Order Code RL32292
CRS Report for Congress
Received through the CRS Web
Offshoring (a.k.a. Offshore Outsourcing)
and Job Insecurity Among U.S. Workers
Updated June 18, 2004
Linda Levine
Specialist in Labor Economics
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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Offshoring (a.k.a. Offshore Outsourcing) and
Job Insecurity Among U.S. Workers
Summary
Offshoring or offshore outsourcing is the term now used to describe the nascent
practice among companies in the United States of contracting out the jobs of white-
collar workers in service sector industries (e.g., computer programmers) to firms
located beyond U.S. borders. The term is equally applicable to employers’
outsourcing blue-collar workers’ manufacturing jobs (e.g., textile production) to
other countries. As often is the case with a potential trend, however, few facts are
available; instead, anecdotal accounts and varying estimates are trumpeted in the
media. No regularly collected series currently provides data on the total number of
workers who have lost their jobs to offshore outsourcing.
The movement overseas of manufacturing jobs predates by decades the current
wave of offshoring service sector jobs. The outsourcing of service sector jobs began
in response to the early 1980s recessions: employers increased their focus on the
firm’s core mission and contracted out peripheral activities to specialized U.S. firms.
The 2001 recession prompted employers to achieve further efficiencies by utilizing
now widely disseminated technologies that permit low cost, good quality, and high
speed transmission of voice and data communications to extend offshore outsourcing
beyond blue-collar manufacturing jobs to white-collar services jobs. During the
intervening decade of the 1990s events also transpired that enhanced other countries’
ability to export services (e.g., information technology services) to the United States.
The state of mind that now prevails is one that characterized an earlier “jobless
recovery,” when white-collar workers first became aware that their jobs had become
more insecure. White-collar workers, who are the majority of all U.S. workers and
of service sector employment, again have become anxious about their losing jobs.
Although offshore outsourcing has been blamed for the recently passed jobless
recovery, it might have caused (at most) 10% of job losses in the past few years.
Some believe we have seen just the tip of the offshoring iceberg, with perhaps 3.4
million service sector jobs moving overseas by 2015 in a range of fairly well paid
white-collar occupations. If true, the number of jobs sent offshore over the long
projection period might account for only 2% of U.S. employment in a single year.
Congress has a longstanding interest in assisting workers who lose jobs through
no fault of their own. In addition to regular and extended unemployment insurance
programs, policymakers traditionally have provided extra help to workers who lose
jobs due to international trade. Some Members are considering extending to job
losers in service sector industries the income support and other benefits currently
available through the Trade Adjustment Assistance program. They also have
proposed amending the Worker Adjustment and Retraining Notification Act to
require employers to provide notice of layoffs caused by offshoring. Other laws are
in effect to help workers undertake additional education and training (e.g., the
Workforce Investment Act and education tax benefits). The most commonly
suggested new proposal involves provision of wage insurance to displaced workers.
This report will be updated as warranted.

