Offshoring (a.k.a. Offshore Outsourcing) and Job Insecurity Among U.S. Workers

Prepared for Members and Committees of Congress

Offshoring or offshore outsourcing is the term now being applied to describe the practice among
U.S. companies of contracting out the jobs of white-collar workers in service sector industries to
firms located beyond our borders. The outsourcing of service sector jobs to specialized firms
within the United States began in response to the early 1980s recessions when employers
increased their focus on the company’s core mission and contracted out peripheral activities to
other U.S. businesses. The 2001 recession prompted employers to achieve further efficiencies by
tapping into the global supply of labor. They utilized now widely disseminated technologies that
permit low cost, good quality, and high speed transmission of voice and data communications to
outsource service sector jobs abroad. Events also transpired in the intervening years that enhanced
the ability of other countries (e.g., India and China) to export goods and services to the United
U.S. white-collar and blue-collar workers are anxious about job security because of the ongoing
increase in global economic integration. Offshore outsourcing, which is one form of
globalization, recently has adversely affected particular white-collar jobs: information technology
(IT) occupations (e.g., computer systems analysts and software engineers) and IT-enabled
occupations (e.g., telemarketers and accounting clerks). Factory workers continue to experience
job anxiety as their ranks further dwindle at the same time that the U.S. population overall reaps
benefits from international trade (e.g., lower priced goods for consumers).
Some observers believe that the United States has seen just the tip of the offshoring iceberg. By
one estimate, about one-fourth of all U.S. jobs possess characteristics that will make them
susceptible to outsourcing to globally dispersed talent within a 10- to 20-year time frame. Other
observers expect that firms will lose enthusiasm for offshore outsourcing due to various reasons
(e.g., less-than-anticipated cost savings, customer dissatisfaction) and consequently will use the
business practice more strategically. No regularly collected series provides data on the total
number of workers who actually have thus far lost jobs to offshoring. (See CRS Report RL30799,
Unemployment Through Layoffs and Offshore Outsourcing, for the number of workers let go
permanently in mass layoffs as a result of the movement of work to other countries.)
Congress has a longstanding interest in assisting workers who lose jobs through no fault of their
own. In addition to unemployment benefits, laws currently exist to help displaced workers
undertake education and training (e.g., the Workforce Investment Act, WIA). The Worker
Adjustment and Retraining Notification Act (WARN) requires covered employers to give
employees, among others, advance notice of a plant closing or mass layoff. Trade Adjustment
Assistance (TAA) focuses specifically on workers who lose jobs due to international trade. (TAA
generally does not apply to layoffs in service sector industries.) Alternative Trade Adjustment
Assistance (ATAA) provides wage insurance to older workers displaced by trade who accept new
jobs paying less than the jobs they lost.

Introduc tion ..................................................................................................................................... 1
The Development of Offshore and Domestic Outsourcing.............................................................3
Current and Future Prospects for Offshoring Jobs..........................................................................4
Reasons for Worker Anxiety.....................................................................................................4
How Many Jobs Are We Talking About?..................................................................................5
The Tip of the Iceberg?.......................................................................................................5
Overblown Fears?...............................................................................................................9
Job Insecurity Since the 1980s.......................................................................................................11
Increased Displacement of White-Collar Workers Precedes Offshoring of Service
Sector Jobs............................................................................................................................11
1980s .................................................................................................................................. 11
1990s ................................................................................................................................. 13
2000s ................................................................................................................................. 14
Reemployment Prospects........................................................................................................15
Wage Prospects.......................................................................................................................16
Federal Assistance for Workers Displaced by Offshoring.............................................................19
Current Federal Law...............................................................................................................19
Assistance for Workers Harmed by Trade........................................................................19
Advance Notice of Plant Closings and Mass Layoffs.......................................................19
Education and Training.....................................................................................................19
Wage Insurance.......................................................................................................................20

Table 1. Cumulative Number of U.S. Service Sector Jobs Projected to Shift Offshore by
Occupational Group.....................................................................................................................6
Table 2. Occupational Categories by Degree of Offshorability.......................................................8
Table 3. Displacement Rates by Industry and Occupation of Lost Job, 1981-1982 and
1991-1992................................................................................................................................... 12
Table 4. Displacement Rates by Industry and Occupation of Lost Job, 1989-1990 and
1999-2000................................................................................................................................... 13
Table 5. Displacement Rates by Industry and Occupation of Lost Job, 2001-2002 and
2003-2004................................................................................................................................... 15
Table 6. Displaced Workers by Occupation of Job Lost in the 2003-2004 Period and
Employment Status in January 2006..........................................................................................16
Table 7. Workers Displaced From and Reemployed in Full-Time Wage and Salary Jobs,
by Earnings on Pre- and Post-Displacement Jobs......................................................................17

Author Contact Information..........................................................................................................21

Offshoring, also known as offshore outsourcing, is the term now being used to describe the
nascent practice among companies located in the United States of contracting out the performance
of service sector activities (e.g., call center operations) to businesses located beyond U.S. borders.
The term is equally applicable to U.S. firms’ outsourcing goods production (e.g., textiles) to other
countries, which has been occurring for decades. It commonly is assumed that the work sent
overseas was being or could have been performed by U.S. workers, thereby resulting in an actual
loss of jobs or forgone employment opportunities.
As is often the case with an emerging trend, little concrete information is available about the
offshoring of U.S. jobs. Instead, anecdotal accounts were initially conveyed by the media. These
have been followed by projections of the share of U.S. jobs possessing characteristics that make
them appear vulnerable to outsourcing. No regularly collected series currently provides data on 1
the total number of U.S. workers who actually have lost their jobs due to overseas outsourcing.
The one government survey that, in 2004, began to ask firms about the movement of work to
other nations is limited to companies that have conducted permanent large-scale layoffs of
Moreover, there is some uncertainty about what should be considered offshoring.2 Many
observers appear to define it as the contracting out of work to non-U.S. companies located abroad
and to the foreign subsidiaries of U.S. corporations. Others take a broader perspective, and
include the purchase of services from U.S. outsourcing firms and from foreign-owned outsourcers
with U.S. offices that can utilize workers living abroad, living in the United States (e.g., U.S.
citizens and legal permanent residents as well as persons with H-1B professional specialty visas),
or a combination of the two.
Uncertainty also surrounds the short- and long-run labor market implications of offshore
outsourcing. For example, some observers initially blamed this business practice for much of the
“jobless recovery” from the 2001 recession, while others countered that the historical link
between economic growth and job creation remained intact. Unlike many past cycles, permanent
rather than temporary layoffs dominated the 2001 recession and early recovery. This might have
been related to firms seeing the recession as an opportunity to cut payroll costs and improve
efficiency through operational changes such as outsourcing jobs to other U.S. industries and to
other countries. Some economists estimated that a larger-than-usual share of laid-off workers
were not rehired by their former employers as a result of this perceived structural change, which
caused many displaced workers to undertake the time-consuming task of finding new jobs at 3
other companies or in other industries. Other economists estimated that the 2001 recession had
about the same effect on all major industry groups and that the pace of job growth would 4
accelerate as it eventually had following all past recessions—a contention that has proved true.

