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Outsourcing creates jobs, study says
Industry report says offshore outsourcing will boost economic growth, lower inflation, create jobs.
March 30, 2004: 3:53 PM EST

NEW YORK (CNN/Money) - The outsourcing of prized information technology jobs overseas has created tens of thousands of new jobs in the United States, according to a recent study commissioned by the information technology industry.

Global Insight, a private consulting firm hired by the Information Technology Association of America, an industry lobbying firm, said that, while outsourcing does result in some short-term U.S. unemployment, its long-term benefits outweigh its costs.

"The cost savings and use of offshore resources lower inflation, increase productivity and lower interest rates," Global Insight said in a statement. "This boosts business and consumer spending and increases economic activity."

According to this study, these benefits "ripple" through the economy, leading to about 90,000 net new jobs through the end of 2003. This effect, the study said, should produce a total of 317,000 net new jobs through 2008.

The study also said outsourcing added some $33.6 billion to U.S. gross domestic product (GDP) in 2003 and could add a total of $124.2 billion through 2008.

And outsourcing lifts the wages of U.S. workers, according to the study, though minimally -- real wages were 0.13 percent higher in 2003 because of outsourcing and could be 0.44 percent higher by 2008.

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Global Insight estimated that U.S. firms will spend about $31 billion in offshore IT services in 2008, compared with about $10 billion in 2003, mainly due to expected cost savings, which could reach $21 billion in 2008.

The study acknowledged the impact of outsourcing on U.S. IT workers, but warned against what it called protectionist measures that would restrict the flow of jobs overseas. Instead, it recommended offering displaced workers government assistance and new training.

It did not address the potential costs to businesses of offshore outsourcing, highlighted by a recent study by a human resources consulting firm, Hewitt Associates (HEW: Research, Estimates), including the costs of shutting down U.S. operations, communicating with overseas workers and managing supply chains.

The Global Insight report comes amid much controversy about the practice of "offshoring," which has helped at least a little to keep the U.S. job market anemic in recent months. Democratic presidential candidates, including likely nominee Sen. John Kerry of Massachusetts, have accused the Bush administration of doing too little to stop jobs from moving overseas.

Critics of outsourcing dismissed the report.

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"I'm dubious that the boost in corporate profitability from outsourcing has contributed much to creating new jobs," Lee Price, research director at the Economic Policy Institute, a liberal think tank in Washington, told the Wall Street Journal on Tuesday.

Treasury Secretary John Snow, on the other hand, echoed the report's findings late Monday, according to an Associated Press report.

"It's one aspect of trade," Snow reportedly told reporters in Cincinnati, "and there can't be any doubt about the fact that trade makes the economy stronger."

While there have been relatively few studies putting hard numbers on the impact, either positive or negative, of outsourcing, many economists agree that free trade, including the trade of IT and other services, benefits the economy generally, and they doubt it's had a major impact on the labor market.

"Quantitatively, outsourcing abroad simply cannot account for much of the recent weakness in the U.S. labor market and does not appear likely to be an important restraint to further recovery in employment," Fed Governor Ben Bernanke said in a speech Tuesday at Duke University's Fuqua School of Business.

But Bernanke added that the effects of outsourcing should not be ignored, saying job losses cause "significant hardships for affected workers." He agreed that jobless benefits and worker training were helpful, adding that policy makers should also try to get the economy growing faster and find ways to ease the sting of health-care costs.

"To say that the U.S. economy benefits from trade is not to say that every individual American worker or family benefits, or that the structural changes induced by trade are not disruptive," Bernanke said.  Top of page

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