Industry study says offshoring boosts jobs

WASHINGTON, March 30 (UPI) -- Offshore outsourcing of IT services and software will end up creating twice as many U.S. jobs as it destroys in a range of industries by 2008, and has already created 90,000 as of last year, according to an industry-sponsored survey released Tuesday. But, displaced workers must be helped in the interim, the study said.

"The benefits of free trade clearly provide a boost to the U.S. economy," said Nariman Behravesh, chief economist at Global Insight, the consulting firm that conducted the study. The study was commissioned by the Information Technology Association of America (ITAA).

"Using offshore resources reduces costs, dampens inflation, lowers interest rates, increases spending and creates additional jobs. The challenge is to help displaced workers transition to other productive activities," he said.

The net effect of IT outsourcing includes lots of good things besides more jobs, the study indicated: higher wages, increased exports, lower prices and more. States expected to see the biggest job increases are the largest states due to their size, such as California, Texas, Florida, New York, Illinois, Ohio, Pennsylvania and Michigan. But other states are expected to lead in terms of the expected growth in the number of net new jobs, such as Kansas, Nevada, Washington, North Carolina, Arizona, Colorado, Iowa, South Carolina, and Georgia.

But while many industries will see more hiring, the number of IT jobs in publishing, communications and software will shrink, the study said. Nearly 25,000 of these jobs have already been lost as of 2003, and that number will double by 2008, according to the study.

In fact, U.S. Bureau of Labor statistics indicate that job growth during this recession recovery is nearly flat, nowhere near what it has been during the last six recoveries, indicated Thomas Siems, senior economist and policy advisor at the Federal Reserve Bank of Dallas, during a recent Washington conference of the National Association for Business Economics.

Spending for offshore outsourcing of computer software and services is increasing at a fast and furious pace. It's expected to grow at a compound annual rate of almost 26 percent, increasing from approximately $10 billion in 2003 to $31 billion in 2008 -- a jump from 2.3 percent to 6.2 percent of all IT spending by U.S. corporations.

And during the same time period, total savings in production costs from offshore outsourcing are estimated to rise from $6.7 billion to $20.9 billion.

The study suggests that the resulting cost savings for U.S. companies will help maintain low inflation, raise productivity, and lower interest rates, jog the economy, and increase employment -- which the study said will create 317,000 U.S. jobs by 2008, and not just in IT. Education, health care, transportation, utilities, construction, financial services and manufacturing will see job gains, the study said.

Wages got a boost of 0.13 percent in 2003 as a net effect of outsourcing, the study said, and are expected to be 0.44 higher in 2008. Prices meanwhile dropped 0.6 percent by 2003 after a decade of offshoring IT jobs, and is expected to decrease another 2.3 percent by 2008.

Demand for U.S. exports is also expected to increase due to relatively lower prices of U.S.-produced goods and services and higher incomes in foreign outsourcing destinations. Exports went up by $2.3 billion in 2003 due to this and are expected to rise $9 billion more by 2008, the study said.

As of the beginning of 2003, 104,000 IT jobs were displaced because of outsourcing, the study said, but also points out that 372,000 IT jobs were lost after the dot-com crash in 2000, and more than 268,000 IT jobs disappeared for other reasons including the recent recession and technological advances.

Nevertheless, skilled white-collar work is the "newest U.S. trade commodity," said Siems. While it would be "unwise to enact protectionist legislation or regulations" to curb IT offshoring, government and industries should respond to the needs of IT workers, including giving them the same government assistance that manufacturing workers get when their jobs are offshored, the study said.

In fact, in January, a group of laid-off programmers with the same idea sued the U.S. government to make them and other white-collar workers eligible for assistance under the Trade Adjustment Assistance Reform Act of 2002.

And while it's definitely a good thing that there will be a lot more jobs by 2008, that's an eternity for someone who is out of work with no chance of finding another job in their field.

At the recent conference of the National Association for Business Economics, economists proposed several remedies for laid-off workers, including retraining, wage insurance, severance packages that include health insurance, and incentives that encourage research and development and other tactics to keep American companies innovative and competitive.