1 For more information, see CRS Report RL30799, Unemployment Through Layoffs and Offshore Outsourcing, by
Linda Levine. (Hereafter cited as CRS Report RL30799, Unemployment Through Layoffs and Offshore Outsourcing).
2 For a review of the various meanings in the literature of offshoring see National Academy of Public Administration,
Off-Shoring: An Elusive Phenomenon, Washington, DC, January 2006.
3 Erica L. Groshen and Simon Potter, “Has Structural Change Contributed to a Jobless Recovery,” Current Issues in
Economics and Finance, Federal Reserve Bank of New York, August 2003.
4 Ellen R. Rissman, “Can Sectoral Labor Reallocation Explain the Jobless Recovery?,Chicago Fed Letter, December

Estimates of net job loss (gross job gains minus gross job losses) early in the current decade that 5
might have been due to offshoring range from 3% to 10%.
While acknowledging that offshoring and other forms of globalization (e.g., direct investment and
other capital flows) can cause painful dislocations for workers in the short-run, most economists
agree that it benefits the nation as a whole by enabling U.S. companies that import goods and
services to sell their products to consumers at lower prices, providing consumers with more 6
choices, and by expanding markets for U.S. firms. Others dispute the degree to which U.S.
consumers actually benefit, suggesting that the shareholders of companies engaged in offshoring
instead gain through increased dividends. These individuals also believe that outsourcing jobs
overseas has different implications for the United States than outsourcing to other industries
within our borders that are regulated by U.S. laws (e.g., minimum wage and other labor 7
Still others note that the current overseas movement of work is not defined by skill level. The jobs
of both bookkeeping clerks and radiologists are amenable to offshoring, for example. They
further wonder whether offshoring will result in college graduates facing a dwindling supply of
entry-level jobs that traditionally have served as stepping stones to high-skilled positions, and
question the adequacy of the government’s safety net to meet the needs of already well-educated,
well-paid workers who lose their jobs to offshore outsourcing (e.g., financial analysts and income 8
tax preparers).
This report does not attempt to sort through all these issues, some of which are addressed in other 9
CRS reports. Instead, it begins by examining the antecedents of offshoring service sector
activities and then synthesizing the voluminous writings in recent years about the business
practice. The reemployment and earnings experiences of displaced workers are next analyzed,
focusing specifically on evidence of a rise in job insecurity among white-collar workers in the
service sector. The report closes with discussion of existing federal legislation and proposals
meant to ameliorate the impact of offshore outsourcing on U.S. workers.

5 The 10% figure appears in Jyoti Thottam,Is Your Job Going Abroad?, Time, March 1, 2004 (Hereafter cited as
Thottam, Is Your Job Going Abroad?). The 3% figure was developed by William Dickens, Senior Fellow, Economic
Studies, The Brookings Institution, and presented during a March 3, 2004 Brookings forum on offshoring.
6 Lynn A. Karoly and Constantijn W.A. Panis, The 21st Century at Work, prepared by the RAND Corporation for the
U.S. Department of Labor, 2004. (Hereafter cited as Karoly and Panis, The 21st Century at Work.)
7 John Sullivan, “Forum Reveals Divisions Over Effects of Exporting U.S. Jobs to Other Countries,” Daily Labor
Report, December 12, 2003.
8 Alan S. Blinder,Offshoring: The Next Industrial Revolution?,” Foreign Affairs, vol. 85, issue 2, March/April 2006.
(Hereafter cited as Blinder, Offshoring: The Next Industrial Revolution?.); and Christopher Koch,Backlash,” CIO
Magazine, September 1, 2003.
9 See, for example, CRS Report RS21118, U.S. Direct Investment Abroad: Trends and Current Issues, by James K.
Jackson, and CRS Report RL32484, Foreign Outsourcing: Economic Implications and Policy Responses, by Craig K.

The overseas relocation of manufacturing work predates by decades the current wave of
offshoring service sector jobs. Major U.S. companies, initially responding to heightened
competition from Japanese and European multinational corporations, opened facilities abroad
during the 1970s and 1980s that turned out goods formerly produced by comparatively well paid,
often unionized U.S. factory workers (e.g., assembly-line workers in the automotive industry).
Additionally, U.S. companies reacted to the back-to-back recessions of the early 1980s by
focusing on their core missions and contracting out activities that specialized domestic enterprises
could perform more efficiently (e.g., janitorial services). Firms restructured their operations by
outsourcing jobs to temporary help supply agencies, professional and business services
establishments (e.g., accounting firms), and independent contractors. U.S. demand for
employment (including temporary help) services continued to increase during the 1990s. It is 10
projected to be one of the industries experiencing the most job growth in the coming years, thus
indicating that domestic outsourcing of formerly in-house functions is a permanent reorganization
of how work is performed.
The latest recession, which ended in November 2001, prompted employers to achieve further
efficiencies by taking advantage of technological innovations that minimize the importance of
physical distance between companies. The now widespread dissemination of technologies that
enable relatively low cost, good quality, and high speed transmission of voice and data
communications has enabled U.S. firms to extend offshoring beyond the factory jobs of blue-
collar workers to the services jobs of white-collar workers (e.g., computer programmers and call
center operators). Service sector jobs at risk of being offshored thus are both those held by
information technology (IT) workers and technology-enabled workers.
Events that transpired during the intervening decade of the 1990s enhanced the ability of other
countries to export services—particularly IT services—to the United States and other developed
countries (e.g., the United Kingdom). One such event was the Y2K crisis: U.S. firms, in response
to a tight supply of computer programmers in the late 1990s, turned to companies principally
located in India to make the code fixes needed to avert problems with computer systems by the
time 2000 arrived; the domestic firms that utilized these programmers reportedly were pleased 11
with the quality of their work. Another event was the educational systems of foreign nations
graduating an abundant supply of well educated, sometimes English speaking individuals. In
some cases, the number of persons with IT and accounting skills exceeded the immediate needs 12
of their local economies (e.g., China, Eastern Europe, India, and the Philippines). And, because

10 Eric B. Figueroa and Rose A. Woods, “Industry Output and Employment Projections to 2016,” Monthly Labor
Review, November 2007. (Hereafter cited as Figueroa and Woods, Industry Output and Employment Projections.)
11 Jeffrey Marshall, “Outsourcing Overseas: Savings Road Leads to India,Financial Executive, September 2002.
12 Pete Engardio, Aaron Bernstein, and Manjeef Kripalani, “The New Global Job Shift,” Business Week, February 3,
2003 (Hereafter cited as Engardio, et al., The New Global Job Shift.); Larry Greenemeier,Offshore Outsourcing
Grows to Global ProportionsU.S. Companies Extend Their Search Beyond India for IT Help Overseas,”
InformationWeek, February 11, 2002; and Drew Robb, “Offshore Outsourcing Nears Critical MassThe IT Talent
Shortage in the United States is Driving More Companies to Use Overseas Developers, InformationWeek, June 12,

English is the language of the computer industry regardless of country, IT services can be
provided by a wide array of non-English speaking, comparatively low wage nations (e.g.,
Argentina, Brazil, Bulgaria, China, the Czech Republic, Hungary, Jordan, Lithuania, Mexico,
Slovenia, Russia, and Ukraine).
These developments are reflected in the latest employment projections of the U.S. Bureau of
Labor Statistics. Although the professional and business services industry (e.g., computer systems
design and related services) is still expected to remain among the fastest growing in the economy,
the Bureau projects that the rate of job growth could slow from 2.7% annually between 1996 and

2006 to 2.1% annually between 2006 and 2016, “mainly due to productivity gains and offshore 13

outsourci ng.”

