Outsourcing's Uneven Impact


A new study says sending jobs overseas hits some areas of the U.S. much harder than others

The mere mention of outsourcing and its impact on the U.S. is enough to elicit strong emotions on either side of the issue. Proponents argue that relocating low-skill service jobs, like those in customer service or data entry, to foreign shores is necessary to ensure the productivity and competitiveness of the U.S. economy. Detractors say American companies are betraying their own workers and destroying the middle class, all in the name of the almighty dollar (see BusinessWeek.com, 11/8/06, "Outsourcing: Job Killer or Innovation Boost?").

But amid the debate over whether outsourcing is good or bad for the U.S., an important point has been largely ignored: Outsourcing is as much a regional issue as it is a national concern. Certain cities and areas are hit hard, while others remain largely unscathed.

The overlooked point is made plain in a new study from the Brookings Institution that attempts to predict which parts of the country will be most affected by the loss of jobs to foreign shores. Metro areas in the Northeast and the West are most vulnerable, while those in the Midwest and the South are less so, according to the study. "There had been almost no work done on which metropolitan areas would be most affected," says Howard Wial, an economist with Brookings, a think tank based in Washington. "We wanted to address that."

Come Back to Stamford

Where might job losses be the heaviest? At the top of the ranking are San Francisco; San Jose, Calif.; Boulder, Colo.; Lowell, Mass.; and Stamford, Conn. The five cities are expected to lose between 3.1% and 4.3% of their jobs to outsourcing between 2004 and 2015. The next tier of metro areas is forecast to lose 2.6% to 3.0% of their jobs. It includes Boston, Dallas, Denver, Minneapolis, Seattle, and Washington (see the slide show for more details on individual cities).

The potential impact on local employment isn't lost on Brian Rogers, chairman of the Stamford Chamber of Commerce and president of Stamford Insurance Group. The city is home to headquarters and branch offices for many financial institutions, including Bank of America (BAC), UBS (UBS), Wachovia (WB), and Merrill Lynch (MER). Many of their data entry and processing jobs can be done from other locations. "I'm sure they all explore the opportunities for boosting profits and reducing costs," Rogers says.

Indeed, efforts by those companies to boost profits and cut expenses have already resulted in jobs shifted to less expensive parts of the U.S., particularly Iowa. The chamber has long been working to attract and keep companies and workers. Rogers says the focus is on improving transportation, developing workplace skills in the local schools, and especially on adding affordable housing so recent college graduates can live in the area. "We do what we can to get people to come back home after they graduate from college," he says.

Bucking the Trend

Rogers and his counterparts in other vulnerable regions can rest assured, though, that geography isn't destiny. Brookings focuses on jobs that could go abroad, not necessarily those that will. Wial and his co-author, Robert Atkinson, pulled data from the Bureau of Labor Statistics to find out what kinds of jobs are performed in which area. They looked for regions with high concentrations of data-entry, computer-programming, and software-engineering jobs. "Those three occupations really top the charts," says Wial. Then they looked at average wages in those regions to figure out whether employees were doing routine work or higher-level innovation.

Their estimates are based on the theory that routine service jobs can be done remotely and often for much less money in other countries, such as India or China. But the researchers acknowledge that companies may not decide to move these jobs abroad, for a variety of reasons. "At the end of the day, these are idiosyncratic companies and executives," says Atkinson, president of the Information Technology & Innovation Foundation. "One company may decide outsourcing is a good idea, while another thinks it's a terrible idea."

The two undertook their research to help give U.S. workers, companies, and politicians some insight into how the jobs picture could evolve in the years ahead. "We wanted to alert people and politicians in those locations to the regional implications of the problem, so they can take steps to do something," says Wial.

Moving with the Times

For starters, some of the regions pegged for the steepest job losses are also among the most innovative. That means even as some low-skilled jobs move away, there's scope for other jobs—say, in emerging technologies—to move in. In such places as Silicon Valley and the Boston region, companies and entrepreneurs have consistently come up with ways to stay at the cutting-edge of technology, biotech, and finance. "These are areas that have long been able to shed the old and embrace the new," says Atkinson.

Some twenty-something kid in the Valley may be doing routine programming today. But next year? He could be starting the next Apple (AAPL), eBay (EBAY), or Google (GOOG).

Click here to the see a slide show of cities likely to be hit hardest by outsourcing.

Click here to participate in a debate about outsourcing.

Elstrom is news director at BusinessWeek.com.

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