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December 19th, 2008

Recent Study: Nearly Half of U.S. Jobs Offshorable



A recent study conducted by students of the Harvard Business School concludes that as much as 42% of U.S. jobs are currently offshorable — that is, able to be done by workers outside of the U.S.

The study was designed to expand upon a study by Princeton economist (and former Vice Chairman of the Federal Reserve) Alan Binder; the study appeared in the Wall Street Journal last year. The Harvard redo, designed to double-check Binder’s findings, was conducted by 900 students from the MBA class of 2009.

Their results indicated that between 21% and 42% of U.S. jobs are potentially offshorable — correlating with Binder’s minimal estimate of 22%, yet surpassing his maximum estimate of 29%:

“The case raises an uncomfortable question: Why should Monitor pay a Harvard MBA top dollar to conduct business research in the United States while an Indian Institute of Management graduate could do the work just as effectively in Delhi for much lower pay?” Rivkin is quoted as saying. “I think that brought home to many students that offshoring could affect them personally.”

That prospect is even scarier for students looking to graduate during the worst financial crisis in more than a generation. Just yesterday, Harvard Business School Dean Jay Light sent a note to MBA students telling them the school is working to help them in these troubled times. “The economic crisis we are experiencing today undoubtedly will necessitate a restructuring of the global financial system and a rethinking of how business is conducted,” he wrote. “This is the long-term view; in the short term, the effects of the crisis are going to be felt here at HBS in a much more immediate way. Most significant for you, of course, is the potential impact on the recruiting experience and job and internship opportunities.”

Many could argue that this is what’s wrong with the future landscape of American employment. ‘Offshoring’ is a double-edged sword that’s cutting through our economy right now: businesses are trying to cope with an unsteady marketplace by supplementing portions of their workforce to locations that can operate more cheaply. Yet, the ongoing rise in unemployment has, and will continue to, hobble consumer spending which has caused inflation to ease drastically and abruptly, presenting new fears of deflation.

This morning, the government promised American-car companies almost $14 billion to ward off a potentially massive wave of unemployment that, some feared, could have toppled our fragile economy. President-elect Obama and his economic team are crafting an expansive (and expensive) stimulus package designed to stimulate American jobs through extensive infrastructure repairs.

American employment is beyond essential to the structure of our economy. If nearly half of American jobs move oversees, we may never see our way out of this recession.

Paul adds: Just because jobs can be offshored (another word for ‘outsourced’) doesn’t mean they will. When the price of commodities and oil skyrocketed recently, a lot of companies which had outsourced their production discovered the downside of shipping drastically costlier raw materials overseas and bringing the finished products back to the U.S: much lower profits. This caused a lot of reconsideration among firms that were ready to offshore some production facilities. We’ll have to see how this shakes out, but I don’t think the situation is quite that dire.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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