Don’t believe all that you think
posted by Glen Stidolph in Outsourcing |
I’ve been banging on recently about the fact that the outsourcing of services jobs to offshore economies has attracted a lot of adverse media attention, however despite the interest this media coverage has generated in an industrialized country such as Australia, there are no official statistics that specifically measure this phenomenon.
OECD research has identified trade and employment statistics which can be used as a proxy for the impact of offshore outsourcing in developed economies such as Australia and concluded that these alarmist articles about massive job losses through outsourcing to overseas companies do not seem to be substantiated by an analysis of the data.
Whilst there has been some decline in employment in some occupations, other occupations have seen substantial increases. OECD research was unable to ascertain if the declines in employment in some occupations were due to offshore outsourcing or other factors.
OECD concluded that the Australian trade data would suggest that Australia is a major beneficiary of the offshore outsourcing activities of other countries.
Parliamentary Library RESEARCH PAPER
Information, analysis and advice for the Parliament
www.aph.gov.au/library
2 August 2007, no. 3, 2007–08, ISSN 1834-9854
The statistical evidence for offshore outsourcing and its impact on the
Australian labour force
Introduction
In the 1970s and 1980s the reduction of trade barriers and developments in transport exposed
Manufacturing jobs to international competition. Now developments in information and
Communications technology (ICT) are exposing service based jobs to the same competitive forces. This has created a great deal of concern about the loss of service based jobs to overseas markets. Reports now regularly appear in newspapers and journals about this issue.
A survey of the Parliamentary Library’s database of newspaper articles1 revealed 264 articles on this subject in Australia’s major newspapers in 2006. This issue was also the focus of a Parliamentary Library research brief in 2005, which examined the issues involved and the pros and cons ofoffshoring.2
1. Parlinfo.
2. Dr Richard Grant, ‘Offshoring jobs: US and Australian perspectives’, Research Brief, Parliamentary
Library, no. 12, 2004–05.
The statistical evidence for offshore outsourcing and its impact on the Australian labour force 2
However, despite the media interest in this topic it is very difficult to quantify this phenomenon. This is because there are no official statistics that directly measure if there is a loss of jobs to offshoring. Most of the information in the press relies upon the offshoring activities of specific high profile companies, such as Qantas or the major banks.
The Finance Sector Union (FSU) has attempted to measure the situation and claims that about five thousand jobs have been outsourced overseas by well known Australian companies in the last two years.3 It also made claims that up to twenty per cent of Australian jobs could eventually be affected.
The Organisation for Economic Development and Cooperation (OECD) has also attempted to
quantify the issues relating to offshoring for a selected group of economies including Australia. Some of the claims in the FSU report were sourced from the findings in the OECD report.
The OECD report
The OECD released its report on the potential impact of offshoring in 2005.4 In this report the OECD used official statistics on trade and employment to examine the impact of offshoring on the labour markets of these economies. The following will examine the Australian trends using the statistics highlighted by the OECD report.
Trade
An economy’s trade statistics can provide information about the international competitiveness and demand for an economy’s goods and services. Trade surpluses in individual goods and services indicate areas of comparative advantage. Those areas experiencing strong and or growing surpluses may also indicate growing levels of employment in the relevant occupations. Trade deficits may indicate job losses.
(a) a negative sign equals a trade deficit
3. Off-shoring a joint policy paper by the Finance Sector Union of Australia, Australian Services Union,
Communications, Electrical and Plumbing Union (Communications Division) and the Community and
Public Sector Union, June 2006.
4. Desiree van Welsum and Xavier Reif, Potential offshoring: evidence from selected OECD countries,
OECD, July 2005. The countries looked at were Canada, USA and the EU15 excluding Greece, Ireland,
Luxembourg, and Portugal.
The statistical evidence for offshore outsourcing and its impact on the Australian labour force
3
Source: International Trade in Goods and Services, ABS catalogue No.5368.0.
In order to ascertain the impact of offshoring on employment in service based occupations the OECD examined the trade data in ICT-enabled services. Specifically this related to trade in ‘computers and information services’ and ‘other business services’.
In recent years Australia has experienced strong growth in exports in these two categories. In the period 2000–01 to 2005–06 exports for these two categories have grown at an annual average rate of 6.5 per cent, which is twice the rate of total services exports. The OECD analysis found that exports appeared to have a positive impact on employment growth in offshore exposed occupations.
(a) By Australian Standard Classification of Occupations.
Source: Desiree van Welsum and Xavier Rief, Potential Offshoring: Evidence From Selected OECD
countries, OECD, July 2005.
This strong growth in business services exports has resulted in an increase in the surplus for
‘computer and information services’ and turned a deficit into a billion dollar surplus for ‘other
business services’ (Table 1). This is at a time when Australia has experienced record trade deficits in aggregate goods and services. All things being equal, this strong growth should have led to an
increase in employment in these industries in Australia. When the labour force data are examined, see below, there has been a dramatic increase in a number of occupations exposed to offshoring activities.
The statistical evidence for offshore outsourcing and its impact on the Australian labour force 4
Labour force
The OECD identified certain occupational characteristics that provided offshore outsourcing
opportunities in the modern ICT-based economy. These were:
• Intensive use of ICTs
• An output that can be traded/transmitted/enabled by ICTs
• Highly codifiable5 knowledge content, and
• No face- to-face contact requirements.
Using these criteria the OECD identified those occupations (shown in Table 2) that could be potentially outsourced.
From the data in Table 3 it can be seen that about 19 per cent of employed Australians are in
occupations that could be potentially affected by offshoring. Since 2001, growth in employment has varied significantly across these occupations. Some have seen a large increase in employment, whilst a few have experienced decreasing employment. At the aggregate level net jobs growth for these occupations has been positive.
Analysing the data
The OECD tested the data for any links between employment growth and offshoring for Australia an other leading OECD economies for the period 1995 to 2003. It examined the impact of offshore outsourcing on employment as a function of:
• Trade
• Investment
• The industrial structure of the economy
• Technological adoption/integration, product market regulations
• Employment protection, and
• Human capital.
The OECD’s analysis found there was no clear evidence that:
… increasing imports of other business and computer and information services are associated with a reduction in the share of employment potentially affected by offshoring at the aggregate level.6
The OECD report concludes that:
… in the OECD countries analyzed, ICT enabled services, offshoring (as proxied by trade
and investment) has not yet led to a relative decline in the occupational share of location
independent ICT-using occupations.7
5. Technical knowledge is very procedural or regulated by standards, for example accounting.
6. ibid.
7. ibid.
Table 3: Employment in occupations potentially affected by offshoring — Persons
Table 1: Services trade balance (a) $m
Year to June 30 Total services Computer and information services Other business services
Table 3: Employment in occupations potentially affected by offshoring — Persons
Source: Labour Force Statistics Australia, Detailed Quarterl y, ABS, catalogue No. 6291.0.55.003.
From the data presented in Table 3 it can be seen that employment growth in those occupations
potentially affected by offshoring has been mixed. Overall employment has grown more slowly in this category than for total employment. However, many of the individual occupations have seen growth rates well above the rate for total employment. Some of those occupations, such as keyboard operators, switchboard operators and desktop publishers that have experienced declines in employment are located in areas affected by technological change.
The OECD concluded that it was not possible to say whether offshoring or technological changes are responsible for this trend. Interestingly, an occupation often associated with the use of overseas workers — telemarketer — has enjoyed strong employment growth in Australia in recent years.
