Monthly Labor Review • December 2008 71
Services Oshoring
Service-providing occupations,oshoring, and the labor market
A
BLS
analysis identies 160 service-providing occupationsthat are susceptible to ofshoring; these occupationsare diverse in their job unctions, associated educational attainment, and wages
he Bureau o Labor Statistics (
BLS
)researches trends aecting the labormarket as part o its EmploymentProjections Program. Although the
BLS
examines all actors aecting employmentin industries and occupations, it pays par-ticular attention to new or emerging topics.One such topic is the oshoring o service-providing occupations.
1
In recent years,special eorts have been made to identiy the occupations that may be susceptible tooshoring and to account or oshoringin occupational employment projections. Tis article, representing the culminationo those eorts, identies 160 occupationsconsidered susceptible to oshoring and re-ports trends in historical and projected dataor those occupations.For most o recorded history, the major-ity o goods and services were produced andconsumed locally. Developments in trans-portation—most notably, the locomotiveand steamship and, later, the airplane andtruck—made the large-scale remote pro-duction o goods practical. Te result was arapid increase in the trade o goods, caus-ing manuacturers to ace competition romabroad. Recent advances in telecommunica-tions—in particular, the Internet—have en-abled inormation to travel around the globenearly instantaneously. Consequently, many
Roger J. Moncarz,Michael G. Wol,andBenjamin Wright
Roger J. Moncarz isBranch Chie, andMichael G. Wol andBenjamin Wright areeconomists, in theOccupational Outlook Studies Branch, Oceo Employment andUnemployment Statis-tics, Bureau o LaborStatistics. E-mail:moncarz.roger@bls.gov,wol.michael@bls.gov,or wright.benjamin@bls.gov
services that previously needed to be per-ormed domestically now theoretically canbe perormed anywhere in the world. Temovement o work that results rom thisdevelopment, generally termed “oshoring,”has the potential to aect U.S. employment,but the nature and scale o its impact remainunclear.As is common with new phenomena, theterminology used to describe oshoring isnot always consistent. It is, thereore, bene-cial to clearly dene the issue. A report by theNational Academy o Public Administrationdenes oshoring as “U.S. rms shitingservice and manuacturing activities abroadto unaliated rms or their own aliates.”
2
Tat denition is consistent with the con-cept o oshoring identied in the analysis which ollows. However, or several reasons,this analysis ocuses only on the oshoringo services. First, the oshoring o manuac-turing establishments has been occurring ora much longer period and is relatively clearly understood. Second, the actors that leadservices to be susceptible to oshoring aredierent rom those aecting manuactur-ing. Tird, ew data sources exist that provideinsight into the occupations that are aectedby services oshoring. Tese three reasonscombined support an independent analysiso the oshoring o services.
Services Oshoring72 Monthly Labor Review • December 2008
It is important to note that this article addresses only the movement o work rom the United States to othercountries; occupations that may be aected by fows inthe other direction—a movement known as “in-shor-ing”—are not identied. In general, occupations that aresusceptible to being oshored are not necessarily the sameas those which may be aected by in-shoring.Current measures o services oshoring are limited by adearth o relevant data. Perhaps the most useul indicatoris the international trade data rom the Bureau o Eco-nomic Analysis (
BEA
). Over the last two decades, thesedata show a large increase in international trade in bothgoods and services. In 1986, goods exports were $229.2billion, while goods imports were $401.8 billion. By 2006,quantities had more than quadrupled, to $928.7 billionand $1.65 trillion, respectively. In 1986, service exports were $128.9 billion, while service imports were $110.7billion. By 2006, service exports had nearly tripled, to$386.3 billion, while service imports more than doubled,reaching $283.7 billion.