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Contents
The Development of Offshore and Domestic Outsourcing . . . . . . . . . . . . . . . . . . 3
Current and Future Prospects for Offshoring Jobs . . . . . . . . . . . . . . . . . . . . . . . . . 5
Reasons for Worker Anxiety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
How Many Jobs Are We Talking About? . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Job Insecurity Since the 1980s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
A Rise in Insecurity Among White-Collar Workers . . . . . . . . . . . . . . . . . . 10
Reemployment Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Wage Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Current Law and Proposals to Assist Workers Displaced by Offshoring . . . . . . 19
Current Federal Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
The Most Often Mentioned New Proposal . . . . . . . . . . . . . . . . . . . . . . . . . 20
List of Tables
Table 1. Number of U.S. Service Sector Jobs Projected to Shift
Offshore by Occupational Group Through 2015 . . . . . . . . . . . . . . . . . . . . . . 8
Table 2. Displacement Rates by Industry and Occupation of Lost Job,
1981-1982 and 1991-1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Table 3. Displacement Rates by Industry and Occupation of Lost Job,
1989-1990 and 1999-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Table 4. Displaced Workers by Occupation of Job Lost in the 1999-2000
Period and Employment Status in January 2002 . . . . . . . . . . . . . . . . . . . . . 15
Table 5. Workers Displaced From and Reemployed in Full-Time Wage and
Salary Jobs, by Earnings on Pre- and Post-Displacement Jobs . . . . . . . . . 17

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Offshoring (a.k.a. Offshore Outsourcing) and
Job Insecurity Among U.S. Workers
Offshoring, also known as offshore outsourcing, is the term now being used to
describe the nascent practice among companies located in the United States of
contracting out the performance of service sector activities (e.g., call center
operations) to businesses located beyond U.S. borders. The term is equally
applicable to U.S. firms’ outsourcing goods production (e.g., textiles) to other
countries, which has been occurring for decades. It is assumed that the work sent
overseas was being or could have been performed by U.S. workers.
As is often the case with an emerging trend, little concrete information is
available about the offshoring of U.S. jobs. Instead, we have anecdotal accounts
conveyed by the media and rough estimates by presumably knowledgeable persons
that are similarly reported. No regularly collected series currently provides data on
the number of U.S. workers who have lost their jobs due to overseas outsourcing.1
We are not even certain about what constitutes offshoring. Is it only contracting
out work to non-U.S. companies located abroad? What about U.S. corporations
moving jobs to their own subsidiaries in foreign countries? Is offshoring the
purchase of services from U.S.-based outsourcing firms that, in turn, have access to
labor overseas through partnerships with foreign companies or through their own
facilities located abroad? Does it include foreign-owned businesses with U.S. offices
from which services are provided to U.S. companies through a combination of
employees living in the United States (e.g., U.S. citizens and legal permanent
residents as well as persons with H-1B, professional specialty, visas) and workers
living in the foreign firm’s home country?
In addition to uncertainty about the size and definition of offshore outsourcing,
uncertainty surrounds its short- and long-run labor market implications. For
example:
! Some observers blame offshoring for the “jobless recovery,” while
others counter that the historical link between economic growth and
job creation remains intact.2 Unlike many earlier cycles, permanent
rather than temporary layoffs dominated the 2001 recession and
initial recovery. It is suggested that this might be related to firms
seeing the recession as an opportunity to cut payroll costs and
1 CRS Report RL30799, Unemployment Through Layoffs: What Are The Reasons?, by
Linda Levine.
2 See for example Erika Kinetz, “Who Wins and Who Loses as Jobs Move Overseas?,” New
York Times, Dec. 7, 2003.

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CRS-2
improve efficiency through, among other means, operational
changes that include outsourcing jobs to other U.S. industries and to
other countries. As a result of this structural change, then, some
economists find that a larger than usual share of laidoff workers have
not been rehired by their former employers. Many, instead, have had
to undertake the more difficult and time-consuming task of finding
new jobs at other companies or in other industries.3 Other
economists estimate that the latest recession had about the same
effect on all major industry groups. Because an unusually large
number of workers consequently should not have had to search for
jobs in other industries, they contend that the pace of job growth will
ultimately accelerate as it eventually has following all past
recessions.4 Estimates of the net job loss (gross job gains minus
gross job losses) in the past few years that might have been due to
offshoring range from 3% to 10%.5
! Further, while acknowledging that offshoring and other forms of
globalization (e.g., direct investment and other capital flows) can
cause painful dislocations for workers, most economists agree that
it benefits the nation as a whole by enabling U.S. companies that
import goods and services to sell their products to consumers at
lower prices, providing consumers with more choices, and and by
expanding markets for U.S. firms.6 Others dispute the degree to
which U.S. consumers actually benefit, suggesting that the
shareholders of companies engaged in offshoring might instead gain
through increased dividends. These individuals also believe that
outsourcing jobs overseas has different implications for the United
States than outsourcing to other industries within our borders that
are regulated by U.S. laws.7
! Still others wonder whether offshoring will result in college
graduates facing a dwindling supply of entry-level jobs that
traditionally have served as stepping stones to secure, high skilled
positions. As to the overseas movement of more skilled jobs, they
question the adequacy of the government’s safety net to meet the
3 Erica L. Groshen and Simon Potter, “Has Structural Change Contributed to a Jobless
Recovery,” Current Issues in Economics and Finance, Federal Reserve Bank of New York,
Aug. 2003.
