Submitted by CARPE DIEM

WSJ Blog — A pair of economists have challenged the notion that outsourcing threatens U.S. service-sector jobs, arguing that headline-grabbing estimates of tens of millions of at-risk jobs ignore the positive effects of new services exports.

In fact, the “hype” concerning labor markets and outsourcing is “much ado about nothing,” economists Runjuan Liu of the University of Alberta and Daniel Trefler of the University of Toronto wrote in a NBER paper posted this week.

The economists looked at China and India because their low-wage, high-skilled workforces make them attractive places to outsource services jobs.

Number-crunching data from the Current Population Survey between 1996 to 2006, they found a small positive net effect on U.S. labor markets from outsourcing and what they called “inshoring” — the sale of U.S.-produced services — with China and India.

From the NBER paper “Much Ado About Nothing: American Jobs and the Rise of Service Outsourcing to China and India:”

Turning to our results, we precisely estimate either small negative effects or zero effects of offshore outsourcing. We also precisely estimate small positive effects or zero effects of inshoring. The positive inshoring effects are either as large as or larger than the negative offshore outsourcing effects so that the net effect is either slightly positive or zero.

Since the small effects are precisely estimated we can say with confidence that even if service trade with China and India grows at its current clip, the labor market implications will be small. In short, there can thus be only one way of describing the hype surrounding the labor-market impacts of inshoring and offshore outsourcing services to China and India: Much Ado About Nothing.
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