Economic Effects of Offshore

By Larry Dignan  |  Posted 2003-09-05 Print this article Print

Outsourcing"> Offshore outsourcing in technology has been gaining momentum for years, but the movement was largely masked by the prosperity of the late 1990s. It became commonplace as companies prepared their infrastructure for potential Year 2000 problems. During the tech boom, offshore outsourcing was a way to alleviate a shortage of workers in the U.S. Today, offshore is a primary way to cut costs. Now the bandwagon—including the likes of J.P. Morgan Chase, IBM, Electronic Data Systems and a bevy of others—is rolling downhill.

But unlike manufacturings slower move offshore, technology is moving at its usual breakneck speed and the labor market may not have time to adjust. Consultancy Gartner Inc. projects that one out of 10 jobs at U.S.-based information technology product and services companies will move offshore by the end of 2004. For technology workers in corporations, one in 20 jobs will move offshore. Forrester estimates 3.3 million services jobs will go offshore over the next 15 years.

Its possible educated workers can find new careers on the fly, but the more likely scenario is short-term displacement in careers that were coveted just three years ago.

Meanwhile, the economic effects behind moving technology jobs offshore may be larger than when manufacturing moved abroad. These higher-paid jobs contribute more to gross domestic product.

According to research firm, roughly 800,000 back-office jobs, a conservative estimate that includes a bevy of white-collar employees including programmers, will leave the U.S. forever over the next five years. Assuming a worker makes $60,000 a year, thats $50 billion in lost wages and $60 billion in economic activity, assuming those workers buy other goods and services. Total tax loss: $13.4 billion. Thats a big number but a pittance considering the Pentagon says it has spent roughly $4 billion a month to fund military activities in Iraq since January.

Next page: Some in favor of restricting offshore outsourcing.

Business Editor
Larry formerly served as the East Coast news editor and Finance Editor at CNET Prior to that, he was editor of Ziff Davis Inter@ctive Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.

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