The current wave of offshore outsourcing has caused considerable anxiety among both employed
and unemployed workers. The seemingly greater publicity generated by the extension of
offshoring from manufacturing to service sector industries is the case for the following reasons:
(1) White-collar workers comprise the majority of all U.S. workers and most white-collar workers
are employed in the service sector, which accounts for the vast majority of total U.S.
employment. In other words, many more people today believe their jobs are at risk of being
(2) Domestic outsourcing and offshore outsourcing result in job losses for those employees who
no longer are required to produce the goods and services that their employers decided to
purchase. Some displaced workers must seek jobs in other fields because the domestic firms that
specialize in providing outsourced functions do so more efficiently than their former employers.
Others who lose their jobs to domestic outsourcing can continue to perform similar work—
perhaps for lower wages and fewer benefits—by finding jobs in the industries now supplying
goods and services to their ex-employers (e.g., as workers on the payrolls of temporary help 14
agencies rather than manufacturers). Thus, a key difference between domestic and offshore
outsourcing is that none of the jobs that are contracted out remain available to U.S. workers when 15
employers send the work to companies located overseas.
The loss of service sector jobs to offshoring has led people to ask what field is going to be the
next generator of jobs for U.S. workers, and more particularly, of good jobs. The question is not
easily answered. Candidates that have been put forth (e.g., nanotechnology and biotechnology)

13 Figueroa and Woods, Industry Output and Employment Projections, p. 56.
14 For information on the statistical exaggeration of the employment decline in manufacturing because workers still are
engaged in goods production despite being categorized in the employment services industry see Council of Economic
Advisors, Economic Report of the President (Washington, D.C.: GPO), February 2004.
15 However, offshoring likely creates other jobs for U.S. workers (e.g., those who develop the contracts for outsourced
activities and those who oversee their performance). In addition, if the overseas firms and workers who perform these
contracted activities subsequently purchase U.S. products and make investments in the United States, their actions will
create jobs in the United States.

are unlikely, at present, to provide as many new jobs as are thought to be moving abroad; further, 16
life sciences jobs have themselves begun to be sent overseas. Although U.S. workers have been
encouraged to focus on upgrading their skills to be capable of performing the high-level, high-17
paying jobs that are expected to be created by further U.S. technological innovation, an oft-
posed question in response to this advice is: in what occupations? The acquisition of IT skills had
been the mantra for several years; however, these are among the jobs that appear newly at risk of
being exported. Because a key difference between jobs susceptible to offshoring is the degree to
which they involve impersonal services (e.g., accountants) or personal services (e.g., hairstylists),
which “does not correspond to the traditional distinction between high-skilled and low-skilled 18
work, simply providing more education cannot be the whole answer.”
People also have questioned whether we now are seeing the initial leakage of service sector jobs
from the United States, with many more to follow in an expanding range of white-collar
occupations. The query has elicited very different replies.
Offshoring of white-collar jobs initially involved “simple service work, like processing credit-19
card receipts, and mind-numbing digital toil, like writing software code.” It more recently has
expanded to such functions as providing help desk support to U.S. customers, processing home
loans of U.S. mortgage applicants, interpreting CT scans of U.S. hospital patients, preparing
corporate financial analyses for U.S. investors, and developing computer-generated blueprints for
industrial plants and residential housing in the United States. Surveys of U.S. companies show
they appear increasingly willing to send overseas a wide variety of more complex IT functions
such as application design and development, IT infrastructure management, and packaged 20
application implementation.
Some observers foresee substantial increases in offshoring because of U.S. employers’ 21
satisfaction with overseas service providers and because of the 45%-55% cost savings it 22
arguably generates. For example, the average M.B.A. employed in India’s financial services
industry in 2003 reportedly earned 14% of the salary of comparably employed U.S. workers,
while IT professionals earned 13% as much and call center staff earned 7% as much as their U.S. 23

16 Andrew Pollack, “Medical Companies Joining Offshore Trend,New York Times, February 24, 2005.
17 Clare Ansberry,Why U.S. Manufacturing Wont Die,Wall Street Journal, July 3, 2003; and Steve Lohr, “Many
New Causes for Old Problem of Jobs Lost Abroad,” New York Times, February 15, 2004.
18 Blinder, Offshoring: The Next Industrial Revolution?.
19 Engardio et al., The New Global Job Shift, p. 50.
20 Jeff Moad, “Offshore Job Competition to Increase, eWeek, January 31, 2003; and Jaikumar Vijayan,Companies
Expected to Boost Offshore Outsourcing,” Computerworld, February 17, 2003.
21New Study Finds Companies are Satisfied with Offshore Outsourcing of IT, Business Process and Contact Center
Services, Business Wire, February 4, 2004.
22 McKinsey Global Institute, Offshoring: Is It a Win-Win Game?, August 2003. (Hereafter cited as McKinsey Global
Institute, Offshoring: Is It a Win-Win Game?)
23 Saritha Rai, “Financial Firms Hasten Their Move to Outsourcing, New York Times, August 18, 2004.

Forrester Research, Inc. is the source of perhaps the first and most commonly cited statistics on
offshoring. According to a 2004 update of its original forecast that appears to have been based on 24
discussions with experts, a total of 3.4 million service sector jobs might move abroad by 2015.
This is a cumulative figure, and although 3.4 million may sound large in an absolute sense, it
represents a minimal share of total U.S. employment in a single year.
Forrester’s update reflects its assessment that the overseas movement of jobs will occur at a
greater rate in the near term than initially anticipated. As shown in Table 1, 830,000 white-collar
service sector jobs might have relocated offshore between 2003 and 2005; with almost 400,000
more of these jobs expected to be sent abroad in the three following years, the total for the 2003-
2008 period could reach 1.2 million. Computer occupations might represent one of every five
white-collar service sector positions outsourced overseas through 2008.
Table 1. Cumulative Number of U.S. Service Sector Jobs Projected to Shift Offshore
by Occupational Group
(numbers in thousands)
Occupational Group 2003 2004 2005 2006 2007 2008
Administrative support 146 256 410 475 541 616
Computer 102 143 181 203 228 247
Business and financial operations 30 55 91 105 120 136
Management 3.5 15 34 42 48 64
Sales 11 22 38 47 55 67
Architecture 14 27 46 54 61 70
Legal 6 12 20 23 26 29
Life sciences .3 2 4 5.5 6.5 9
Art, design and related 2.5 4.5 8 9 10 11
Total 315 540 830 960 1,100 1,200
Source: Adapted by CRS from John C. McCarthy, Near-Term Growth of Offshoring Accelerating, Forrester
Research, Inc., May 14, 2004.
Note: Statistics are shown only through 2008, the period during which Forrester provides data in one-year
intervals. By 2010, Forrester estimates a total of 1.7 million will have gone offshore for a two-year increase of
one-half million. Over the next five years, Forrester estimates another 1.7 million jobs will be transferred to
other countries for a grand total of 3.4 million by 2015.
Bardhan and Kroll estimated that more than 14 million jobs, a number approaching 12% of U.S.
employment annually in the early years of the current decade, have attributes that could allow
them to be sent overseas (e.g., no in-person customer servicing required; an IT-enabled work
process that can be accomplished via telecommuting; jobs that can be routinized; a fairly wide
gap between a job’s pay in the United States compared to in a destination country; and a 25
destination country having few language, institutional, and cultural barriers). While these jobs

