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Wednesday, March 22, 2006

What Jobs are Safe from Offshoring?

A commentary by Harold Meyerson in the Washington Post Online asks Will Your Job Survive? and discusses the article Offshoring: The Next Industrial Revolution? by Alan Blinder in the March/April issue of Foreign Affairs. The paper looks at the types of jobs that are vulnerable to offshoring and forecasts how offshoring will affect the U.S. labor market in the future. A free draft version on the paper notes:

So let us take a fresh look at some rough numbers and try to peer into the future, albeit through the usual befogged glasses, starting with the easy cases.

• At the end of 2004, there were 14.3 million manufacturing jobs in the United States. The vast majority of these workers produce items that can be put in a box, and so virtually all of their jobs are potentially movable offshore. (...this is not to say that all of them will be offshored.)...
• About 7.6 million Americans worked in the other goods-producing sectors: construction and mining. Even though these people produce goods, not services, their jobs are not in danger of moving offshore. You can’t hammer a nail over the Internet, at least not yet.
• At year end 2004, there were 22.0 million local, state, and federal government jobs—hardly any of which are candidates for offshoring even though many of them provide just the sort of impersonal services that need not be delivered face to face. (When is the last time you saw an employee of the IRS?) In this case, I believe, politics will prevent the offshoring...
• Retail trade employed 15.6 million Americans at the end of 2004. At present, the vast majority of these service jobs are largely or partly delivered in person, or at least require physical presence (e.g., stocking the shelves). That said, Internet retailing is steadily increasing... Hence, more retail jobs will be at risk of offshoring in the future.

Those are the easy cases. But the classification so far leaves out the majority of private service jobs—some 73.6 million at the end of 2004, including my job (college teaching) and probably yours. Here’s how this extremely heterogeneous group breaks down:

Educational and health services 17.3 million
Professional and business services 16.7 million
Leisure and hospitality services 12.3 million
Financial services 8.1 million
Wholesale trade 5.7 million
Transportation 4.3 million
Information services 3.2 million
Utilities 0.6 million
Other services 5.4 million

It is hard to map such broad job categories into personal versus impersonal services, even under today’s (known) technology. And it is nearly impossible to know what possibilities for long distance electronic delivery the future will bring. But here is my rough stab, reading from top to bottom.

• The health sector is presently about five times as large as the educational sector, and the vast majority of those jobs seem destined to be delivered in person for a very long time (if not forever). But there are exceptions. I have already mentioned ... radiologists. More generally, laboratory tests of all kinds are already outsourced by most physicians. Why not out of the country rather than just out of town? And with a little imagination, we can envision other medical procedures being performed by doctors who are thousands of miles away...
• Educational services are also best delivered face to face; but they are becoming increasingly expensive. My guess is that electronic delivery will never replace personal contact in K-12 education, which is where the vast majority of the educational jobs are. ... But college teaching is more vulnerable. As college tuition grows ever more expensive, cheap electronic delivery will start looking more and more sensible...
• Professional and business services comprise an incredibly heterogeneous lot ... ranging from CEOs and architects to typists and janitors. That said, when you scan the list of detailed sub-categories, it is hard to resist the conclusion that lots of these jobs are at least potentially offshorable...
• The leisure and hospitality industries seem much safer. If you vacation in Florida, you do not want the beach boy or the maid to be in China. On the other hand, reservation clerks can be (and are) located anywhere. On balance, only a few of these jobs can be moved offshore.
• Financial services, a sector that includes many highly-paid jobs, is another area where the future may look very different... To me, it is one big question mark. Today, the United States probably “onshores” more financial jobs (by selling financial services to foreigners) than it offshores. Probably, that will remain true for years. But improvements in telecommunications and rising educational levels in countries like China and, especially, India ... may change the status quo dramatically.
• Wholesale trade seems much like retail trade, albeit with a bit less personal contact, and thus with somewhat greater potential for offshoring. The same holds true for utilities.
• Information services ... comprise the quintessential types of jobs that can be delivered electronically... The majority of these jobs are at risk.
• The phrase “other services” is not very informative. But when you look down the detailed list (e.g., repair and maintenance, laundry, etc.), most of this hodge-podge of services seem to require personal delivery.

The overall picture defies generalization; draw your own conclusions. My own very rough guess, based on the preceding numbers, is that the number of current U.S. service sector jobs that will be susceptible to offshoring in the electronic future is two to three times the total number of manufacturing jobs. That said, large swaths of American employment look to be immune. However, none of us knows what the future will bring. Technology is constantly surprising us... Leaving aside the details and the nuances, the basic argument of this essay is easy to summarize:

• Thanks to electronic communications and globalization, the future is likely to see much more offshoring of jobs in ... impersonal services, that is, services that can be delivered electronically over long distance with little or no degradation of quality.
• Despite all the political sound and fury, little of this service-sector offshoring has happened to date. But it may eventually amount to a Third Industrial Revolution. And industrial revolutions have a way of transforming societies.
• Rich countries will need to shift their work forces away from impersonal services and manufacturing and toward personal services. Unfortunately, Baumol’s disease ... implies that the relative prices of personal services are destined to rise inexorably, so that the relative size of this sector may shrink over time.
• That said, the “threat” from offshoring should not be exaggerated. Just as the First Industrial Revolution did not banish agriculture from the rich countries, and the Second Industrial Revolution has not banished manufacturing, the Third Industrial Revolution will not drive all impersonal services off shore. Nor will it lead to mass unemployment. But the necessary adjustments will be large, complex, multifaceted, and difficult.
• The societies of the rich countries seem to be completely unprepared for the coming industrial transformation. Our national data systems, our trade policies, our educational systems, our social welfare programs, our politics, and much more, all must adapt to the fundamental movement from impersonal to personal service jobs. None of this is happening now.
• Protectionism is not the answer. It will at best slow, not stem, the tide. And it will cause much collateral damage in the process.
• Perhaps the most acute need, given the long lead times, is to figure out how to educate our children now for the jobs that will actually be available to them ten and twenty years from now. Unfortunately, the distinction between personal service jobs (which are more likely to remain in the rich countries) and impersonal service jobs (which are more likely to go) does not correspond to traditional distinctions between high-skilled and low-skilled work. So simply providing more education is not the answer.
• The more flexible and fluid United States will probably cope with these problems better than Europe and Japan will.

    Posted by on Wednesday, March 22, 2006 at 01:29 AM in Economics, International Trade, Unemployment | Permalink  TrackBack (1)  Comments (82)


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    » Blinder on offshoring from New Economist

    Mark Thoma brings to our attention a new Foreign Affairs piece by Alan Blinder from Princeton: Offshoring: The Next Industrial Revolution. It's only available to subscribers, but here's the summary:Economists who insist that offshore outsourcing is jus... [Read More]

    Tracked on Thursday, March 23, 2006 at 01:31 PM


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