Outsourcing/offshoring: Offshoring’s Impact on the Service Sector
In the previous section we examined the impact of service outsourcing on themanufacturing sector. In this section we consider the potential impact of offshoring on the service sector.While work on trade in services is quite recent and hampered by less detailed information than trade in goods, Jensen and Kletzer (2006) provide evidence on the potential impact that trade in services will have. They use the geographic concentration of service activities within the United States to identify industries and occupations that appear traded across regions within the United States and classify these activities as tradable. They find that a significant share of total employment is in tradable service activities: in fact, more employment is in tradable professional and business services than in manufacturing. They also find that workers in tradable service activities are different than workers in nontradable activities, even in the same sector. Workers in tradable services have more education and significantly higher earnings (after controlling for observable differences). They examine recent trends in employment growth and find little evidence that tradable services have lower employment growth than no-tradable services, though they do find some evidence of higher displacement rates in tradable service activities.
These results suggest that the potential scope for tradable services is large enough to have a significant impact on the U.S. economy. It seems likely that increasing trade in serviceswill have a similar effect as the increased trade in goods.Trade in services is likely to increase productivity through a number of channels, including closure of low-productivity service producers, entry into exporting of relatively highproductivity service providers, and expansion of service firms that already export. Similar to manufacturers, service exporters likely have superior operating characteristics and use a different skill mix than nonexporters. We expect increased trade in services will affect the relative demand for skilled and unskilled labor, though it may affect a different portion of the skill distribution than we witnessed in the manufacturing sector in the 1980s and 1990s.