4 Ellen R. Rissman, “Can Sectoral Labor Reallocation Explain the Jobless Recovery?,”
Chicago Fed Letter, Dec. 2003.
5 The 10% figure appears in Jyoti Thottam, “Is Your Job Going Abroad?,” Time, Mar. 1,
2004 (Hereafter cited as Thottam, Is Your Job Going Abroad?). The 3% figure was
developed by William Dickens, Senior Fellow, Economic Studies, The Brookings
Institution, and presented during a Mar. 3, 2004 Brookings forum on offshoring.
6 Lynn A. Karoly and Constantijn W.A. Panis, The 21st Century at Work, prepared by the
RAND Corporation for the U.S. Department of Labor, 2004. (Hereafter cited as Karoly and
Panis, The 21st Century at Work.)
7 John Sullivan, “Forum Reveals Divisions Over Effects of Exporting U.S. Jobs to Other
Countries,” Daily Labor Report, Dec. 12, 2003.

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CRS-3
needs of already well educated and well paid workers who lose their
jobs to offshore outsourcing (e.g., financial analysts, income tax
preparers, and x-ray technicians).8
This report does not attempt to sort through all these issues, some of which are
addressed in other CRS Reports.9 Instead, it begins by examining the antecedents of
offshoring service sector activities and then synthesizing the voluminous writings in
recent years about the business practice. The reemployment and earnings
experiences of displaced workers are then analyzed, focusing specifically on evidence
of a rise in job insecurity among white-collar workers in service sector industries.10
The report closes with discussion of existing and proposed federal legislation
intended to ameliorate the impact of offshore outsourcing on U.S. workers.
The Development of Offshore and
Domestic Outsourcing
The overseas relocation of manufacturing work predates by decades the current
wave of offshoring service sector jobs. Major U.S. companies, initially responding
to heightened competition from Japanese and European multinational corporations,
opened facilities abroad during the 1970s and 1980s that turned out goods formerly
produced by comparatively well paid, often unionized U.S. factory workers (e.g.,
assembly-line workers in the automotive industry).
Additionally, U.S. companies reacted to the back-to-back recessions of the early
1980s by focusing on their core missions and contracting out activities that
specialized domestic enterprises could perform more efficiently (e.g., janitorial
services). Firms restructured their operations by outsourcing jobs to:
! temporary help supply agencies,
! professional and business services establishments (e.g., accounting
firms), and
! independent contractors.
These kind of work arrangements are referred to as contingent or alternative, as in
arrangements that differ from traditional jobs (i.e., those with an implicit or explicit
8 Christopher Koch, “Backlash,” CIO Magazine, Sept. 1, 2003.
9 CRS Report RL32047, The “Jobless Recovery” From the 2001 Recession: A Comparison
to Earlier Recoveries and Possible Explanations, by Marc Labonte and Linda Levine; and
CRS Report RL32194, Job Loss: Causes and Policy Implications, by Marc Labonte.
10 White-collar occupations cover executive, administrative, and managerial workers;
professionals; technicians; sales workers; and administrative support (including clerical)
workers. The service-producing sector is comprised of the following industry divisions:
utilities; wholesale trade and retail trade; transportation and warehousing; information;
financial services; professional and business services; education and health services; leisure
and hospitality services; other services; and government.

