Offshoring jobs: US and Australian perspectives

By Dr Richard Grant

Offshoring' refers to a business decision to employ workers in another country to do the work once done by locals. It is a global expression of 'outsourcing', as companies in western nations are lured by significantly lower labour and other costs in the developing world.

Offshoring has been a feature of the modern global economy particularly since the 1970s, when rich country manufacturers began investing heavily in South East Asia and Latin America. The appeal and success of these ventures--more recently in China and Mexico--cost the jobs of many manufacturing workers in the western world. Western governments urged blue-collar workers into retraining and further education. Many believed that white-collar office jobs in the West were immune from low-wage foreign competitors. This has not been the case.

Offshoring services has proved far more popular in the US than among Australian companies. In the US, by contrast, the evidence of a 'jobless recovery' has made offshoring a topic of broad unrest. The American offshoring debate does offer some interesting points for comparison and contrast. In the absence of reliable official data, the US debate has also been fuelled by projections of the loss of jobs. The most reported estimate is that 3.3 million jobs will leave America by 2015. Another consultancy projects that 25 per cent of traditional American IT jobs will be offshored by 2010, including 10 per cent of all US technology jobs by the end of 2005. The evidence of a 'jobless recovery' in the US has made offshoring a topic of broad unrest.

Both the academic and the political debates on offshoring are structured by those who cite the positive, long-term impact of free trade on the economy overall, and those more concerned with the negative, short-term effect on specific sectors. This Brief notes some of the main policy recommendations from political parties, key interest groups and independent research organisations. They include economy-wide and sector-specific recommendations. Any public policy response must accept that cheap labour costs will lure many Australian companies and Australian-based multinationals overseas. The role of policy must be to set a framework to manage this flow, not to legislate against it. In particular, policy makers need to think strategically about developing a national skills base that is suited to the changing needs of the economy.