1 OFF-SHORING: AN ELUSIVE PHENOMENON WORLD CONGRESS ON NATIONAL ACCOUNTS AND ECONOMIC PERFORMANCE MAY 16, 2008

2 OFF-SHORING: AN ELUSIVE PHENOMENON Study Origins  SUBSTANTIVE CONCERNS  SLOW EMPLOYMENT RECOVERY FROM 2001 RECESSION  MOUNTING TRADE DEFICIT  TECHNOLOGICAL CHANGES RESTRUCTURING WORK PROCESSES  NUMEROUS ANECDOTES ABOUT HIGH TECHNOLOGY JOBS SHIFTING OVERSEAS

3 OFF-SHORING: AN ELUSIVE PHENOMENON Study Reports Three major reports, summary report, and a technical supplement on Academy web-site – – and BEA web-site Three major reports, summary report, and a technical supplement on Academy web-site – – and BEA web-site –Off-shoring: An Elusive Phenomenon - Jan 2006 –Off-shoring: How Big Is It? – Oct 2006 –Off-shoring: What Are Its Effects? – Jan 2007 –Technical Supplemental to Off-shoring: How Big Is It? Assessing the Employment Effects of Services Off- shoring Using Linked Micro-data – Feb 2007 –Off-shoring: New Challenges and Opportunities in an Expanding Global Economy Summary

4 OFF-SHORING: AN ELUSIVE PHENOMENON FIVE FUNDAMENTAL QUESTIONS  How should off-shoring be defined?  What do available data indicate about the extent of off- shoring?  What additional data are needed to better assess off- shoring?  Why does off-shoring occur?  What are the impacts on workers, the economy, and the educational system?

5 OFF-SHORING: AN ELUSIVE PHENOMENON FIRST REPORT FINDINGS  Improve understanding by focusing on three basic terms: Outsourcing, Off-shoring, and Off-shore outsourcing  Define Off-shoring broadly:  U.S. firms shifting service and manufacturing activities abroad to unaffiliated firms or their own affiliates  Previous estimates too varied to determine extent and impact of services off-shoring  Distributional effects important  Additional research using micro-level employment and trade data needed  Focus on selected four digit NAICS industries, primarily services  Architectural, engineering and related services (5413)  Computer system design services (5415)  Business support services (5614)  Pharmaceuticals (3254)

6 OFF-SHORING: AN ELUSIVE PHENOMENON Off-shoring vs Outsourcing DomesticOff-shore Domestic In-house (Company produces its products domestically without outside contracts) Off-shore In-house (Company uses services supplied by its own foreign-based affiliate) Domestic Outsourcing (Company uses services supplied by another company based domestically) Off-shore Outsourcing (Company uses services supplied by another unaffiliated foreign- based company) Outsourced In-house

7 OFF-SHORING: AN ELUSIVE PHENOMENON RESEARCH CONCEPTS  Two different types of off-shoring  Firms restructuring production processes: ”business restructuring off-shoring”  Multi-national corporations (MNCs) shifting production to their foreign affiliates: “global expansion off- shoring”  Multiple data sets needed to assess extent and impact of services off-shoring  Key objectives – test adequacy of currently available data while developing estimates of extent and impact of services off-shoring

8 OFF-SHORING: AN ELUSIVE PHENOMENON RESEARCH APPROACHES  Estimating services off-shoring from business restructuring  Off-shoring intensity = imports of intermediate services/ total inputs  Outsourcing intensity = purchased intermediate services/total inputs  Dual track using industry and micro-level data  Estimating services off-shoring from global expansion  MNCs parent sales < affiliate sales

9 OFF-SHORING: AN ELUSIVE PHENOMENON SECOND REPORT FINDINGS  Services Off-shoring due to business restructuring quite small during period at both firm and industry level  Services and total outsourcing substantially exceeded services off-shoring at both firm and industry level  Extent of services outsourcing and off-shoring varies substantially among MNCs and selected industries during period  Services off-shoring due to global expansion more prevalent among MNC parents examined during period  Data limitations impede complete assessment of extent and impact of services off-shoring

10 OFF-SHORING: AN ELUSIVE PHENOMENON INDUSTRY INPUT-OUTPUT ANALYSIS

11 OFF-SHORING: AN ELUSIVE PHENOMENON INDUSTRY INPUT-OUTPUT ANALYSIS

12 OFF-SHORING: AN ELUSIVE PHENOMENON AVERAGE MNC OFF-SHORING AND OUTSOURCING,

13 OFF-SHORING: AN ELUSIVE PHENOMENON

14 OFF-SHORING: AN ELUSIVE PHENOMENON MNCs WITH FASTER AFFILIATE SALES GROWTH

15 OFF-SHORING: AN ELUSIVE PHENOMENON SERVICES OFF-SHORING EMPLOYMENT EFFECTS  Estimate employment effects by analyzing linked BEA/BLS data  Examine changes in net employment, job turbulence, and occupational mix  Changes in occupational mix from services off-shoring a key distributional issue  Critical data issues impede analyses  Ability to link BEA firm data with BLS establishment data  Consistent NAICS data available for limited time period  Lack of longitudinal occupational (OES) data  Key data recommendations focus on 1 st and 3 rd limitations

16 OFF-SHORING: AN ELUSIVE PHENOMENON NEXT STEPS  Address data limitations now while services off-shoring remains small  More consistent and detailed data on services imports – BEA initiatives to address this  Access to a consistent set of identifiers for various organizational entities within consolidated US business structures  Longitudinal occupational data (revise OES?)  Need better conceptual measures for global expansion off-shoring?  Additional analyses of extent and impact of services off- shoring, particularly global expansion off-shoring