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Global outsourcing has spurred US economy: ITAA/Global Insight study news
Our Infotech Bureau
02 November 2005

A new study, The Impact of Offshore Software and IT Services Outsourcing on the US Economy and the IT Industry, finds that world-wide sourcing of computer software and services continues to increase the number of US jobs, improve real wages for American workers, and has many other economic benefits as a result of pushing the US economy to perform at higher levels.

The study, commissioned by The Information Technology Association of America (ITAA), the leading trade association for the IT industry, was released last Monday by by technology analysts Global Insight, a private company, which has brought together DRI and WEFA, the world's most respected economic analysis, forecasting and financial information companies.

"The benefits of free trade clearly provide a boost to the US economy," says Dr Nariman Behravesh, chief global economist at Global Insight. "Using offshore resources creates additional jobs, increases efficiency, reduces costs, dampens inflation, lowers interest rates, increases spending, and creates additional jobs," Behravesh says and concludes, "The challenge is to help displaced workers transition to other productive activities."

Highlights of the study:

  • World-wide sourcing of IT services and software increases total employment in the United States. This activity generated an additional 257,042 net new US jobs in 2005; by 2010, net new jobs will total 337,625;
  • Workers enjoy higher real wages. Global sourcing adds to the take-home pay of the average US worker. With inflation kept low and productivity high, world-wide sourcing will increase real hourly wages in the US by $0.06 in 2005, climbing to $0.12 in 2010;
  • The cost savings and use of offshore resources lower inflation, increase productivity, and lower interest rates. This boosts spending and increases economic activity;
  • World-wide sourcing contributes significantly to real US GDP, adding $68.7 billion in 2005. By 2010, the real GDP will be $147.4 billion higher than it would be in an environment in which offshore IT software and services outsourcing does not occur;
  • Spending for global sourcing of computer software and services will grow at a compound annual rate of 20 percent, from approximately $15.2 billion in 2005 to $38.2 billion in 2010. Total spending on software and services will also continue to increase in the US During the same time period, total cost savings from world-wide sourcing of computer software and services will grow from $8.7 billion to $20.4 billion, much of which will be reinvested in the US;
  • Demand for US exports increases due to global sourcing. Countries can buy more because they can sell more; the US has more to sell through increased investment in new products and services, better productivity and lower inflation. Global sourcing contributed $5.1 billion to US exports in 2005, growing to $9.7 billion by 2010;
  • The US continues to run a large and robust trade surplus in IT services with the rest of the world.

Elaborating further, Harris N. Miller, ITAA president, says, "Global sourcing continues to be a net positive for American workers and the US economy. By driving down the costs associated with computer software and services and by opening more overseas markets to US competition, global sourcing sharpens our country's competitive edge at home and abroad."

"The result is more American jobs, higher wages and a faster growing economy overall. As we first found when we conducted the original study in 2004, an informed approach to the global marketplace is the best antidote to protectionism and trade barriers," Miller concludes.

The study reveals several other important new insights: Between March 2001 and September 2003, IT job loss to offshore outsourcing-either domestic jobs eliminated or jobs created overseas instead of in the US totaled 111,828, or about 40,000 jobs per year. However, 313,172, or 73 per cent of software and IT services jobs lost during this same period were caused by other factors, such as the overall slowdown in the US and global economies and the bursting of the telecom and dotcom bubbles.

The 2005 study found that raising barriers to world-wide sourcing would adversely impact US workers and US firms. If all global sourcing of software and IT services terminated completely, the impact would slow the US economy and actually reduce the number of new jobs available to American workers.

While global sourcing increases jobs and wages, Miller said emphasis must continue to be placed on those US IT workers negatively impacted by this economic shift. The 2005 study offers a range of recommendations, including:

  • Make information technology and other service sector workers eligible for government assistance when their jobs are displaced by foreign operations;
  • Encourage students to achieve diverse skill sets and workers to keep their skill sets up-to-date. Current laws and legislation should be reviewed to assure that the US educational system is being adequately supported at all levels;
  • Preserve American leadership in innovation. Support basic research and development to help assure US leadership and continued waves of innovation-driven economic growth.

The ITAA / Global Insight study systematically assesses the impact of world-wide sourcing of computer software and services on the US economy. Specific consideration is given to world-wide sourcing as it affects industrial productivity, employment, and trade. The results are broken down by industry and by state, so that elected officials can understand the positive benefits for their own constituents. The analysis is based on a thorough compilation of secondary and third-party data, and extensive econometric modelling to detail virtually every aspect of the US economy.

 


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Global outsourcing has spurred US economy: ITAA/Global Insight study