Research Paper no. 3 2007–08
The statistical evidence for offshore outsourcing and
its impact on the Australian labour force
Guy Woods
Statistics and Mapping Section
2 August 2007
Contents
Executive summary
Introduction
The OECD report
Trade
Labour force
Analysing the data
Conclusion
Endnotes
- The outsourcing of services jobs to offshore economies has
attracted a lot of media attention.
- Despite the interest in Australia, there are no official
statistics that specifically measure this phenomenon.
- OECD research has identified trade and employment statistics
which can be used as a proxy for the impact of offshoring in
developed economies such as Australia.
- Analysis of these data indicate that, in terms of employment,
Australia is a net beneficiary in the international trade in
services and, therefore, of offshoring.
|
Introduction
In the 1970s and 1980s the
reduction of trade barriers and developments in transport exposed
manufacturing jobs to international competition. Now developments
in information and communications technology (ICT) are exposing
service based jobs to the same competitive forces. This has created
a great deal of concern about the loss of service based jobs to
overseas markets. Reports now regularly appear in newspapers and
journals about this issue.
A survey of the Parliamentary Library s
database of newspaper articles [1] revealed 264 articles on this subject
in Australia s major newspapers in 2006. This issue was also the
focus of a Parliamentary Library research brief in 2005, which
examined the issues involved and the pros and cons of offshoring.
[2]
However, despite the media interest in this
topic it is very difficult to quantify this phenomenon. This is
because there are no official statistics that directly measure if
there is a loss of jobs to offshoring. Most of the information in
the press relies upon the offshoring activities of specific high
profile companies, such as Qantas or the major banks.
The Finance Sector Union (FSU) has attempted
to measure the situation and claims that about five thousand jobs
have been outsourced overseas by well known Australian companies in
the last two years. [3] It also made claims that up to twenty per
cent of Australian jobs could eventually be affected.
The Organisation for Economic Development and
Cooperation (OECD) has also attempted to quantify the issues
relating to offshoring for a selected group of economies including
Australia. Some of the claims in the FSU report were sourced from
the findings in the OECD report.
The OECD report
The OECD released its report on the potential
impact of offshoring in 2005. [4] In this report the OECD used official
statistics on trade and employment to examine the impact of
offshoring on the labour markets of these economies. The following
will examine the Australian trends using the statistics highlighted
by the OECD report.
Trade
An economy s trade statistics can provide
information about the international competitiveness and demand for
an economy s goods and services. Trade surpluses in individual
goods and services indicate areas of comparative advantage. Those
areas experiencing strong and or growing surpluses may also
indicate growing levels of employment in the relevant occupations.
Trade deficits may indicate job losses.
Table 1: Services trade balance (a)
$m
Year to June 30
|
Total services
|
Computer and information services
|
Other business services
|
1996
|
-
349
|
15
|
-
984
|
1997
|
587
|
27
|
-
747
|
1998
|
-
568
|
207
|
-
676
|
1999
|
-
777
|
273
|
-
569
|
2000
|
231
|
73
|
50
|
2001
|
2
131
|
-4
|
479
|
2002
|
2
027
|
132
|
-
74
|
2003
|
2
524
|
129
|
322
|
2004
|
2
050
|
165
|
493
|
2005
|
380
|
156
|
949
|
2006
|
771
|
131
|
1
352
|
(a) a
negative sign equals a trade deficit
Source:
International Trade in Goods and Services, ABS catalogue
No.5368.0.
|
In order to ascertain the impact of offshoring
on employment in service based occupations the OECD examined the
trade data in ICT-enabled services. Specifically this related to
trade in computers and information services and other business
services .
In recent years Australia has experienced
strong growth in exports in these two categories. In the period
2000 01 to 2005 06 exports for these two categories have grown at
an annual average rate of 6.5 per cent, which is twice the rate of
total services exports. The OECD analysis found that exports
appeared to have a positive impact on employment growth in offshore
exposed occupations.