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CRS-4
offer of job security).11 U.S. demand for employment (including temporary help)
services continued to increase during the 1990s. It is projected to be one of the
fastest growing industries in the current decade,12 thus strongly indicating that
domestic outsourcing of formerly in-house functions is a permanent reorganization
of how work is performed.
The latest recession, which ended in November 2001, prompted employers to
achieve further efficiencies by taking advantage of technological innovations that
minimize the importance of physical distance between companies. The now
widespread dissemination of technologies that enable relatively low cost, good
quality, and high speed transmission of voice and data communications has enabled
U.S. firms to extend offshoring beyond the factory jobs of blue-collar workers to the
services jobs of white-collar workers (e.g., computer programmers and call center
operators). “Offshore-able” service sector jobs thus include both information
technology (IT) workers and technology-enabled workers.
Events that transpired during the intervening decade of the 1990s enhanced the
ability of other countries to export services — particularly IT services — to the
United States and other developed countries (e.g., the United Kingdom). One such
event was the Y2K crisis: U.S. firms, in response to a tight supply of computer
programmers in the late 1990s, turned to companies principally located in India to
make the code fixes needed to avert problems with computer systems by the time
2000 arrived; the domestic firms that utilized these programmers reportedly were
pleased with the quality of their work.13 Another event was the educational systems
of foreign nations graduating an abundant supply of well educated, sometimes
English speaking individuals. In some cases, the number of persons with IT and
accounting skills has exceeded the immediate needs of their local economies (e.g.,
China, Eastern Europe, India, and the Philippines).14 And, because English is the
language of the computer industry regardless of country, IT services can be provided
by a wide array of non-English speaking, comparatively low wage nations (e.g.,
Argentina, Brazil, Bulgaria, China, the Czech Republic, Hungary, Jordan, Lithuania,
Mexico, Slovenia, Russia, and Ukraine).
11 For more information on alternative work arrangements see CRS Report RL30072,
Temporary Workers as Members of the Contingent Labor Force, by Linda Levine.
12 Jay M. Berman, “Industry Output and Employment Projections to 2012,” Monthly Labor
Review, Feb. 2004.
13 Jeffrey Marshall, “Outsourcing Overseas: Savings Road Leads to India,” Financial
Executive, Sept. 2002.
14 Pete Engardio, Aaron Bernstein, and Manjeef Kripalani, “The New Global Job Shift,”
Business Week, Feb. 3, 2003 (Hereafter cited as Engardio, et al, The New Global Job Shift.);
Larry Greenemeier, “Offshore Outsourcing Grows to Global Proportions — U.S. Companies
Extend Their Search Beyond India for IT Help Overseas,” InformationWeek, Feb. 11, 2002;
and Drew Robb, “Offshore Outsourcing Nears Critical Mass — The IT Talent Shortage in
the United States is Driving More Companies to Use Overseas Developers,”
InformationWeek, June 12, 2000.

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CRS-5
Current and Future Prospects for Offshoring Jobs
Reasons for Worker Anxiety
The current, highly publicized wave of offshore outsourcing has caused
considerable anxiety among both unemployed and employed workers. This is the
case for the following reasons:
! White-collar workers comprise the majority of all U.S. workers and
most white-collar workers are employed in the service sector, which
accounts for the vast majority of total U.S. employment.15 In other
words, many more people today believe their jobs are susceptible to
being exported and fear they may have to find new positions in an
economy that recently has afforded little net job growth.