24 John C. McCarthy, Near-Term Growth of Offshoring Accelerating, Forrester Research, Inc., May 14, 2004.
25 Ashok Deo Bardhan and Cynthia A. Kroll, “The New Wave of Outsourcing,” Fisher Center Research Report,
University of California-Berkeley, fall 2003. (Hereafter cited as Bardhan and Kroll, The New Wave of Outsourcing.);
and Cynthia A. Kroll, “State and Metropolitan Area Impacts of the Offshore Outsourcing of Business Services, and

are at risk of being offshored, the number represents an outer limit. The occupational groups
identified as being susceptible to offshoring include office support (e.g., data entry and payroll
clerks), auditors and tax preparers, computer programmers and software engineers, medical
transcriptionists and paralegals, and technical writers. They are concentrated in such industries as
information, finance and insurance, and professional and business services.
A study released by the Brookings Institution built upon the work of Bardhan and Kroll, Forrester
Research, and others to develop projections of the percent of jobs in 246 metropolitan areas that
might be lost due to service offshoring over the 2004-2015 period. Offshoring is not expected to
greatly affect employment in most metropolitan areas, with just 2.2% of the jobs in these 246 26
areas likely to be offshored between 2004 and 2015. But the analysis suggests that five metro
areas might lose 3.1% to 4.3% of their jobs by 2015: Boulder, CO; Lowell, MA; San Francisco,
CA; San Jose, CA; and Stamford, CT. Another 23 areas might have between 2.6% and 3.0% of
their jobs offshored. Those metropolitan areas estimated to be most vulnerable to service
offshoring tend to be very populous, having 1 million or more inhabitants (e.g., Dallas, TX;
Minneapolis, MN; and Washington, DC). They also tend to be located in the Northeast (e.g.,
Bergen-Passaic, NJ; Boston, MA; and Hartford, CT) and West (e.g., Denver, CO and San Jose,
CA). In addition, they have high concentrations of IT jobs (e.g., Boulder, CO; Huntsville, AL; and
Lowell, MA) or IT-enabled back-office jobs such as data-entry keyers and telemarketers (e.g.,
Des Moines, IA; Omaha, NE; and Wilmington, DE).
Jensen and Kletzer developed a different geographically based approach to estimate the share of
tradable (offshorable) and nontradable (nonoffshorable) jobs in manufacturing and
nonmanufacturing (e.g., agriculture, mining, construction, services) industries. About 9.4% of
total U.S. employment in 2000 was found to be in tradable industries, according to one of their
estimates. More specifically, 13.7% of employment in professional services industries may be
vulnerable to offshoring compared to 12.4% of employment in manufacturing industries.
Examining the data by occupation, Jensen and Kletzer estimated that at least 60% of workers in
the following jobs may be susceptible to offshoring: computer and mathematical; legal; life,
physical, and social sciences; business and financial operations; and architecture and engineering.
“Outside of education and healthcare occupations, the typical “white-collar” occupation involves 27
a potentially tradable activity.” This suggests that—to the extent nontradable industries can pare
off the duties of white-collar employees—the industry results understate the percentage of
workers at-risk of offshoring.

IT,” Fisher Center Research Report, University of California-Berkeley, 2005. See, also, C. Alan Garner,” Offshoring
in the Service Sector: Economic Impact and Policy Issues, Federal Reserve Bank of Kansas City’s Economic Review,
third quarter 2004.
26 Robert Atkinson and Howard Wial, The Implications of Service Offshoring for Metropolitan Economies, The
Brookings Institution Metropolitan Policy Program, February 2007.
27 J. Bardford Jensen and Lori G. Kletzer, Tradable Services: Understanding the Scope and Impact of Services
Outsourcing, Institute for International Economics, WP 05-9, September 2005, p. 11.

Table 2. Occupational Categories by Degree of Offshorability
Cate-Degree of Examples Number 2004 Employment
gory Offshorability (in millions)
I Highly offshorable computer programmers and systems analysts; 59 8.2
telemarketers; bookkeeping, accounting and
auditing clerks
II Offshorable computer software engineers; accountants; 151 20.7
machine operators, team assemblers, and
production worker helpers
III Non-offshorable general and operations managers; stock 74 8.8
clerks, and order fillers
IV Highly non-business operations specialists 533 92.6
Total 817 130.0
Source: Alan S. Blinder, How Many U.S. Jobs Might be Offshorable?, CEPS Working Paper No. 142, March 2007.
As shown in Table 2 above, Blinder created an index of “offshorability” for 291 blue-collar,
white-collar, and service occupations based on the degree to which the jobs can be accomplished
electronically. The majority of occupations in which most persons were employed in 2004 are
considered highly non-offshorable—that is, they must be performed by individuals located near
their U.S. customers. Blinder characterizes categories I and II as the most conservative estimate
of potentially offshorable jobs (22.2% of total 2004 employment). He calls categories I, II, and
part of III a moderate estimate of jobs vulnerable to offshoring (25.6% of total employment).
Although Blinder labels categories I, II, and all of III as a too aggressive estimate of jobs
susceptible to offshoring in the near term (29.0% of total 2004 employment), he suggests that
further technological and other advancements might make the estimate more reasonable over a

10- to 20-year period. Blinder goes on to say that “Contrary to conventional wisdom, the more 28

offshorable occupations are not low-end jobs, whether measured by wages or by education.”
Some estimates of the impact of offshore outsourcing on U.S. employment have focused on IT
jobs in particular. Gartner Inc. announced in mid-2003 that it expected 10% of IT jobs at IT
companies in the United States and 5% of IT jobs at other U.S. companies to be sent overseas by
the end of 2004. It further speculated that by 2005, employers would have rehired less than 40% 29
of the workers whose jobs they had offshored. Gartner subsequently reported that less than 5%
of IT jobs in the United States and in other developed countries already have been sent overseas,
but it believes the proportion could climb to 30% by 2015. While not disputing the 30% claim,
some other organizations think it will take longer to reach the figure: 20 to 25 years rather than 10 30

28 Alan S. Blinder, How Many U.S. Jobs Might be Offshorable?, CEPS Working Paper No. 142, March 2007, p. 35.
(Hereafter cited as Blinder, How Many U.S. Jobs Might be Offshorable?.)
29 Diane Morello, U.S. Offshore Outsourcing Leads to Structural Changes and Big Impact, Gartner Inc., July 23, 2003.
30 Paul McDougall, “Gartner Predicts Huge Increase in Offshore Outsourcing by 2015,” InformationWeek, March 31,

But Gartner does not expect offshoring to cause a net loss of IT jobs in the United States.
Relatedly, in a study sponsored by the Information Technology Association of America (ITAA),
Global Insight estimated that actual and potential software and IT services jobs lost as a result of
offshoring between 2000 and 2003 numbered fewer than 112,000. It further projected a net gain
in aggregate U.S. employment in the coming years associated with sending more IT work 31
overseas. Indeed, some U.S. companies reportedly have offshored aggressively and become
more efficient competitors, thereby enabling them to expand rather than shrink their domestic 32
There are those who think that offshoring may allow the notion, which has been around since the
1980s, of a “virtual corporation”—with all but a firm’s crucial activities performed by outside
contractors—to become a reality. They believe that
the rise of the offshore option is dramatically changing the economics of [corporate]
reengineering. With millions of low-cost engineers, financial analysts, consumer marketers,
and architects now readily available via the Web, CEOs can see a quicker payoff.... Then the
efficiency gains kick in. A $10 billion company might initially only shave a few million
dollars in wages after transferring back-office procurement or bill collection overseas. But
better management of these processes could free up hundreds of millions in cash flow
annually. Those savings, in turn, help underwrite far broader corporate restructuring that can 33
be truly transformational.
One explanation for why perhaps only one-tenth of the potential market for offshoring global IT
and business processes work has been realized thus far is that “executives have a lot to learn
about using offshore talent to boost productivity.... The management challenge will grow more 34
urgent as rising global salaries dissipate the easy cost gains from offshore outsourcing.” Some
therefore remain cautious about how rapidly offshoring will lead to the creation of globally
distributed corporations. They suggest that what might occur is overzealous pursuit of offshoring
followed by retrenchment, during which time U.S. employers will learn the types of jobs best 35
suited to the practice and how to manage a globally dispersed workforce. Deloitte Consulting
concluded that
outsourcing will loseholy grail status. In the future, companies will not outsource because
it is the latest management fad, and it is the thing to do.... Organizations will carefully
define core, strategic, and thought-leadershipfunctions and will keep those inhouse to
retain knowledge, confidentiality, and control over key functions. Some organizations will
decide to outsource only short-term.... Many organizations will also engage in large scale re-36
insourcing thereby further eroding the outsourcing market.

