GLOBAL OUTSOURCING OF HUMAN CAPITAL AND UNEMPLOYMENT IN THE UNITED

8/8/2019 GLOBAL OUTSOURCING OF HUMAN CAPITAL AND UNEMPLOYMENT IN THE UNITED

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The Impact of Global Human-CapitalOutsourcing on the Employment

Patterns in the United StatesConstantin OgloblinSchool of Economic DevelopmentMarch, 2005


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An established view: global economic integration tends to shift

low-skilled jobs from developed to developing countries whilecreating high-skilled jobs in the developed world.

The new round of globalization challenges this view.

Anecdotal evidence of companies in developed economiesshipping high-skilled jobs offshore piles up, raising fears of joblosses among high-skilled workers in the West and sparkinghot political debates.

830,000 white-collar jobs will be outsourced from the U.S. offshoreby 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 workdone by the worlds IT-services is carried out away from wherethese services are consumed (in the software industry theproportion is 6% ) .

The Problem


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W hy?

Growth of human capital in the developingworld relative to the U.S.

Undergraduate degrees in engineeringgranted annually:

China 195,354India 129,000Japan 103,440Russia 82,409U.S. 60,914

T he K-12 system does a good job of weedingout any students interested in math and science. Craig Barrett CEO, Intel

Low price of human capital in developing countriesTypical monthly salaries:

C hip 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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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 jobsoutsourced are not publicly available.

Much of the current research has been conducted orordered by politically or financially interested groups.

Lit era tu re


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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 therisk of unemployment for a worker in the U.S.?

Are high-skilled workers more likely to be involuntarilyunemployed than low-skilled workers?

Is the incidence of unemployment across different skill levelsrelated to outsourcing?

The P u rpose of t he S tud y


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Statistical inference based on the individual-level data

from CPS combined with the best available informationon occupational categories threatened by offshoreoutsourcing

Probit equation that estimates the expected rate of involuntary unemployment conditional on the workerslevel of education and on whether his/her occupation is

at risk of outsourcingThe analysis is empirical: no formal theoretical modelof job loss to outsourcing is presented.

A pproach


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The April basic CPS datasets for 2000 and 2004

Individuals in civilian labor force, aged 18-64, who areeither wage employed or involuntarily unemployed

In all descriptive statistics and estimation proceduresobservations are weighted using the CPS final weights.

The Sample


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M ajor SOC gro u ps t hrea t ene d by o ut so u rc i ng

Threatened by outsourcing N ot threatened by outsourcing

11 Management 21 Community and social service

13 Business and financial operations 25 Education, training, and library

15 Computer and mathematical 29 Healthcare practitioner and technical

1 7 Architecture and engineering 31 Healthcare support

19 Life, physical, and social science 33 Protective service

23 Legal 35 Food preparation and serving related

2 7 Arts, design, entertainment, sports,and media

3 7 Building and grounds cleaning andmaintenance

41 Sales and related 39 Personal care and service occupations

43 Office and administrative support 45 Farming, fishing, and forestry

4 7 Construction and extraction

49 Installation, maintenance, and repair

51 Production

53 Transportation and material moving

55 Armed forces


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The Es ti ma ti on M o d el

Average effects:

Skill specific effects of outsourcing:

P( 1) ( )d d! ! * F i i i iU RE C

P( 1) ( )d d d! ! * F i i i i i iU R RE E C


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R es u l t s Av erage Effec t s2000 2004

Varia leCoefficient Marginaleffect Coefficient

Marginaleffect

No high school 0.176*** ( 0.049)

0.670 0.121*** ( 0.042)

0.794

Some college - 0.089** ( 0.045)

- 0.272 -0.102*** ( 0.037)

- 0.576

Associate degree - 0.127** ( 0.063)

- 0.366 -0.167*** ( 0.050)

- 0.879

Bachelors degree - 0.271***

( 0.056)

- 0.735 -0.169***

( 0.040)

- 0.920

Graduate/professional degree

- 0.234*** ( 0.085)

- 0.614 -0.235*** ( 0.061)

- 1.175

Occupation is at risk of outsourcing

- 0.079** ( 0.038)

- 0.255 -0.043 ( 0.032)

- 0.257

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 therisk of unemployment from low-skilled to high-skilled workers.Outsourcing has no significant influence on overall involuntaryunemployment.


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R es u l t s Spec i f i c Effec t s, Occ u pa ti ons no t a t R i sk

ar i ableCoe icien Ma ginal

e ec

Coe icien Ma ginal

e ecN o high-school diploma

0.1 76***(0.054 )

0.668 0.100** (0.04 7)

0.642

Some college -0.093 (0.061 )

-0.284 -0.045 (0.048 )

-0.261

Associa e deg ee -0.120 (0.086 )

-0.348 -0.134** (0.064 )

-0. 7 14

Bachelo s deg ee -0.214** (0.088 ) -0.602 -0.308*** (0.069 ) -1.543

G adua e/p o essional deg ee

-0.115 (0.139 )

-0.336 -0.426*** (0.104 )

-1.826

In 2004, the negative relation between the level of education and

the probability of involuntary unemployment holds only for theoccupational categories that are not threatened by outsourcing.


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Concl udi ng R emarks

Currently, belonging in an outsourceable occupational categorydoes not increase the risk of unemployment for an averageU.S. worker.Global outsourcing has not shifted the risk of unemploymentfrom lower-skilled to higher-skilled workers in general .But more highly educated workers in the outsourceableoccupations are currently significantly more likely to beinvoluntarily unemployed than workers with lower education .It remains to be seen whether or not this relation continues tohold and becomes prevalent for the entire economy as the newwave of global outsourcing gets more strength.Further research: the influence of the global human-capitaloutsourcing on w ages in the U.S. across different skills

categories.

GLOBAL OUTSOURCING OF HUMAN CAPITAL AND UNEMPLOYMENT IN THE UNITED

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