! Domestic outsourcing and offshore outsourcing result in job losses
for those employees who no longer are required to produce the
goods and services that their employers decided to purchase. Some
displaced workers must seek jobs in other fields because the
domestic firms that specialize in providing outsourced functions do
so more efficiently than their former employers.16 Others who lose
their jobs to domestic outsourcing can continue to perform similar
work — perhaps for lower wages and fewer benefits — by finding
jobs in the industries now supplying goods and services to their ex-
employers (e.g., as workers on the payrolls of temporary help
agencies rather than manufacturers).17 Thus, a key difference
between domestic and offshore outsourcing is that none of the jobs
that are contracted out remain available to U.S. workers when
employers send the work to companies located overseas.18
The seemingly permanent loss of some types of service sector jobs to offshoring
has led people to ask what field is going to be the next generator of jobs for U.S.
workers, and more particularly, of good U.S. jobs. Candidates put forth include
15 According to 2003 data from the Current Population Survey, employment in white-collar
occupations (83 million) accounts for 61% of total U.S. employment (138 million). About
87% of white-collar workers (73 million) have jobs in the service sector (108 million),
which in turn represents 78% of total U.S. employment.
16 Michael W. Horrigan, “Employment Projections to 2012: Concepts and Context,”
Monthly Labor Review, Feb. 2004.
17 For information on the statistical exaggeration of the employment decline in
manufacturing because workers still are engaged in goods production despite being
categorized in the employment services industry see Council of Economic Advisors,
Economic Report of the President, (Washington, D.C.: GPO), Feb. 2004.
18 However, offshoring likely creates other jobs for U.S. workers (e.g., those who develop
the contracts for outsourced activities and those who oversee their performance). In
addition, if the overseas firms and workers who perform these contracted activities
subsequently purchase U.S. products and make investments in the United States, their
actions will create jobs in the United States.

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CRS-6
nanotechnology and biotechnology, but the question is truly unanswerable. This has
only created more anxiety, which some have attempted to assuage by pointing out
that in similar situations in the past new growth areas always have emerged.
U.S. workers are being encouraged to focus on upgrading their skills in order
to be capable of performing the high level, high paying jobs that are expected to be
created by further U.S. technological innovation.19 An oft-posed question in response
to this advice is: in what occupations? The acquisition of IT skills had been the
mantra for several years; however, these are among the jobs that appear newly at risk
of being exported.
How Many Jobs Are We Talking About?
People also are questioning whether we now are seeing the initial leakage of
service sector jobs from the United States, with many more to follow in an expanding
range of white-collar occupations. The query has elicited two somewhat different
replies.
Offshoring of white-collar jobs initially involved “simple service work, like
processing credit-card receipts, and mind-numbing digital toil, like writing software
code.”20 It more recently has expanded to such functions as providing help desk
support to U.S. customers, processing home loans of U.S. mortgage applicants,
interpreting CT scans of U.S. hospital patients, preparing corporate financial analyses
for U.S. investors, and developing computer-generated blueprints for industrial plants
and residential housing in the United States. Surveys of U.S. companies show they
appear increasingly willing to send overseas a wide variety of more complex IT
functions such as application design and development, IT infrastructure management,
and packaged application implementation.21 Some observers foresee substantial
increases in offshoring because of U.S. employers’ satisfaction with overseas service
providers22 and because of the 45%-55% cost savings it may generate.23
Others argue that there are limits to the practice because U.S. companies will
not want to lose close oversight of high skilled jobs dealing with activities that are
essential to their core operations.24 It has been suggested that what might occur is
19 Clare Ansberry, “Why U.S. Manufacturing Won’t Die,” Wall Street Journal, July 3, 2003;
and Steve Lohr, “Many New Causes for Old Problem of Jobs Lost Abroad,” New York
Times, Feb. 15, 2004.
20 Engardio, et al, The New Global Job Shift, p. 50.
21 Jeff Moad, “Offshore Job Competition to Increase,” eWeek, Jan. 31, 2003; and Jaikumar
Vijayan, “Companies Expected to Boost Offshore Outsourcing,” Computerworld, Feb. 17,
2003.
22 “New Study Finds Companies are Satisfied with Offshore Outsourcing of IT, Business
Process and Contact Center Services,” Business Wire, Feb. 4, 2004.