31 Global Insight, Executive Summary: The Comprehensive Impact of Offshore Software and IT Services Outsourcing
on the U.S. Economy and the IT Industry, October 2005. Note: One industry group is expected to suffer net job losses:
publishing, software, and communications might have 60,658 fewer jobs in 2010, due to this business practice.
32 Pete Engardio, “The Future of Outsourcing,” Business Week, January 30, 2006.
33 Ibid., p. 57.
34 Ibid., p. 58.
35 Sharon Gaudin,Nearly 1 Million IT Jobs Moving Offshore, Datamation, November 19, 2002.
36 Deloitte Consulting, Calling A Change in the Outsourcing Market: The Realities for the World’s Largest
Organizations, April 2005, p. 25.

Both Dell and Lehman Brothers, for example, returned some inquiry help services and call center 37
work to the United States due to customer dissatisfaction. Other U.S. firms have had to employ
IT service providers located in the United States to fix software produced abroad. Even when
imported services are not flawed, some employers have overestimated the cost savings from
outsourcing because a service’s purchase price is affected by more than inter-country wage 38
differentials (e.g., travel and managerial oversight costs). META Group noted that firms often
calculate labor cost savings by making a “person-to-person comparison (e.g., a full-time
equivalent in India will cost 40% less)” and ignoring “hidden costs and differences in operating 39
models” that bring down savings to 15%-20% in the first year of offshoring. Perhaps reflecting
these shortcomings of offshoring, the share of IT employers that prematurely terminated contracts 40
with overseas IT service providers reportedly rose from 21% in 2004 to 51% in 2005.
At least two factors that could have put the brakes on the offshoring have failed to do so,
however. Offshore providers of IT services, for example, were able to allay U.S. outsourcers’ 41
fears about security shortly after the terrorist attacks of September 11, 2001. Despite 9/11, U.S.
airline carriers have continued their “increased outsourcing of maintenance jobs overseas—to
places like Singapore, Brazil, the Dominican Republic—not only for international aircraft but 42
even for planes on purely domestic routes.” In addition, concern periodically has arisen among
U.S. outsourcers over unrest in some regions (e.g., disputes between India and Pakistan as well as
in the Middle East). Global providers of software services have responded by placing more of
their clients’ work in a variety of countries, including the “near-shore” markets of Canada and 43
Mexico. Some individual U.S. employers also believe that moving work to nearby Canada,
which has fewer cultural differences with the United States than India or the Philippines for 44
example, likely reduces its customers’ potential antipathy to offshoring.
In summary, most studies find the extent of job losses from services offshoring relatively
small in the aggregate, but somewhat concentrated in a few industries and occupations. The
job losses stem from both a direct impact of offshoring, which displaces some workers, plus
an indirect impact through the productivity enhancements that it provides. However, there
are still unanswered empirical questions, including the just-mentioned productivity effect.
Indeed, offshoring could raise productivity directly or indirectly by displacing low-wage
[low-skilled] jobs and creating high-wage ones, but it could also do just the opposite [i.e., 45
result in displacement of well-paid, high-skilled workers].

37 Khozem Merchant, “Tough Call for the US Cost-Cutters,” Financial Times, December 22, 2003.
38 Olga Kharif, “The Hidden Costs of IT Outsourcing,” BusinessWeek online, October 27, 2003; and Ryan B. Patrick,
“Signs of Offshore Backlash Growing,Computerworld, January 8, 2004.
39Offshore Outsourcing Cost-Savings Perceptions Differ from Realities,” Business Wire, January 13, 2004.
40Study Points to Employer Dissatisfaction, Interest in China as Trends in IT Outsourcing, Daily Labor Report, June
14, 2005.
41 Julie Gallagher, “Redefining the Business Case for Offshore Outsourcing,Insurance & Technology, April 2002.
42 Al Kamen, “In the Loop,” Washington Post, February 27, 2004, p. A21.
43 “Gartner Dataquest Says IT Outsourcing Industry to Advance with Increased Demand in Offshore Outsourcing,
Business Wire, January 30, 2003.
44 Ian Austen, “Canada, the Closer Country for Outsourcing Work, New York Times, November 30, 2004.
45 Robert W. Bednarzik,Restructuring Information Technology: Is Offshoring a Concern? Monthly Labor Review,
August 2005.

The state of mind that now prevails is one that characterized the initial years of the 1990s, when
the labor market was slowly recovering from the 1990-1991 recession and stories of worker
anxiety over job insecurity abounded in the media. A month hardly went by without at least one 46
major U.S. company announcing a layoff that involved thousands of employees. The leading
explanation for the heightened feeling of worker anxiety in that period was “corporate
downsizing” (i.e., a net decrease in a firm’s employment) that often involved internal company
restructuring through flattening the organizational pyramid (i.e., eliminating layers of middle
management jobs).
Data from the Displaced Worker Supplement (DWS) to the Current Population Survey supports
the impression that the nature of permanent job loss has changed. Generally speaking, long-
tenured white-collar workers in some service sector industries have become more susceptible to 47
displacement. But, blue-collar workers continue to be at the greatest risk of layoff. (See the box
below for a description of the displaced worker population.)
The U.S. Bureau of Labor Statistics (BLS) defines
displaced workers as persons at least 20 years old who
had worked for their employers at least three years
The risk of job loss among manufacturing before losing their jobs because of plant or company
industry workers improved from 1981-1982 to closings and moves, insufficient work for them to do, or

1991-1992 (two comparable periods). As the abolishment of their positions and shifts. The definition is intended to identify workers who had some attachment

economy recovered from the severe 1981-to their employers, were terminated through no fault of

1982 recession, the chance of losing a their own, and who did not expect to be recalled to

manufacturing job decreased. During the their former jobs.

milder 1990-1991 recession, the displacement 48
rate among manufacturing workers rose to 7.1% but did not reach its 1981-1982 level of 8.2%.
(See top panel of Table 3.) In contrast, the job security of most other workers worsened or stayed
about the same. The incidence of permanent layoffs in finance, insurance, and real estate
quadrupled to 5.5%. While the displacement rate also climbed (but less steeply) in
wholesale/retail trade, construction, and in services, none of the service sector industries was
close to manufacturing’s risk of job loss.
The shift in the industrial pattern of displacement translated into a change in its occupational
distribution in light of the predominance of blue-collar workers at manufacturers and white-collar

