Create buzz and develop your relationships
Offshoring, Job Losses and Office Demand
March 20, 2009
Offshoring, Job Losses and Office Demand
Umair Shams, Economist (ushams@tortowheatonresearch.com)
CBRE Torto Wheaton Research
By now you have probably heard enough about offshoring—major U.S. companies like Microsoft, IBM or Dell sending their product development, back office or call center duties to qualified and educated, but lower-wage workers in India or China. The companies claim that the process creates a more efficient use of human resources at home as well as cutting overall costs and boosting profitability. Opponents of this practice argue it is done by shipping well-paid domestic jobs overseas. It can raise concerns for commercial property investors as well, as fewer domestic jobs can translate to a loss in demand for space. BEA''s trade data on international services and Mass Layoff Statistics from the BLS, however, suggest that offshoring''s effects on the economy—including loss of jobs—has been very minimal, if not insignificant. Furthermore, an examination of absorption data suggests that offshore outsourcing has no significant impact on demand for office space.
A recent NBER working paper[1] looks at offshoring to the emerging economies of India and China between 1996 and 2005, and how it has affected the Business, Professional and Technical Services (BPT) sector of the U.S. economy. Among other effects on the sector (such as workers switching occupations and wage impacts), the authors find that importing and exporting services had some—though small—effects on unemployment. Surprisingly, the combined effect of both imports and exports to China and India actually reduced weeks spent unemployed[2] among U.S. BPT sector employees, although at very small levels.
As real estate investors, you can take a sigh of relief from these results. Despite arguments to the contrary, offshoring to India and China does not appear to have had a significant impact on the unemployment rate. The results also highlight the strength of U.S. BPT service exports, which continue to perform well, even relative to China and India—countries that are often seen as competitive threats to the U.S. because of their increasingly skilled but low-wage labor pool. In fact, between 1988 and 2007 the BPT sector has typically run a trade surplus, despite increases in offshoring. While growth in recent years has increased for imports (13% average import growth and 10% average export growth since 2000), BPT service exports in 2007 were more than three times what imports were.
Although U.S. firms import services from abroad, demand is greater for U.S. BPT services from other nations. Any loss in jobs due to offshoring from the U.S. should be at least offset by jobs created through foreign demand for services. Nevertheless, jobs are lost due to offshoring and the extent that the gains and losses are not evenly distributed across occupations is important to take into consideration. Official data on job losses due to offshoring has been difficult to obtain; in 2004, however, the BLS began tracking this in its Mass Layoff Statistics program[3] . The quarterly report includes layoffs from all non-farm private employers, but does not break down the data by employer type—a critical part of how we think about real estate demand. A breakdown would have enabled us to see, in detail, which office employment sectors lost jobs due to offshoring. Even so, some very useful insights can be taken away from the BLS results. Of the mass layoffs since 2004, 64,657 were due to jobs being moved to other countries. In the same period, the national economy created a net 2.7 million new jobs. The jobs that have been lost due to offshoring, then, are only a very small fraction of the labor force and of jobs created.
5-Year Job Losses due to Offshoring and Labor Force Statistics
Remember, these job losses due to offshoring include all sectors and are not restricted to office-using employment of the BPT segment of the economy. But with the total losses being so small compared to total employment or the labor force, the implication is that the net effect on office job losses, if any, was not significant and did not lead to any noteworthy effect on office absorption.
U.S. Business, Professional and Technical Services Imports, Office Absorption and Job Growth
The graph above summarizes historical BPT import growth, office absorption rates and job trends for the exposed sector. Although absorption numbers for the service-producing firms that are exposed to offshoring are not available, we can look at overall absorption rates; their trends are not correlated to the trade in services. The graph also shows the job growth patterns for Professional, Scientific and Technical Services, the employment category most exposed to offshoring. If offshoring were, in fact, to cause significant job losses, then a decline in office jobs for the exposed employment category would correspond to a growth in imports. This obviously was not the case. Job growth in Professional, Scientific and Technical Services continued, despite a growth in BPT service imports. The only period of job declines was 2001-2002, due to the dot-com bubble bursting—not because of any periods of increased imports in BPT services.
When considering the effects of offshoring—particularly job losses—it is important to look at both sides of the equation. U.S. employees might be at a risk of losing jobs to low-wage destinations like India and China, but foreign companies still demand high-tech U.S. services, which has the potential to create jobs at home. This should help ease any investor concerns about offshore outsourcing causing job losses and eventually losses in demand for office space at home.
[1]"Much Ado about Nothing: American Jobs and The Rise of Service Outsourcing To China and India" by Runjuan Liu and Daniel Trefler. NBER Working Paper, June 2008. http://www.nber.org/papers/w14061
[2]The authors defined change in unemployed weeks as unemployed weeks / weeks in labor force.
[3]The Mass Layoff statistics (MLS) program reports on layoffs of 50 or more workers from the same establishment. It includes only non-farm private employers. Data and additional information on mass layoffs can be obtained from www.bls.gov/MLS/.
Copyright CBRE Torto Wheaton Research 2009. Used with permission.
