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Wednesday, March 29, 2006

Increased U.S. Productivity from the Outsourcing of Services

Just when you thought it was safe to go back into the workplace and exploit your "skill premium" in the service sector, we learn:

Service Offshoring Raises U.S. Productivity, by Mathew Davis, NBER Reporter: ...In "Service Offshoring and Productivity: Evidence from the United States" (NBER Working Paper No. 11926), co-authors Mary Amiti and Shang-Jin Wei note that service outsourcing is doing more than fueling an economic boom in ... India. It is also playing a major role in ... the surging productivity of American manufacturing firms. They find that American firms are getting bigger boosts in productivity from outsourcing services to overseas providers than from the more familiar practice of turning to foreign concerns for manufacturing materials, such as parts and packaging.

Amiti and Shang-Jin find that from 1992 to 2000, "service offshoring" accounted for around 11 percent of the productivity growth in U.S. manufacturing industries compared to the 3 to 6 percent gain attributable to imported material inputs." Their analysis is the first comprehensive study to find a link between service offshoring and productivity. ... [T]hey observe "Although the level of service offshoring is still low compared to material offshoring, this business practice is expected to grow as new technologies make it possible to access cheaper foreign labor and different skills." ...

Amiti and Shang-Jin note that additional research is needed to understand more precisely how buying services from foreign providers boosts domestic productivity. They also are interested in how the rise in service offshoring might affect U.S. incomes. Economists have long linked the rise of material outsourcing to the fact that for the last twenty years, wages for skilled workers have been increasing faster than wages for unskilled workers, a gap often referred to as the "skill premium." The authors observe that "service offshoring is likely to be more skill intensive than material offshoring" so, "it will be interesting to see what effects, if any, service offshoring has on the wage skill premium.

    Posted by on Wednesday, March 29, 2006 at 05:21 PM in Academic Papers, Economics, Technology, Unemployment | Permalink  TrackBack (0)  Comments (16)

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