46 For more information, see CRS Report RL30799, Unemployment Through Layoffs and Offshore Outsourcing,
Unemployment Through Layoffs: What are the Reasons?
47 Little attention typically is paid to the displacement of workers in service occupations, who include cooks and
servers, cleaners and maintenance workers, hairdressers and child care workers, and police and firefighters. Workers in
service occupations are less likely than blue-collar and white-collar workers to be affected by offshoring because many
of their jobs require face-to-face interaction with customers.
48 The displacement rate is the number of displaced workers in a particular group divided by the tenure-adjusted, two-
year average estimate of employment for that same group.

workers in the service sector. The probability of permanent layoffs fell among blue-collar workers
to 5.3%. It rose to 3.7% among white-collar workers. (See bottom panel of Table 3.)
Table 3. Displacement Rates by Industry and Occupation of Lost Job, 1981-1982 and
Characteristic 1981-1982 1991-1992
All long-tenured workers age 20 and older 3.9 3.9
Mining 13.6 7.4
Construction 7.6 8.4
Manufacturing 8.2 7.1
Transportation and public utilities 4.1 4.4
Wholesale and retail trade 3.7 4.7
Finance, insurance, and real estate 1.4 5.5
Services 2.3 2.9
Government 1.2 1.1
Agriculture 5.4 3.8
White-Collar Workers 2.6 3.7
Managerial and professional specialty 2.1 3.6
—Executive, administrative, and managerial 2.5 4.8
—Professional specialty 1.7 2.4
Technical, sales, and administrative support 3.0 3.7
—Technicians and related support 3.3 3.7
—Sales occupations 3.7 3.6
—Administrative support, including clerical 2.5 3.8
Blue-Collar Workers 7.3 5.3
Service Workers 2.0 2.1
Farming, Forestry, and Fishing 0.9 1.4
Source: Ryan T. Helwig, “Worker Displacement in 1999-2000,” Monthly Labor Review, June 2004.
White-collar workers whose risk of displacement increased to the greatest extent were employed
in managerial occupations and in administrative support (including clerical) occupations. The
chance of job loss among executives, administrators, and managers almost doubled to 4.8%. The
increased focus of displacement on those who themselves manage companies had a widespread
psychological impact: “When people on higher rungs of the corporate ladder lose their jobs, it
throws fear into the hearts of thousands of workers” and represents “a corporate vote of no 49
confidence in any worker’s job security.” Among those in administrative support jobs, the
displacement rate rose by half to 3.8%. The likelihood of permanent layoffs increased somewhat,

49 Perri Capell, “Endangered Middle Managers,” American Demographics, January 1992, p. 37.

to 2.4%, among professionals as well. These data lend support to the widespread belief of white-
collar workers that their jobs are less secure, but the change pre-dated any noticeable offshoring
of service sector jobs.
Displacement rates improved virtually across-the-board during the long economic expansion of
the 1990s. Even when examined against a fairly comparable period 10 years earlier, the
probability of job loss was lower in 1999-2000. (See Table 4). However, for the first time since
the DWS data were collected, the risk of permanent layoffs among employees of the services
industry group (e.g., telecommunications firms and providers of computer services to other 50
businesses) rose to the point that it equaled the average displacement rate.
The limited supply of workers available to U.S. employers in the late 1990s was responsible for 51
the reduced likelihood of being laid off—with the possible exception of professionals. It has
been suggested that any offshoring of services that occurred during this time “can be seen as
spinoffs from the US because of tight labor markets, rather than job transfers out of the US in 52
search of lower labor costs.” The services offshoring that continued to occur during the 2001
recession and sluggish recovery in the following two years could have “involve[d] the transfer of
US jobs and occupations to other countries,” however.
Table 4. Displacement Rates by Industry and Occupation of Lost Job, 1989-1990 and
Characteristic 1989-1990 1999-2000
All long-tenured workers age 20 and older 3.1 2.5
Mining 10.0 7.5
Construction 5.9 3.3
Manufacturing 5.0 4.7
Transportation and public utilities 3.6 2.7
Wholesale and retail trade 3.9 3.1
Finance, insurance, and real estate 3.5 3.7
Services 2.1 2.5
Government 0.4 0.5
Agriculture 3.2 1.7
White-Collar Workers 2.7 2.4

50 Among the approximately 2 million workers displaced in 1999-2000, DWS data show there were some 69,000 long-
tenured workers permanently let go from the computer and data processing services industry.
51 About 33,000 long-tenured computer systems analysts and scientists as well as some 11,000 long-tenured computer
programmers were displaced during the 1999-2000 period according to DWS data.
52 Bardhan and Kroll, The New Wave of Outsourcing, p. 3.

Characteristic 1989-1990 1999-2000
Managerial and professional specialty 2.3 2.1
—Executive, administrative, and managerial 3.4 2.7
—Professional specialty 1.3 1.6
Technical, sales, and administrative support 3.1 2.7
—Technicians and related support 3.2 2.7
—Sales occupations 2.9 2.9
—Administration support, including clerical 3.2 2.6
Blue-Collar Workers 4.5 3.3
Service Workers 1.6 1.4
Farming, Forestry, and Fishing 1.5 0.5
Source: Ryan T. Helwig, “Worker Displacement in 1999-2000,” Monthly Labor Review, June 2004.
Data covering the initial years of the current decade not unexpectedly show an increase in the
incidence of displacement compared to the booming 1990s. In 2001-2002, which includes the
2001 recession and lackluster recovery in the labor market, the displacement rate was 4.3%. This
is somewhat above the rate attained during the two earlier periods, shown in Table 3, that
included recessions. By 2003-2004, the risk of permanent job loss dropped to 3.1%, which partly
reflects the eventual response of the labor market to the ongoing economic expansion.
As shown in Table 5, which contains new industry and occupation classification systems, there is
evidence of the information industry recording the highest rate of permanent job loss, at 9.6%, in
the 2001-2002 period. (The information industry includes wired telecommunications carriers,
radio and television broadcasting and cable, motion pictures and video, newspapers, and
publishing.) Another industry with a well above-average displacement rate was professional and
business services, at 7.1%; some IT-intensive industries (e.g., computer systems design and
related services as well as architectural and engineering services) lie within this industry group.
Both information and professional/business services previously were classified within the
services industry group which, as noted above, earlier showed an increase in permanent layoffs.
But by 2003-2004, the two industries exhibited sharply reduced displacement rates (5.0% and
4.1%, respectively)—reflecting some recovery from the burst IT-telecom bubble. The incidence
of displacement in cyclically sensitive manufacturing also fell, but to a lesser extent, from 8.7%
to 6.4%.
From an occupational perspective, the incidence of displacement was well above average among
factory workers and managers. In 2001-2002, workers in production jobs reported the highest
incidence of permanent job loss, at 8.7%. While the rate of permanent job loss fell from 5.2% in
2001-2002 to 4.0% in 2003-2004 for those in management, business, and financial operations
occupations, it remained above the all-occupation average. The decrease also was smaller than
experienced by workers in production jobs, whose likelihood of permanent job loss dropped to

5.3% in 2003-2004, but this, too, was still above the all-occupation average.