3
It is noteworthy that, althoughthe U.S. economy has been running an overall trade decitor decades, there has been a consistent surplus in interna-tional services trade.Measures o the value o international trade, however,cannot be used to gauge the scope o oshoring. An in-creasing surplus in services trade, or example, does notnecessarily indicate a change in the level o oshoring inservice occupations. In addition, the value o services tradeusually is dicult to measure. Tis situation stems romthe act that goods, as opposed to services, are easier tomeasure and dominated international trade when the datacollection systems were established.
4
In addition, goodsare typically traded through a port o entry and are trackedrelatively easily. Services, by contrast, are traded throughdiverse channels, many o which are dicult to observe.A number o organizations, including Forrester Re-search, McKinsey Global Institute, Deloitte and ouche,and Goldman Sachs, have published studies trying toquantiy the eects o oshoring on U.S. employment.Most o these studies predict that millions o jobs couldbe oshored over the coming years. Academic economistsalso have published studies estimating that millions o U.S. jobs are susceptible to oshoring.
5
All o these stud-ies acknowledge the dearth o actionable data on the topicand are based on subjective assumptions. Te manner in which oshoring will aect U.S. em-ployment is unclear. On the one hand, oshoring hasthe potential to reduce total U.S. employment i jobs arerelocated to other nations. On the other hand, servicesexports may create new jobs within the United States andthereore raise total employment.
6
In addition, individualoccupations are not likely to experience these eects uni-ormly, because some occupations are more susceptibleto oshoring than others and some may ace additionalbarriers to oshoring. I individuals lose their jobs in vul-nerable occupations, they may need to obtain retrainingbeore moving into another occupation. As a result, it isimportant to identiy which occupations may be aectedby oshoring.Several studies have addressed services oshoring roman occupational perspective. Common among them is anattempt to identiy the characteristics that make an oc-cupation susceptible to oshoring. Ashok Bardhan andCynthia Kroll, among the rst to do so, concluded thatoshorable occupations have “no ace-to-ace customerservicing requirement,” “high inormation content,” a“work process” that is “telecommutable and Internet en-abled,” a “high wage dierential” with a “similar occupa-tion” in the oshore destination, “low setup barriers,” anda “low social networking requirement.”
7
On the basis o these characteristics, and using the Standard OccupationalClassication (
SOC
) system,
8
those authors identied 49occupations as susceptible. Te majority o these occupa-tions all into three
SOC
occupational groups: oce andadministrative support occupations, business and nancialoperations occupations, and computer and mathematicaloccupations. Bardhan and Kroll used data rom the
BLS
Occupational Employment Statistics (
OES
) survey to es-timate that these 49 occupations accounted or 14 mil-lion jobs, or 11 percent o total employment, in 2001. Teauthors limited their list to occupations that the businessliterature indicated were already being oshored at thetime o their analysis, which may explain why the numbero occupations identied in Bardhan and Kroll’s study islower than the number identied herein.In an attempt to determine which jobs are able to beoshored, and the number o jobs that could be oshored,Alan Blinder created an occupational ranking system.
9
Hestated that services which can be transmitted electroni-cally with no reduction in quality can be oshored andall other services cannot. Most occupations, however, pro- vide some services that can be transmitted electronically and some that must be delivered in person. Consequently,some occupations are more oshorable than others, creat-ing an oshorability spectrum. Blinder’s system, based oninormation rom the Occupational Inormation Network (
O*NE
),
10
in addition to his own judgment, assigned eachoccupation a position in this spectrum. He then used theresults to estimate that about 291 occupations are o-shorable. Blinder based his occupational classications on
Monthly Labor Review • December 2008 73
the
SOC
system, but divided several occupations, resultingin additional occupations not included in the
SOC
system.He used data rom the
OES
survey to estimate that these291 occupations accounted or about 38 million jobs, or29 percent o total employment, in 2004.Blinder’s analysis, however, is not directly comparableto the one presented here, because he included about 9million jobs rom production occupations and construc-tion and extraction occupations, two
SOC
groups thatare not considered service-providing groups. In addition,Blinder included residual occupations in his analysis. With the production occupations, construction and ex-traction occupations, and residual occupations removedto make the two analyses comparable, Blinder would nd152 occupations susceptible to oshoring; about 3 in 4occupations that appear in his oshorability spectrum would appear here as well, with most o the disagreementsoccurring among occupations with lower susceptibilitiesto oshoring. J. Bradord Jensen and Lori G. Kletzer responded tothe previous subjective studies by creating an objectiveranking system based on data on occupational character-istics developed by
O*NE
.