Offshoring, Job Losses and Office Demand
Umair Shams, Economist (ushams@tortowheatonresearch.com)
CBRE Torto Wheaton Research
By now you have probably heard enough about offshoring—major U.S. companies like Microsoft, IBM or Dell sending their product development, back office or call center duties to qualified and educated, but lower-wage workers in India or China. The companies claim that the process creates a more efficient use of human resources at home as well as cutting overall costs and boosting profitability. Opponents of this practice argue it is done by shipping well-paid domestic jobs overseas. It can raise concerns for commercial property investors as well, as fewer domestic jobs can translate to a loss in demand for space. BEA''s trade data on international services and Mass Layoff Statistics from the BLS, however, suggest that offshoring''s effects on the economy—including loss of jobs—has been very minimal, if not insignificant. Furthermore, an examination of absorption data suggests that offshore outsourcing has no significant impact on demand for office space.
A recent NBER working paper[1] looks at offshoring to the emerging economies of India and China between 1996 and 2005, and how it has affected the Business, Professional and Technical Services (BPT) sector of the U.S. economy. Among other effects on the sector (such as workers switching occupations and wage impacts), the authors find that importing and exporting services had some—though small—effects on unemployment. Surprisingly, the combined effect of both imports and exports to China and India actually reduced weeks spent unemployed[2] among U.S. BPT sector employees, although at very small levels.
As real estate investors, you can take a sigh of relief from these results. Despite arguments to the contrary, offshoring to India and China does not appear to have had a significant impact on the unemployment rate. The results also highlight the strength of U.S. BPT service exports, which continue to perform well, even relative to China and India—countries that are often seen as competitive threats to the U.S. because of their increasingly skilled but low-wage labor pool. In fact, between 1988 and 2007 the BPT sector has typically run a trade surplus, despite increases in offshoring. While growth in recent years has increased for imports (13% average import growth and 10% average export growth since 2000), BPT service exports in 2007 were more than three times what imports were.
Although U.S. firms import services from abroad, demand is greater for U.S. BPT services from other nations. Any loss in jobs due to offshoring from the U.S. should be at least offset by jobs created through foreign demand for services. Nevertheless, jobs are lost due to offshoring and the extent that the gains and losses are not evenly distributed across occupations is important to take into consideration. Official data on job losses due to offshoring has been difficult to obtain; in 2004, however, the BLS began tracking this in its Mass Layoff Statistics program[3] . The quarterly report includes layoffs from all non-farm private employers, but does not break down the data by employer type—a critical part of how we think about real estate demand. A breakdown would have enabled us to see, in detail, which office employment sectors lost jobs due to offshoring. Even so, some very useful insights can be taken away from the BLS results. Of the mass layoffs since 2004, 64,657 were due to jobs being moved to other countries. In the same period, the national economy created a net 2.7 million new jobs. The jobs that have been lost due to offshoring, then, are only a very small fraction of the labor force and of jobs created.
5-Year Job Losses due to Offshoring and Labor Force Statistics
Remember, these job losses due to offshoring include all sectors and are not restricted to office-using employment of the BPT segment of the economy. But with the total losses being so small compared to total employment or the labor force, the implication is that the net effect on office job losses, if any, was not significant and did not lead to any noteworthy effect on office absorption.
U.S. Business, Professional and Technical Services Imports, Office Absorption and Job Growth
The graph above summarizes historical BPT import growth, office absorption rates and job trends for the exposed sector. Although absorption numbers for the service-producing firms that are exposed to offshoring are not available, we can look at overall absorption rates; their trends are not correlated to the trade in services. The graph also shows the job growth patterns for Professional, Scientific and Technical Services, the employment category most exposed to offshoring. If offshoring were, in fact, to cause significant job losses, then a decline in office jobs for the exposed employment category would correspond to a growth in imports. This obviously was not the case. Job growth in Professional, Scientific and Technical Services continued, despite a growth in BPT service imports. The only period of job declines was 2001-2002, due to the dot-com bubble bursting—not because of any periods of increased imports in BPT services.
When considering the effects of offshoring—particularly job losses—it is important to look at both sides of the equation. U.S. employees might be at a risk of losing jobs to low-wage destinations like India and China, but foreign companies still demand high-tech U.S. services, which has the potential to create jobs at home. This should help ease any investor concerns about offshore outsourcing causing job losses and eventually losses in demand for office space at home.
[1]"Much Ado about Nothing: American Jobs and The Rise of Service Outsourcing To China and India" by Runjuan Liu and Daniel Trefler. NBER Working Paper, June 2008. http://www.nber.org/papers/w14061
[2]The authors defined change in unemployed weeks as unemployed weeks / weeks in labor force.
[3]The Mass Layoff statistics (MLS) program reports on layoffs of 50 or more workers from the same establishment. It includes only non-farm private employers. Data and additional information on mass layoffs can be obtained from www.bls.gov/MLS/.
Copyright CBRE Torto Wheaton Research 2009. Used with permission.
Comment
You Could Also Get Unique Insights for Your Business
Do you know what's being said about you online where you are not looking?
You Could Also Get or Share CREOpoint Content in Many Ways
You could also get premium complimentary CREOpoint content delivered directly to your inbox.
We will never sell your email and you may unsubscribe from our e-mail list at any time.
You could also subscribe to our news, or print, share or save CREOpoint content.
© 2012 Created by CREOpoint.
You need to be a member of CREOpoint to add comments!
Join CREOpoint