Offshoring creates as many U.S. jobs as it kills, study says

July 12, 2012

"Offshoring" has become a major bogeyman in the 2012 presidential campaign. But is it actually harmful for American workers in the long run? A new paper from the London School of Economics Center for Economic Performance suggests not.

Three economists examined 58 U.S. manufacturing industries from 2000 to 2007, and found an economic upside to offshoring—not just for American companies, but for American workers themselves.


(Andy Wong/Associated Press)

The study found that offshoring tends to increase productivity and reduce costs, which can prompt firms to expand domestic hiring enough to offset the jobs lost to workers overseas.

"Offshoring has no effect on native employment in the aggregate," the authors said. "While offshore workers compete directly with natives, their employment generates productivity gains that 'increase the size of the pie,' leading to an overall neutral impact on native employment."

More specifically, the researchers found that increasing offshore jobs by 1 percent is linked to a 1.72 percent increase in overall U.S. employment of native workers, though they describe the effect as neutral overall because the 0.72 percent difference is too small to be statistically significant. Offshoring also tends to push native U.S. workers toward more complex jobs, while offshore workers tend to specialize in less-skilled employment.

The paper also examined the impact of immigrants and found that immigration had an even more positive effect on jobs for native-born U.S. workers: Every 1 percent increase in immigrant jobs boosted aggregate employment for American-born workers by 3.9 percent.

So, contrary to the popular belief that offshoring cuts the U.S. workforce, "manufacturing industries with a larger increase in global exposure (through offshoring and immigration) fared better than those with lagging exposure in terms of native employment growth," the researchers concluded.

That doesn't mean that offshoring is unambiguously good for all workers in all industries: The paper explained that, in certain manufacturing industries, the native share of employment has "ambiguously" gone down, forcing workers who've lost their jobs to offshoring to look for work in another sector altogether.

It's also worth noting that the study doesn't examine the state of U.S. manufacturing since 2007, when recession-strapped companies increased productivity while reducing employment to squeeze as much out of as few workers as possible. So the link between the "productivity effect" from overseas hiring and new jobs in the United States may have weakened in the last five years.

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Dylan Matthews · July 12, 2012