11
According to their analysis,the characteristics that increase susceptibility to oshor-ing are “getting inormation,” “processing inormation,”“analyzing data or inormation,” “documenting/record-ing inormation,” and “interacting with computers.” Techaracteristics that decrease susceptibility are “assisting orcaring or others,” “perorming or working directly withthe public,” “establishing or maintaining interpersonalrelationships,” “making decisions and solving problems,”“thinking creatively,” and “inspecting equipment, struc-tures, or material.”
12
O*NE
attempts to quantiy, throughnumeric ratings, the signicance that each characteristicplays in each occupation. Using these ratings, Jensen andKletzer assigned a score to each occupation and rankedoccupations on the basis o that score. Tey then used therankings to gauge how susceptible an occupation is to be-ing oshored, thereby creating an oshorability spectrumo 457
SOC
occupations.
13
Tere are some similaritiesbetween their spectrum and the list o occupations pre-sented herein, with 131 o the occupations on the latterlist appearing in the top hal o Jensen and Kletzer’s spec-trum. Tere also are some large discrepancies, however, with several o the occupations with the highest levels o susceptibility on the list presented here appearing in thebottom hal o Jensen and Kletzer’s list. Te
BLS
Employment Projections Program has beenstudying the oshoring o service-providing occupationsor the past decade, employing more than 20 economists who study occupations to make 10-year employment pro- jections. Because oshoring is a actor that may aect u-ture employment levels,
BLS
economists have researchedthe topic heavily and collectively have amassed a base o knowledge that covers the vast majority o occupations inthe U.S. economy.
14
Te study described in this article usesthat knowledge to analyze the issue o oshoring.
The BLS oshoring scoring system
Te
BLS
oshoring scoring system identies character-istics that make an occupation susceptible to being o-shored and ranks occupations by level o susceptibility. Te system covers the 515 service-providing occupationslisted in the
SOC
manual.
15
(See table 1.)Many o these occupations, however, have no possibil-ity o being susceptible to oshoring, rendering a detailedanalysis o them unnecessary. Te rst step o the analysis,thereore, was to identiy the occupations that had insur-mountable barriers to oshoring. Most o these occupa-tions either require ace-to-ace interaction with custom-ers or require the work to be perormed in a xed location.(As examples, physical therapists and barbers belong inthe rst category, security guards and landscaping work-ers in the second.) Other occupations that were excludeddue to insurmountable barriers were ones that perormintrinsically governmental unctions, such as judges andcorrectional ocers. Ater all occupations that were con-sidered not at all susceptible were removed, the remaining160 occupations were deemed susceptible to oshoringand were analyzed more closely. (See tables A–1 and A–2or a ull list o these occupations.)
BLS
economists answered a series o questions regardingthe characteristics o these 160 occupations. Te questions were designed to measure each o the our characteristicsthat make an occupation susceptible to oshoring: inputsand outputs that can travel easily across long distances,such as electronically over the Internet; work that requireslittle interaction with other types o workers; work thatrequires little knowledge o the social or cultural idiosyn-crasies o the target market; and work that is routine innature. (See exhibit 1.) For each occupation, all our ques-tions were answered by the economist who specializes inthat occupation.In order or an occupation to be oshored, the servicesthat the worker provides must be able to travel across in-ternational borders. Te more eciently this can be done,the easier and more benecial oshoring becomes. Work in which the main product is inormation or digital com-
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This is a BLS (Bureau of Labor and Statistics) report on what jobs are most likely and least likely to be outsourced.
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