Table 5. Displacement Rates by Industry and Occupation of Lost Job, 2001-2002 and
Characteristic 2001-2002 2003-2004
All long-tenured workers aged 20 and older 4.3 3.1
Mining 2.3 5.5
Construction 4.1 4.6
Manufacturing 8.7 6.4
Transportation and public utilities 3.9 3.8
Wholesale and retail trade 4.8 3.2
Financial activities 3.4 4.0
Information 9.6 5.0
Professional and business services 7.1 4.1
Education and health services 2.0 1.4
Leisure and hospitality 2.6 2.4
Other services 2.8 1.9
Government 0.6 0.7
Agriculture 4.1 1.2
Management, professional, and related occupations 3.9 2.9
—Management, business, and financial operations occupations 5.2 4.0
—Professional and related occupations 3.1 2.2
Sales and office occupations 4.4 3.2
—Sales and related occupations 5.2 3.4
—Office and administrative support 3.9 3.0
Natural resources, construction, and maintenance occupations 5.0 3.8
—Farming, fishing, and forestry 4.2 0.4
—Construction and extraction occupations 4.4 4.0
—Installation, maintenance, and repair 5.8 4.1
Production, transportation, and material moving occupations 6.9 4.6
—Production occupations 8.7 5.3
—Transportation and material moving 4.4 3.5
Service occupations 2.2 1.6
Source: Unpublished data from the DWS.
In addition to the shift in focus of permanent layoffs across industries and occupations,
perceptions about “what happens afterwards” exacerbate concern over job insecurity. If people

think there are other jobs available that will pay them as much as their current jobs, anxiety about
displacement likely will be less intense than if they think their chance for reemployment in
comparable jobs is slim.
Despite variance in the size of the majority depending upon the strength/weakness of the labor
market, most displaced workers have been able to find new employment. As shown in Table 6,
about three out of four workers displaced in 2003-2004 again had jobs in January 2006. Even
among workers in production jobs, the majority—about two out of three—succeeded in obtaining
new positions. The issue for most displaced workers, then, is not so much a lack of jobs per se as
it is the quality of their new jobs vis-a-vis their former jobs.
Table 6. Displaced Workers by Occupation of Job Lost in the 2003-2004 Period and
Employment Status in January 2006
Employment Status (percent distribution)
Total (in Not in the
Occupation of Job Lost 000s) Total Employed Unemployed Labor Force
Total 2,418 100 76 8 16
Management, professional, and related 863 100 78 8 14
—Management, business, and financial 460 100 75 9 16
—Professional and related occupations 404 100 81 6 13
Sales and office occupations 605 100 76 6 18
—Sales and related occupations 244 100 82 6 13
—Office and administrative support 361 100 73 5 22
Natural resources, construction, and 270 100 73 11 16
maintenance occupations
—Construction and extraction 145 100 79 10 11
—Installation, maintenance, and repair 123 100 79 7 13
Production, transportation, and material 490 100 69 12 18
moving occupations
—Production occupations 331 100 67 12 21
—Transportation and material moving 159 100 77 11 12
Service Occupations 175 100 79 6 14
Source: Unpublished data from the DWS.
Note: The occupational classification system changed with this round of the DWS. Percentages may not add to
100 due to rounding.
Job quality commonly is measured in terms of earnings levels. About equal numbers of
employees displaced from full-time jobs in 2003-2004, who were reemployed full-time in
January 2006, were earning less or more than they had in their pre-displacement positions. (See

Table 7.) This marks a continued departure from the usual pattern of more than one-half of full-
time job losers subsequently getting full-time jobs paying as much or more than they previously 53
Table 7. Workers Displaced From and Reemployed in Full-Time Wage and Salary
Jobs, by Earnings on Pre- and Post-Displacement Jobs
Reemployed in Full-Time Wage and Salary Job in January 2006 (percent
Earnings Compared to Those on Job Lost (percent
Total Who At Least At Least At Least
Reported 20% Below but Equal but 20%
Occupation of Job Lost Earnings below Within 20% Within 20% above
Total 100 28 22 32 17
Managerial, professional and 100 25 21 38 17
related occupations
—Management, business, and 100 23 27 33 17
financial operations
—Professional and related 100 27 14 43 16
Sales and office occupations 100 28 26 25 20
—Sales and related 100 19 25 37 19
—Office and administrative 100 33 28 18 21
Natural resources,
construction, and 100 28 17 35 19
maintenance occupations
—Construction and 100 28 12 41 18
extraction occupations
—Installation, maintenance, 100 27 24 28 21
and repair
Production, transportation,
and material moving 100 37 19 30 14
—Production occupations 100 38 23 23 15
—Transportation and 100 34 9 45 11
material moving
Service occupations 100 23 30 32 14
Source: Unpublished data from the DWS.

53 According to immediately prior survey, only 40% of displaced workers reemployed full-time in January 2004 were
earning at least as much as they had on their pre-displacement jobs. Comparable figures from earlier DWS surveys
ranged from 52% to 61%.

Note: The occupational classification system changed with this round of the DWS. Percentages may not add to
100 due to rounding.
Reemployed professionals typically have been among those who fared the best when pre- and
post-displacement earnings are compared. The occupations in which displaced professionals
become reemployed provides a partial explanation for this finding: as most of these workers 54
typically had obtained new jobs within the same occupational group, they tended to retain the
reward for experience (tenure) in their field that they would have lost had they switched
occupations. In January 2006, 59% of professionals reemployed full-time in wage and salary jobs
earned at least as much as they had in their pre-displacement jobs.
Although trade-related job loss among IT and IT-enabled professionals is such a new
phenomenon that its consequences have not been much researched, some surmise from earlier
studies of worker displacement that offshoring may prove to be less “costly in terms of
unemployment and permanent wage loss as earlier waves of blue-collar, trade-related, job 55
displacement were.” Their speculation is based upon the studies’ findings that more educated
workers usually have an easier time finding new jobs and generally incur smaller wage declines.
Others argue, however, that offshoring will exert downward pressure on the wages of higher
skilled workers. Additionally, studies typically estimate that trade has had a fairly small effect on
the U.S. wage structure (e.g., by depressing the relative wages of low skilled workers), but “if
trade in services that involve more highly skilled jobs continues to grow, trade will affect a larger 56
share of the workforce, so the effect on the wage structure could become larger over time.”
Those full-time employees displaced from management and related occupations as well as from
production jobs continued to experience poor wage outcomes compared to professional and
related workers. As shown in Table 7, 50% of managers and 38% of these blue-collar workers
were able to obtain post-displacement jobs that paid at least as well as their pre-displacement
positions, compared to 59% of professionals. Differences in the degree of earnings loss by
occupation may have to do with the nature of the skills—general or specific—that members of
occupational groups typically possess. An analysis of white-collar displacement found evidence
to “suggest that managers experience `larger earnings losses than otherwise equivalent white-57
collar workers,” which accords with the idea that a fairly large portion of the skills that
managers and blue-collar workers possess are job- or industry-specific. Because skills of this
nature are not readily transferable from one job to the next, managers and blue-collar workers
appear less able than others to command wages on their new jobs that are comparable to their past 58
earnings levels. An above-average share of displaced blue-collar workers find new jobs in
service occupations (e.g., janitorial and maintenance positions as well as food preparation and 59
serving jobs)—usually the lowest paying of all occupational groups. This might partly explain

54 “Displaced Professional Workers Most Likely to Return to the Same Occupation,Monthly Labor Review, October
55 Karoly and Panis, The 21st Century at Work, pp. 172-173.
56 Ibid., p. 177.
57 Lori G. Kletzer,White-Collar Job Displacement, Proceedings of the 47th Annual Meeting, Industrial Relations
Research Association, 1995, p. 105.
58 According to Derek Neal, “Industry-Specific Human Capital: Evidence from Displaced Workers,Journal of Labor
Economics, vol. 13, no. 4, October 1995, workers who switch industries upon reemployment (e.g., due to the long-term
employment decline at manufacturers) incur larger wage costs than workers able to remain in their pre-displacement
59 Ryan Helwig, “Worker Displacement in a Strong Labor Market, Monthly Labor Review, June 2001.

the relatively high prevalence (38%) of workers who lost production jobs and upon
reemployment found themselves earning at least 20% less than they had in their prior jobs.