23 McKinsey Global Institute, Offshoring: Is It a Win-Win Game?, Aug. 2003. (Hereafter
cited as McKinsey Global Institute, Offshoring: Is It a Win-Win Game?)
24 Sharon Gaudin, “Nearly 1 Million IT Jobs Moving Offshore,” Datamation, Nov. 19, 2002.

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CRS-7
overzealous pursuit of offshoring followed by retrenchment, during which time U.S.
employers will learn the types of jobs best suited to the practice and how to manage
a globally dispersed workforce.
At present, there is very limited evidence in support of the latter viewpoint. Dell
reportedly returned some inquiry help services that had met with customer
dissatisfaction, and Lehman Brothers similarly brought back some call center work.25
Other U.S. firms have had to employ IT service providers located in the United States
to fix software produced abroad. It further is argued that even when imported
services are not flawed in some way, the cost savings may be overstated because
more than inter-country wage differentials affect a service’s purchase price (e.g.,
travel and managerial oversight costs).26
At least two factors that could have put the brakes on the business practice have
thus far failed to do so. Offshore providers of IT services, for example, were able to
allay U.S. outsourcers’ fears about security shortly after the terrorist attacks of
September 11, 2001.27 Despite 9/11, U.S. airline carriers reportedly have continued
their “increased outsourcing of maintenance jobs overseas — to places like
Singapore, Brazil, the Dominican Republic — not only for international aircraft but
even for planes on purely domestic routes.”28 In addition, concern periodically has
arisen among U.S. outsourcers over unrest in some regions (e.g., disputes between
India and Pakistan as well as in the Middle East). Global providers of software
services have responded by placing more of their clients’ work in a variety of
countries, including the “near-shore” markets of Canada and Mexico.29
The jobs figure most commonly cited in connection with the current round of
offshoring comes from Forrester Research, Inc. According to a 2004 update of its
original projection, a total of 3.4 million service sector jobs might move abroad by
2015.30 This is a cumulative figure, and one that spans a much longer period than
many feel comfortable making projections over. And, although 3.4 million sounds
large in an absolute sense, it might represent only 2% of total U.S. employment in
a single year — 2015, the last year of the projection period.31
25 Khozem Merchant, “Tough Call for the US Cost-Cutters,” Financial Times, Dec. 22,
2003.
26 Olga Kharif, “The Hidden Costs of IT Outsourcing,” BusinessWeek online, Oct. 27, 2003;
and Ryan B. Patrick, “Signs of Offshore Backlash Growing,” Computerworld, Jan. 8, 2004.
27 Julie Gallagher, “Redefining the Business Case for Offshore Outsourcing,” Insurance &
Technology, Apr. 2002.
28 Al Kamen, “In the Loop,” Washington Post, Feb. 27, 2004, p. A21.
29 “Gartner Dataquest Says IT Outsourcing Industry to Advance with Increased Demand in
Offshore Outsourcing,” Business Wire, Jan. 30, 2003.
30 John C. McCarthy, Near-Term Growth of Offshoring Accelerating, Forrester Research,
Inc., May 14, 2004. (Hereafter cited as McCarthy, Near-Term Growth of Offshoring
Accelerating.)
31 Congressional Research Service estimate based upon extension to 2015 of the U.S. Bureau
(continued...)

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CRS-8
Forrester’s update reflects its assessment that the overseas movement of jobs
will occur at a greater rate in the near term than initially anticipated. As shown in
Table 1, some 315,000 service sector jobs might have been sent offshore by the end
of 2003, with the number quadrupling to reach a total of 1.2 million by 2008.
