Offshoring study misses important issues

03/31/04

WASHINGTON (31 March 2004) An offshoring study touting benefits to the United States on outsourcing high-wage jobs to lower-cost countries fails to address a number of important issues, according to IEEE-USA.

The Information Technology Association of America (ITAA) sponsored the study, "The Impact of Offshore IT Software and Services Outsourcing on the U.S. Economy and the IT Industry," and Global Insight (USA) prepared it. Relying on econometric models, the report's executive summary predicts that the savings and other benefits realized through offshoring IT software and service jobs will result in the net creation of 317,387 new jobs in the United States by 2008.

"Industry-sponsored reports such as this tend to confirm what we already know that offshoring helps the corporate bottom line," IEEE-USA President John Steadman said. "But they invariably fail to address the implications of offshoring on the long-term technological competitiveness and security of the United States."

"There is little doubt that U.S. companies are reaping short-term benefits from offshoring," added Ron Hira, chair of IEEE-USA's Career & Workforce Policy Committee. "It's not as clear, however, whether the U.S. economy especially at a time of little or no job creation benefits from it. Positive net benefits depend on re-employing displaced workers in equal or better jobs, which is not occurring right now, despite economists' predictions."

The unemployment rate for U.S. computer scientists and systems analysts reached an all-time high of 5.2 percent in 2003. The joblessness rate for electrical and electronics engineers rose by 47.6 percent in 2003 to a record 6.2 percent, compared to 4.2 percent in 2002.

The study's conclusions are based on two significant assumptions that bear close scrutiny. First, it assumes the U.S. economy will benefit through reinvestment of the savings realized by U.S. corporations that offshore their software and IT services. This assumption ignores the likelihood that many companies will invest those savings into their own overseas operations, or divert such savings into windfalls that benefit only corporate executives and stockholders. It is reasonable to believe that a significant percentage of those savings will flow to other countries, and that many of the new jobs will be created overseas.

The study also assumes that the new jobs are essentially equal to those being destroyed, and that replacing offshored, high-tech jobs with other support and service jobs will not impact U.S. ability to maintain a technological edge in an increasingly competitive global economy.

Source: Eurekalert & others

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