Worldwide Sourcing Adds Jobs to U.S. Economy, IT Association Says

Worldwide Sourcing Adds Jobs to U.S. Economy, IT Association Says
August 1, 2004

[Editor's note: Worldwide sourcing of information technology jobs, criticized by some liberals and conservatives alike as a drain on the U.S. economy, was defended as an economy-booster in a June 30 statement by the Information Technology Association of America (ITAA).]


According to the Information Technology Association of America (ITAA), worldwide sourcing of certain jobs is actually a boost for the U.S. economy--and the group provides the data to back up its position.

"Worldwide sourcing of computer software and services increases the number of U.S. jobs [and] improves real wages for American workers by pushing the U.S. economy to perform at a higher level," said the ITAA, summarizing the results of a study it commissioned from Global Insight, a leading economic analysis, forecasting, and financial information company. The study was completed on March 30, 2004.

The Global Insight research team was led by the firm's chief economist, Dr. Nariman Behravesh, who is regularly rated by the financial press as one of the world's most accurate economic forecasters. Nobel Prize-winning economist Dr. Lawrence R. Klein, founder of Wharton Econometric Forecasting Associates (WEFA) Inc., also contributed to the study.

"We have long held the position that global sourcing creates more jobs and higher real wages for American workers," said ITAA President Harris N. Miller. "Now we have the data that prove it. Far from being an economic tsunami that washes away domestic IT employment as some believe, global sourcing helps companies become more productive and competitive."

The study revealed several other important new insights. Between 2000 and 2003, job losses to offshore outsourcing--either domestic jobs eliminated or jobs created overseas instead of in the United States--totaled 104,000, about 35,000 per year. According to the ITAA/Global Insight report, most of those job losses were caused by factors other than worldwide sourcing, such as the overall slowdown in the U.S. and global economies and the bursting of the telecom and dotcom bubbles.



Better Pay, Improved Economy

Among the major findings of the ITAA/Global Insight study are the following:

  • Worldwide sourcing of information technology (IT) services and software increases total employment in the United States, generating an additional 90,000 U.S. jobs in 2003. By 2008, net new jobs will total 317,000.
  • In the software and services area, the U.S. economy will create 516,000 jobs over the next five years in an environment with global sourcing, but only 490,000 without it. Of the 516,000 new jobs, 272,000 will go offshore and 244,000 will remain onshore. Thus, the U.S. IT workforce will continue to grow.
  • Global sourcing adds to the take-home pay of average U.S. workers. With inflation kept low and productivity high, worldwide sourcing will increase real wages in the U.S. by 0.13 percent in 2003, climbing to 0.44 percent in 2008.
  • The cost savings and use of offshore resources lower inflation, increase productivity, and lower interest rates. These boost spending and increase economic activity.
  • Worldwide sourcing contributes significantly to real U.S. Gross Domestic Product (GDP), adding $33.6 billion in 2003. By 2008, real U.S. GDP will be $124.2 billion higher than it would be in an environment in which offshore IT software and services outsourcing did not occur.
  • Spending for global sourcing of computer software and services will grow at a compound annual rate of almost 26 percent, from approximately $10 billion in 2003 to $31 billion in 2008. Total spending on software and services will also continue to increase in the United States. During that period, total cost savings from worldwide sourcing of computer software and services will grow from $6.7 billion to $20.9 billion, much of which will be reinvested in the United States.
  • Demand for U.S. exports increases in response to global sourcing. Countries can buy more because they can sell more; the United States, in turn, has more to sell because of increased investment in new products and services, better productivity, and lower inflation. Global sourcing contributed $2.3 billion to U.S. exports in 2003 and will contribute $9 billion by 2008.

"The savings produced through worldwide sourcing are invested in new products and services, in new market expansion, and, most importantly, in creating new jobs and increasing real wages for American workers," summarized ITAA's Miller. "This research replaces fear with sound economic analysis, allowing for an informed approach to the global marketplace."



Need to Help Displaced Workers, Expand Free Trade

Although worldwide sourcing is expected to increase jobs and wages, Miller said much needs to be done to help workers displaced by this economic shift. The report offered a range of recommendations, including the following:

  • Make information technology and other service-sector workers eligible for government assistance when their jobs are displaced by foreign operations.
  • Consider offering assistance to service workers similar to that offered to manufacturing workers, in a variety of forms including skills training (and compensation during the training period), job search and relocation allowances, and, in appropriate circumstances, transportation, child care, and health care assistance.
  • Continue full and fair enforcement of U.S. trade laws as a high priority. The U.S. government should consider moving against countries that are defying international agreements by using tariff or non-tariff barriers to harm global trade, including trade in services and government procurement. The U.S. should encourage other countries to remove barriers to U.S. exports and open services markets to foreign competition.

"The benefits of free trade clearly provide a boost to the U.S. economy," said Behravesh. "Using offshore resources reduces costs, dampens inflation, lowers interest rates, increases spending, and creates additional jobs. The challenge is to help displaced workers transition to other productive activities."


Bob Cohen is senior vice president, communications, for the Information Technology Association of America. His email address is bcohen@itaa.org.


For more information ...

The executive summary of the ITAA/Global Insight study, "The Comprehensive Impact of Offshore IT and Software Services Outsourcing on the U.S. Economy and the IT Industry," is available on the organization's Web site at http://www.itaa.org.