Service Offshoring

How are U.S. white collar workers impacted by the rise of service offshoring to China and India?

Alberta School of Business researcher finds:

  • U.S. service offshoring is now almost as large in value added as merchandise imports.
  • This rise of service offshoring to China and India has, for the first time ever, exposed educated U.S. workers to competition from educated but low-paid foreign workers.
  • Some U.S. white collar workers switch up to a higher-paid occupation, switch down to a lower-paid occupation, or transit into unemployment in response to rising service offshoring.
  • The average earnings across all white collar workers fell slightly, however, for the workers who switched down or became unemployed, earnings fell significantly.

Research Abstract:

We study how the rise of unaffiliated trade in services with China and India has impacted U.S. labour markets. The topic has two understudied aspects: it deals with service trade (most studies deal with manufacturing trade) and it examines the historical first of U.S. workers competing with educated but low-wage foreign workers. Our empirical agenda is made complicated by the endogeneity of service imports and the endogenous sorting of workers across occupations. To develop an estimation framework that deals with these, we imbed a partial equilibrium model of 'trade in tasks' within a general equilibrium model of occupational choice. The model highlights the need to estimate labour market outcomes using changes in the outcomes of individual workers and, in particular, to distinguish workers who switch 'up' from those who switch 'down'. (Switching 'down' means switching to an occupation that pays less on average than the current occupation). We apply these insights to matched CPS data for 1996-2007. The cumulative 10-year impact of rising service imports from China and India has been as follows. (1) Downward occupational switching increased by 7 percentage points, from 21% to 28%, and upward occupational switching increased by 6 percentage points, from 17% to 23%. (2) Transitions to unemployment were imprecisely measured to have increased by half a percentage point, potentially raising the white-collar unemployment rate from 3.0% to 3.5%. (3) The earnings average across all white collar workers fell by a small 1%. However, for the sub-population of workers who switched down or became unemployed, earnings fell by 15% and 47%, respectively. (4) Service exports had partially offsetting effects on switching and unemployment.

The article, "A Sorted Tale of Globalization: White Collar Jobs and the Rise of Service Offshoring" is co-authored by Runjuan Liu and is published in the Journal of International Economics.

Runjuan Liu Runjuan Liu studies the interaction between international trade, economic development, and labor market outcomes, with a focus on understanding the critical impacts of globalization on firms and workers. She received her PhD in Economics from the University of Toronto, her MA in Economics from Peking University and her BA from Nankai University. She is currently a Professor in the Marketing, Business Economics and Law department at the Alberta School of Business.