Table 2: - Occupations potentially
affected by offshoring (a)
Engineering managers
|
Legal
Professionals
|
Information Technology Managers
|
Economists
|
Sales
and Marketing Managers
|
Urban
and Regional Planners
|
Policy
and Planning Managers
|
Journalists and Related Professionals
|
Chemists
|
Authors
and Related Professionals
|
Geologists and Geophysicists
|
Branch
Accountants and Managers (Financial Institution)
|
Life
Scientists
|
Financial Dealers and Brokers
|
Environmental and Agricultural Science Professionals
|
Financial Investment Advisers
|
Medical
Scientists
|
Computing Support Technicians
|
Other
Natural and Physical Science Professionals
|
Customer
Service Managers
|
Architects and Landscape Architects
|
Other
Managing Supervisors (Sales and Service)
|
Quantity
Surveyors
|
Secretaries and Personal Assistants
|
Cartographers and Surveyors
|
Bookkeepers
|
Civil
Engineers
|
Credit
and Loans Officers
|
Electrical and Electronics Engineers
|
Advanced
Legal and Related Clerks
|
Mechanical, Production and Plant Engineers
|
Insurance Agents
|
Mining
and Materials Engineers
|
Desktop
Publishing Operators
|
Accountants
|
Keyboard
Operators
|
Auditors
|
Accounting Clerks
|
Marketing and Advertising Professionals
|
Payroll
Clerks
|
Computing Professionals
|
Bank
Workers
|
Librarians
|
Insurance Clerks
|
Mathematicians, Statisticians and Actuaries
|
Money
Market and Statistical Clerks
|
Business
and Organisation Analysts
|
Switchboard Operators
|
Other
Business and Information Professionals
|
Telemarketers
|
Medical
Imaging Professionals
|
|
(a) By Australian Standard Classification of
Occupations.
Source: Desiree van Welsum and Xavier Rief,
Potential Offshoring: Evidence From Selected OECD
countries, OECD, July 2005.
|
This strong growth in business services
exports has resulted in an increase in the surplus for computer and
information services and turned a deficit into a billion dollar
surplus for other business services (Table 1). This is at a time
when Australia has experienced record trade deficits in aggregate
goods and services. All things being equal, this strong growth
should have led to an increase in employment in these industries in
Australia. When the labour force data are examined, see below,
there has been a dramatic increase in a number of occupations
exposed to offshoring activities.
Labour force
The OECD identified certain occupational
characteristics that provided offshore outsourcing opportunities in
the modern ICT-based economy. These were:
Using these criteria the OECD identified those
occupations (shown in Table 2) that could be potentially
outsourced.
From the data in Table 3 it can be seen that
about 19 per cent of employed Australians are in occupations that
could be potentially affected by offshoring. Since 2001, growth in
employment has varied significantly across these occupations. Some
have seen a large increase in employment, whilst a few have
experienced decreasing employment. At the aggregate level net jobs
growth for these occupations has been positive.
Analysing the data
The OECD tested the data for any links between
employment growth and offshoring for Australia and other leading
OECD economies for the period 1995 to 2003. It examined the impact
of offshore outsourcing on employment as a function of:
-
trade
-
investment
-
the industrial structure of the economy
-
technological adoption/integration, product
market regulations
-
employment protection, and
-
human capital.
The OECD s analysis found there was no clear
evidence that:
increasing imports of other business and
computer and information services are associated with a reduction
in the share of employment potentially affected by offshoring at
the aggregate level.
[6]
The OECD report concludes that:
in the OECD countries analysed, ICT enabled
services, offshoring (as proxied by trade and investment) has not
yet led to a relative decline in the occupational share of location
independent ICT-using occupations
. [7]
Table 3: Employment in occupations potentially affected by
offshoring Persons

From the data presented in Table 3 it can be
seen that employment growth in those occupations potentially
affected by offshoring has been mixed. Overall employment has grown
more slowly in this category than for total employment. However,
many of the individual occupations have seen growth rates well
above the rate for total employment.
Sone of those occupations, such as keyboard
operators, switchboard operators and desktop publishers, that have
experienced declines in employment are located in areas affected by
technological change. The OECD concluded that it was not possible
to say whether offshoring or technological changes are responsible
for this trend. Interestingly, an occupation often associated with
the use of overseas workers telemarketer has enjoyed strong
employment growth in Australia in recent years.
Conclusion
Alarmist articles about massive job losses
through outsourcing to overseas companies do not seem to be
substantiated by an analysis of the data. Whilst there has been
some decline in employment in some occupations, other occupations
have seen substantial increases. OECD research was unable to
ascertain if the declines in employment in some occupations were
due to offshoring or other factors. Finally, the Australian trade
data would suggest that Australia is a major beneficiary of the
offshoring activities other countries.
Endnotes
[2] . Dr Richard Grant, Offshoring jobs: US and Australian
perspectives , Research Brief, Parliamentary Library, no. 12, 2004
05.
[3] . Off-shoring a joint policy paper by the Finance
Sector Union of Australia, Australian Services Union,
Communications, Electrical and Plumbing Union (Communications
Division) and the Community and Public Sector Union, June
2006.
[4] . Desiree van Welsum and Xavier Reif, Potential
offshoring: evidence from selected OECD countries, OECD, July
2005. The countries looked at were Canada, USA and the EU15
excluding Greece, Ireland, Luxembourg, and Portugal.
[5] . Technical knowledge is very procedural or regulated by
standards, for example accounting.