipment 1,355 20.18 1,316 23.00
manufacturing
Communications equipment 155 16.84 144 18.98
manufacturing
 Services IT
Software publishing 239 33.78 238 38.43
Computer services 1,117 29.49 1,278 32.99
Internet services 122 24.22 122 24.50
Data processing 280 19.91 262 20.42
Non-IT 126,731 -- 132,811 --

Source: Bureau of Labor Statistics, CES data, March 2007.

Table 3
Unemployment Rate in the IT-sector, by Occupation, 2000-2006

Occupations 2000 2001 2002 2003 2004

Total IT Sector 2.7 4.0 5.5 6.0 4.8
Computer and information
systems managers 1.6 3.3 5.6 5.0 4.0
Computer programmers 2.0 4.0 6.1 6.4 5.8
Computer and information
scientists and systems analysts 2.3 2.8 4.4 5.2 3.9
Computer hardware engineers 1.8 2.9 6.5 7.0 2.1
Computer software engineers 1.7 4.2 4.7 5.2 3.3
Computer support specialists 3.4 4.2 5.4 5.4 4.6
Database administrators 3.0 2.6 2.9 6.6 2.0
Network and computer
systems administrators 1.3 2.1 6.0 5.3 3.4
Network systems and data
communications analysts 2.8 4.6 4.3 6.5 5.8
Computer operators 3.2 4.2 4.9 5.0 3.1
Data entry keyers 5.5 5.8 7.9 7.6 9.0
Computer auto-teller and
office machine repairers 2.6 3.8 5.0 8.3 4.7

Occupations 2005 2006

Total IT Sector 5.0 3.7
Computer and information
systems managers 2.5 2.1
Computer programmers 2.3 2.4
Computer and information
scientists and systems analysts 3.1 2.7
Computer hardware engineers 1.4 1.5
Computer software engineers 2.4 2.1
Computer support specialists 3.4 3.4
Database administrators 4.4 0.4
Network and computer
systems administrators 3.9 2.5
Network systems and data
communications analysts 3.8 2.6
Computer operators 3.2 4.2
Data entry keyers 7.9 6.1
Computer auto-teller and
office machine repairers 5.6 2.0

Source: BLS, Current Population Survey, 2000-06 and unpublished data

Table 4
Extended Mass Layoffs in IT Producing Industries Associated with
Offshore Outsourcing: 1997-2006

IT Sectors 2000 2001 2002

Computer Hardware 18,805 102,587 59,653
 (66) (503) (303)
Software & Comp. Services 16,774 36,016 22,382
 (70) (242) (162)
Communications Equipment 4,618 34,874 23,236
 (25) (140) (112)
Communications Services 4,048 30,084 32,134
 (24) (136) (176)
All IT Producing Industries 44,245 203,561 137,405
 (185) (1021) (753)
All Private Nonfarm 915,962 1,524,832 1,272,331
Share of IT M in 4.83 13.35 10.80
Private Non-farm

Total Extended Mass Layoffs by Type of Reasons 2004-2006

Action

Movement of work (Layoff
 Actions)
Separations (Job losses)
Out-of-country (Layoff
 Actions)
Separations (Job losses)

IT Sectors 2003 2004 2005 2006

Computer Hardware 32,689 11,524 11,928 11,700
 (196) (76) (75) (46)
Software & Comp. Services 16,230 9,732 7,858 3,872
 (100) (62) (49) (29)
Communications Equipment 10,408 1,887 3,000 3,738
 (62) (16) (13) (19)
Communications Services 21,710 17,266 7,725 4,477
 (113) (81) (47) (29)
All IT Producing Industries 81,037 40,409 30,511 23,787
 (471) (235) (259) (123)
All Private Nonfarm 1,216,844 993,909 884,661 894,739
Share of IT M in 6.66 4.06 3.44 2.65
Private Non-farm

Total Extended Mass Layoffs by Type of Reasons 2004-2006

Action 2004 2005 2006-III 2006-IV

Movement of work (Layoff 382 259 49 61
 Actions)
Separations (Job losses) 55,122 34,194 6,820 9,692
Out-of-country (Layoff 103 91 12 25
 Actions)
Separations (Job losses) 16,197 12,030 2,071 5,281

Number in Parenthesis denotes layoff events.

