US gains more than India from service outsourcing

Guess who is gaining from outsourcing of services? Er, the US itself — not just as a spender but also an earner, because a lot of exports made from the United States and consumed elsewhere contain services whose gains for the US outweigh services sent to India and China, says a new study.

The tellingly titled research paper, “Much Ado About Nothing: American jobs and the rise of service outsourcing to China and India,” was published this month by Massachusetts-based National Bureau of Economic Research.

The chairman of the National Association of Software and Service Companies (Nasscom), Ganesh Natarajan, said it was a vindication of globalisation and went against some outcry in Western markets against service jobs to India, adding US also gained in competitiveness and technology sales.

Examining "offshore outsourcing" Runjuan Liu and Daniel Trefler, substantiate their arguments with a complex set of variables that takes into account flow of services both to and from the US.

A key aspect is that they also consider "inshoring" – a reference to the sale of services produced in the United States to unaffiliated buyers in China and India. The authors call this "the flip side of offshore outsourcing, namely, the sale of services produced in the US to unaffiliated parties in low-wage countries."

“The net impact of globalisation in terms of actual job losses (in the West) in the technology sector has not been significant and the benefits accruing to the economy in the form of sale of high technology products and the overall competitiveness of firms in the outsourcing country have always compensated for any adverse economic impact of offshore outsourcing,” said Nasscom chairman Ganesh Natarajan. “This study…makes the case for the process of globalisation to continue."

The authors refer to services like legal work, research and development, advertising, management consulting and engineering which are consumed by customers in India and China — though not necessarily in a directly paid-for way.

"We precisely estimate small positive effects of inshoring and smaller negative effects of offshore outsourcing. The net effect is positive," say the researchers, who used mathematical modeling and data from 1996 to 2006 to arrive at their conclusions.

The researchers took into account factors like earnings, unemployed hours and switching between various industries to get the total picture.

The study says that the losers in the US in the outsourcing-affected industries are "less educated."