Executive summary
Introduction
The OECD report
Trade
Labour force
Analysing the data
Conclusion
Endnotes

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

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)

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:

The OECD s analysis found there was no clear evidence that:

The OECD report concludes that:

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