Source: Bureau of Labor Statistics, Extended Mass Layoffs Data and
Report-997, Sept 2006

Table 5
Trade Balance in IT-enabled Services, Selected Categories, 1997-2005
($ billion)

Categories 1997 1998 1999 2000 2001

Total Private Services 87.0 78.8 82.1 76.6 68.8
Other Private Services 40.8 44.2 48.4 47.4 47.9
Financial Services 6.3 6.2 8.0 7.8 8.4
BPT Services 23.1 23.3 25.9 25.2 28.5
Computer and 3.5 3.0 2.1 2.4 2.0
 Information Services
Other BPT Services 15.8 16.1 18.8 17.8 15.8
Other Services 12.6 14.2 15.1 15.3 15.5

Categories 2002 2003 2004 2005

Total Private Services 70.6 67.3 70.8 79.9
Other Private Services 49.6 50.9 54.2 59.5
Financial Services 12.3 14.1 18.6 21.8
BPT Services 29.2 29.4 31.1 33.1
Computer and 2.8 3.0 2.2 -0.8
 Information Services
Other BPT Services 14.7 13.8 17.7 21.8
Other Services 16.0 16.3 16.5 16.2

Source: US International Services, Cross Border Trade in 2005 by Koncz,
Mann, and Nephew, Oct 2006. Survey of Current Business

Table 6
US Foreign Direct Investment and FDI in Professional Scientific and
Technical Services

Foreign Direct
Investment ($ billions) 1997 1998 1999 2000 2001

US Direct Investment
Abroad 871.3 1000.7 1216.0 1316.2 1460.3

Foreign Direct Investment
in the US 681.8 778.4 955.7 1256.9 1344.0

Net 189.5 222.3 260.3 59.3 116.3

USFDI abroad in BPT-
services 46.5 59.1 30.0 32.9 34.3

Foreign Direct Invst. in
US in BPT-services 7.7 8.7 11.7 30.5 31.5

Net 38.8 50.4 18.3 2.4 2.8

Foreign Direct
Investment ($ billions) 2002 2003 2004 2005

US Direct Investment
Abroad 1616.5 1769.6 2051.2 2070.0

Foreign Direct Investment
in the US 1327.2 1395.2 1520.7 1635.3

Net 289.3 374.4 530.5 434.7

USFDI abroad in BPT-
services 31.1 35.8 45.2 49.2

Foreign Direct Invst. in
US in BPT-services 34.6 38.3 38.2 42.0

Net -3.5 -2.5 7.0 7.2

Source: Balance of Payments, International Economic Account, BEA 2007

Table 7
US Private Fixed Investment in IT-sector Selected Categories
($billion), 1997-2006

 1997 1998 1999 2000 2001

Total Private fixed investment 1,318 1,438 1,559 1,679 1,746
Equipment and software 718.3 777.3 851.7 918.9 854.2
 Information processing
 equipment and software 330.3 364.4 411.0 467.6 437.0
 Computer and peripheral
 equipment 81.4 87.2 96.0 101.4 85.4
 Software 107.5 124.0 152.6 176.2 174.7
Total IT-enabled services 519.2 575.6 659.6 745.2 697.1

 2002 2003 2004 2005 2006

Total Private fixed investment 1,570 1,650 1,831 2,036 2,165
Equipment and software 787.1 800.2 854.5 927.1 986.2
 Information processing
 equipment and software 399.4 406.7 431.6 454.3 485.3
 Computer and peripheral
 equipment 77.2 77.8 82.3 85.1 86.9
 Software 167.6 171.4 184.3 194.0 209.1
Total IT-enabled services 644.2 655.9 698.2 733.4 781.3

Source: Private Fixed Investment by Type, NIPA Table 5.3.5, BEA 2007.

Figure 2: Average Hourly Wage and Employment by Major IT-enabled
Occupations

Computer Support Specialists ($20.86) 499.86
Computer Systems Analysts ($33.86) 492.12
Computer Software Engineers, Applications ($38.24) 455.98
Computer Programmers ($32.4) 389.09
Computer Software Engineers, Systems Software ($40.54) 320.72
Data Entry Keyers ($11.98) 296.70
Network and Computer Systems Administrators ($30.39) 270.33
Computer and Information Systems Managers ($49.21) 259.33
Network Sys and Data Communications Analysts ($31.23) 185.19
Computer, auto Tell & Off Machine Repairer ($18.1) 138.21
Computer Operators ($16.15) 129.16
Database Administrators ($31.54) 99.38
Computer Hardware Engineers ($41.91) 78.58
Computer and Information Scientists, Research ($45.21) 25.89

Source: BLS, OES Data, 2007.

Note: Table made from bar graph.

Figure 7: U.S. Intrafirm Trade in BPT Services, 1997-2005

Year US Parents Net US Located Foreign Affiliates
 Receipts net Receipts

1997 7.0 1.1
1998 6.8 1.4
1999 6.6 0.1
2000 7.2 1.7
2001 7.5 2.2
2002 6.3 3.1
2003 6.0 3.5
2004 5.1 4.8
2005 5.2 2.9

Note: Table made from bar graph.

KALYAN CHAKRABORTY

Emporia State University, Emporia