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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