Congress has demonstrated a longstanding interest in assisting workers who have lost jobs
through no fault of their own (e.g., it has provided regular and, from time to time, extended
unemployment insurance benefits). The following discussion is limited to programs meant to
mitigate the adverse impact of offshore outsourcing on U.S. workers.
When displacement is expected to be caused by government action, such as enactment of
international trade agreements, Congress has created special programs to help these individuals.
The Trade Adjustment Assistance (TAA) program was initiated in 1962 and is now authorized
temporarily in the Trade Act of 1974 (P.L. 93-618) as amended. Generally speaking, the program
offers an additional period of income support once workers displaced by the importation of
articles or shift in goods production outside the United States have exhausted their regular and
extended unemployment benefits and have met a job training requirement. These workers also are
eligible to receive search and relocation allowances, as well as tax credits to make obtaining
health insurance more affordable. TAA is a vehicle that policymakers have shown interest in
utilizing to assist workers in the service sector who lose their jobs to offshoring (e.g., by 60
broadening the definition of an article).
The Worker Adjustment and Retraining Notification (WARN) act also was enacted to help
workers laid off through no fault of their own to more quickly find new employment. Although
“retraining” is part of the statute’s title, P.L. 100-379 does not authorize training. Enacted in 1988
and not substantively amended since then, WARN requires employers to provide written notice of
mass layoffs and plant closings to workers or their representatives, state dislocated worker units,
and the chief elected official of a unit of local government at least 60 days before the event. The 61
advance notice requirement applies to employers, closings, and layoffs of a certain size.
Education and training frequently are mentioned as ways not only to enable displaced workers to
obtain new jobs but also to empower individuals to take advantage of technology’s effects on the

60 CRS Report RS22718, Trade Adjustment Assistance for Workers (TAA) and Alternative Trade Adjustment Assistance
for Older Workers (ATAA), by John J. Topoleski.
61 CRS Report RL31250, The Worker Adjustment and Retraining Notification Act (WARN), by Linda Levine.

world of work. At present, the Workforce Investment Act (WIA, P.L. 105-220) provides services
targeted at “dislocated workers” who include job losers unlikely to be recalled to work in their
former industries and occupations. Unlike TAA, training for dislocated workers through WIA is 62
not an entitlement. Tax incentives also are in place to encourage people to utilize their own 63
resources to expand and improve their skill sets.
Individuals who lose their jobs to offshoring might not think they need to undertake retraining or
skill upgrading, however. Experienced workers with IT qualifications likely expected hiring to
pick up once firms resumed substantial computer-related spending for example. Although IT
employment rebounded from the depths reached after the telcom bubble burst several years ago, 64
it remains below peak demand for computer programmers, systems analysts, and engineers.
Other individuals, while acknowledging their need to retrain, probably are stymied by the
widening range of work that appears susceptible to being offshored. Some researchers have found
little or no relationship between an occupation’s vulnerability to offshoring and its skill level as 65
measured by either educational attainment or earnings.
Offshore outsourcing generally was not being discussed when Kletzer and Litan suggested in
early 2001 that wage insurance be provided to mitigate the adverse impact of involuntary worker
displacement. They proposed that for those longtime full-time employees who become
unemployed through no fault of their own and who subsequently accept full-time jobs paying less
than their pre-displacement wages, government provide a subsidy through the federal-state
Unemployment Insurance system equal to a portion of the wage loss for up to two years 66
following reemployment. Such a program, they contended, would reduce worker anxiety over
trade liberalization, among other factors that can result in job loss (e.g., technological innovation),
and would help speed reemployment of dislocated workers.
At a 2004 briefing on offshore outsourcing, Catherine Mann of the Institute for International
Economics pointed to the wage insurance program in the Trade Act of 2002 as model for serving 67
a broader eligible population. The existing demonstration program (the Alternative Trade
Adjustment Assistance, or ATAA), which is funded through the Federal Unemployment Account, 68
is available only to some older workers who lose their jobs due to international trade.

62 CRS Report 97-536, Job Training Under the Workforce Investment Act (WIA): An Overview, by Ann Lordeman.
63CRS Report RL31129, Higher Education Tax Credits and Deduction: An Overview of the Benefits and Their
Relationship to Traditional Student Aid, by Linda Levine and Charmaine Mercer, Higher Education Tax Credits and
Deduction, by Linda Levine and Charmaine Mercer.
64 CRS Report RL31973, Programs Funded by the H-1B Visa Education and Training Fee, and Labor Market
Conditions for Information Technology (IT) Workers, by Linda Levine and Blake Alan Naughton.
65 Blinder, How Many U.S. Jobs Might be Offshorable?.
66 Lori G. Kletzer and Robert E. Litan, A Prescription to Relieve Worker Anxiety, Institute for International Economics,
Policy Brief 01-2, February 2001.
67 Fawn H. Johnson, “Expanded Wage Insurance Programs Would Calm Outsourcing Fears, Analysts Say, Daily
Labor Report, April 5, 2004.
68 A required minimum of petitioning workers must be at least 50 years old (i.e., three workers in groups of 50 or less,
or 5% of groups of 50 or more); the skills of those at least 50 years old in the group are not easily transferable; and
conditions in the industry are adverse. More information on the ATAA demonstration can be found at

Little is known thus far about how well the wage insurance component of the ATAA program is
performing, however. On the basis of results of an evaluation of the Canadian Earnings
Supplement Project, which was conducted between 1995 and 1998, the benefits of a wage 69
insurance program may be modest. The two-year supplement replaced 75% of the earnings lost
by displaced workers, up to $250 per week, who were reemployed within a 26-week period in
lower-paying full-time (30 hours a week) jobs. Displaced workers were randomly assigned to a
group that was offered the supplement and to a group that was not (the control group). Only 20%
of supplement group members received payments; this low take-up rate is attributed to the
inability of eligible workers to quickly find new full-time jobs. The program was estimated to
produce a small but statistically significant difference in the full-time reemployment rate of
supplement compared to control group members—with the difference occurring toward the end
of the period when workers were eligible for the supplement. At its widest, the difference in full-
time reemployment rates was 4.4 percentage points. The gap gradually narrowed, and by one year
after assignment of displaced workers to the supplement or control group, their full-time
reemployment rates essentially were the same. The supplement did contribute greatly to the
incomes of those fairly few individuals who received it, however, with payments averaging some
$8,700 over a one-and-a-quarter-year period.
In contrast to government-sponsored initiatives, the McKinsey Global Institute put forth a wage
insurance proposal that lies entirely in the private sector. It recommended that, as part of a
severance package, businesses purchase insurance for displaced workers to cover their lost wages
during the median period of unemployment for their occupational group and provide them with a 70
portion of any wage loss incurred upon reemployment in full-time jobs.
Linda Levine
Specialist in Labor Economics, 7-7756

69 Howard S. Bloom, Saul Schwartz, Susanna Lui-Gurr, and Suk-Won Lee, “Testing a Financial Incentive to Promote
Re-Employment Among Displaced Workers: The Canadian Earnings Supplement Project (ESP), Journal of Policy
Analysis and Management, summer 2001, vol. 20, no. 3.
70 McKinsey Global Institute, Offshoring: Is It a Win-Win Game?