Table 1. Number of U.S. Service Sector Jobs Projected to Shift
Offshore by Occupational Group Through 2015
(numbers in thousands)
Occupational
group
2003
2004
2005
2006
2007
2008
Administrative
146
256
410
475
541
616
support
Computer
102
143
181
203
228
247
Business and
financial
30
55
91
105
120
136
operations
Management
3.5
15
34
42
48
64
Sales
11
22
38
47
55
67
Architecture
14
27
46
54
61
70
Legal
6
12
20
23
26
29
Life sciences
.3
2
4
5.5
6.5
9
Art, design and
2.5
4.5
8
9
10
11
related
Total
315
540
830
960
1,100
1,200
Source: Adapted by CRS from John C. McCarthy, Near-Term Growth of Offshoring Accelerating,
Forrester Research, Inc., May 14, 2004.
Note: Statistics are shown only through 2008, the period during which Forrester provides data in one-
year intervals. By 2010, Forrester estimates a total of 1.7 million will have gone offshore for a two-
year increase of one-half million. Over the next five years, Forrester estimates another 1.7 million jobs
will be transferred to other countries for a grand total of 3.4 million by 2015.
Another study estimated that some 4 million jobs, or 11% of total U.S.
employment in 2001, have attributes that could allow them to be sent overseas (e.g.,
no in-person customer servicing required; IT-enabled work process that can be
accomplished via telecommuting; fairly wide gap between job’s pay in the United
States compared to similar job in destination country; and destination country has
31 (...continued)
of Labor Statistics’ employment projection through 2012, producing an employment
estimate of 171,710,000. Forrester’s figure of 3.4 million was then divided by this rough
approximation of employment for the same year.

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CRS-9
few language, institutional, and cultural barriers).32 The researchers who developed
this estimate note, however, that it is an outer limit and not all jobs in the
occupational groups are at risk of being offshored. This accords with the finding that
a majority of U.S. companies are not now and do not intend to move jobs overseas.33
The occupational groups identified as being susceptible to offshoring include office
support (e.g., data entry keyers), business and financial support, computer and math
professionals, paralegals and legal assistants, and diagnostic support services. These
are very similar to the wide range of occupations shown in Table 1 for which
Forrester developed estimates.
Reports of the impact of offshore outsourcing on information technology (IT)
jobs vary, at least in part because of differences in the way data are presented. For
example, Gartner Inc. anticipates that 10% of IT jobs at IT companies in the United
States and 5% of IT jobs at other U.S. companies will have been sent overseas by the
end of 2004. In addition, of workers whose jobs have been offshored, it reports that
less than 40% will have been rehired by their former employers through 2005.34
Alternatively, the president of the Information Technology Association of America
(ITAA) roughly estimates that “less than 2 percent of IT jobs have gone offshore so
far. And ... maybe at a maximum sometime early in the next decade, it may get up
to close to double digits” but is unlikely to become more pervasive because
“propinquity still does matter” and because “It’s a lot more expensive” than
commonly believed.35 Seconding that line of reasoning, META Group notes that
organizations often assume that labor arbitrage will yield savings similar to a
person-to-person comparison (e.g., a full-time equivalent in India will cost 40%
less) without regard for the hidden costs and differences in operating models.
The reality is a general savings of 15%-20% during the first year.36
Even on this point, however, estimates differ as reflected by the substantially higher
cost savings figure shown earlier in this report.
32 Ashok Deo Bardhan and Cynthia A. Kroll, “The New Wave of Outsourcing,” Fisher
Center Research Report, Institute of Business and Economic Research, University of
California-Berkeley, fall 2003. (Hereafter cited as Bardhan and Kroll, The New Wave of
Outsourcing.)
33 McCarthy, Near-Term Growth of Offshoring Accelerating.
34 Diane Morello, U.S. Offshore Outsourcing Leads to Structural Changes and Big Impact,
Gartner Inc., July 23, 2003.
35 Transcript of panel discussion at The Brookings Institution, Preparing America to
Compete Globally: A Forum on Offshoring, Mar. 3, 2004.
36 “Offshore Outsourcing Cost-Savings Perceptions Differ from Realities,” Business Wire,
Jan. 13, 2004.

