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Does outsourcing cause jobs to be lost in the host country?

The evidence on this is actually mixed – in the United States studies have shown that in general outsourcing has a neutral effect on jobs if that outsourcing is done within the country. The types of jobs that are traditionally outsourced tend to fall into the range of low skilled or single skilled activities. Here we can think of typical clerical work or generic IT support – and it is in these areas that the structure of work is changing.

Some types of activities are quite easily outsourced to another company specializing in the tasks and who have backup or expertise should things go wrong. In this case when outsourcing involves moving the jobs to a new company the overall job level declines a little as efficiencies are sought and people are let go. However when the outsourcing involves off-shoring the jobs are actually moved outside the country boundaries. In this case the low skilled more repetitive jobs are moved to another country and those jobs within the country are effectively lost. And thus overall the job opportunities for that particular group of workers are reduced.

There is some evidence that if the outsourcing does achieve some sort of focus on value added resources or core competences there are increase job opportunities for those people involved in the coordination and management of the outsourced functions – and of course in the increased activity due to better overall economic performance. However this type of change in employment means that there is a shift away from repetitive low skilled tasks towards more high-level tasks demanding higher skill and education levels.

This can often mean that those people losing their jobs to outsourcing are sometimes not suitable for the new jobs created – and what one sees is a shift in overall profile of jobs within an industry. This is particularly important in situations where the workforce is essentially single skilled as in some industries in the UK. One aspect of this reduction in low skilled repetitive tasks is the loss of entry-level jobs, especially in information technology. In this case the entry-level jobs (typically given to new graduates) are lost and moved to the off-shoring country. This reduction in entry-level jobs has a short and long-term impact. In the short term the jobs are not available for graduate entries and in the long term the availability of people with organizational experience moving through the organization to take senior management positions is inhibited. What this means is the removal of entry-level jobs could have an impact on future senior management availability-the people are simply not there who have learned the ropes and come up through the mill and have developed a deep understanding of company processes and procedures.

The evidence is mixed and the jury is still of out whether outsourcing and off shoring cause reduction in job levels. There seems to be a change in job mix with a reduction of single skilled and entry-level jobs especially for new graduates and this longer term reduction in the available pool of experienced workers to actually run departments such as information technology will have impacts for the knowledge capital of organizations.

This means that we have to consider carefully as a country the long term impacts of outsourcing especially off-shoring in terms of the job opportunities given to younger people as they leave university. As well as the shift in employment patterns between lower skilled repetitive jobs (which are typically occupied by women for example in part-time jobs) – this could mean that specific sectors of society are effected differentially in the changing patterns of employment relations. The burden of outsourcing will fall on those workers least able to cope – the part-time, women workers and entry level employees.

see also…
Levine, L., (2011), Offshoring (or Offshore Outsourcing) and Job Loss Among U.S. Workers, Congressional Research Service
Jensen, P., Kirkegaard, J., Laugesen, N., (2009) Beyond job losses – The net effects of offshoring and inshoring on employment in the Danish economy, Strategic Outsourcing vol 2 no. 2

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