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CRS-10
Job Insecurity Since the 1980s
The state of mind that now prevails is one that characterized the early-to-mid
1990s, when another “jobless recovery” was taking place and stories of worker
anxiety over job insecurity abounded in the media. A month hardly went by without
at least one major U.S. company announcing a layoff that involved thousands of
employees.37 The leading explanation for the heightened feeling of worker anxiety
in that period was “corporate downsizing” (i.e., a net decrease in a firm’s
employment) that often involved internal company restructuring through flattening
the organizational pyramid (i.e., eliminating layers of middle management jobs).
A Rise in Insecurity Among White-Collar Workers
Data from the Displaced Worker Supplement (DWS) to the Current Population
Survey supports the impression that the nature of permanent job loss has changed.
Generally speaking, long-tenured white-collar workers in some service sector
industries have become more susceptible to displacement. But, blue-collar workers
continue to be at the greatest risk of layoff.38 (See the box below for a description of
the displaced worker population.)
The U.S. Bureau of Labor Statistics (BLS) defines displaced workers as
persons at least 20 years old who had worked for their employers at least
three years before losing their jobs because of plant or company closings
and moves, insufficient work for them to do, or abolishment of their
positions and shifts. The definition is intended to identify workers who
had some attachment to their employers, were terminated through no
fault of their own, and who did not expect to be recalled to their former
jobs.
The risk of job loss among manufacturing industry workers improved from
1981-1982 to 1991-1992 (two comparable periods). As the economy recovered from
the severe 1981-1982 recession, the chance of losing a manufacturing job decreased.
During the milder 1990-1991 recession, the displacement rate39 among
manufacturing workers rose to 7.1% but did not reach its 1981-1982 level of 8.2%.
(See top panel of Table 2.) In contrast, the job security of most other workers
worsened or stayed about the same. The incidence of permanent layoffs in the
finance, insurance, and real estate industry quadrupled to 5.5%. While the
37 For more information see CRS Report RL30799, Unemployment Through Layoffs, by
Linda Levine.
38 Little attention typically is paid to the displacement of workers in service occupations,
who include cooks and servers, cleaners and maintenance workers, hairdressers and child
care workers, and police and firefighters. Workers in service occupations are less likely
than blue-collar and white-collar workers to be affected by offshoring because many of their
jobs require face-to-face interaction with customers.
39 The displacement rate is the number of displaced workers in a particular group divided
by the tenure-adjusted, two-year average estimate of employment for that same group.

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CRS-11
displacement rate also climbed (but less steeply) in wholesale/retail trade,
construction, and in services, none of the service sector industries was close to
manufacturing’s risk of job loss.
Table 2. Displacement Rates by Industry and Occupation of
Lost Job, 1981-1982 and 1991-1992
Characteristic
1981-1982
1991-1992
All long-tenured workers age 20 and
3.9
3.9
older
INDUSTRY
Mining
13.6
7.4
Construction
7.6
8.4
Manufacturing
8.2
7.1
Transportation and public utilities
4.1
4.4
Wholesale and retail trade
3.7
4.7
Finance, insurance, and real estate
1.4
5.5
Services
2.3
2.9
Government
1.2
1.1
Agriculture
5.4
3.8
OCCUPATION
WHITE-COLLAR WORKERS
2.6
3.7
Managerial and professional specialty
2.1
3.6
— Executive, administrative,
2.5
4.8
and managerial
— Professional specialty
1.7
2.4
Technical, sales, and administrative
3.0
3.7
support
— Technicians and related support
3.3
3.7
— Sales occupations
3.7
3.6
— Administrative support, including
2.5
3.8
clerical
BLUE-COLLAR WORKERS
7.3
5.3
SERVICE WORKERS
2.0
2.1
FARMING, FORESTRY, AND FISHING
0.9
1.4
Source: Ryan T. Helwig, “Worker Displacement in a Strong Labor Market,” Monthly Labor Review,
June 2001.

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CRS-12
The shift in the industrial pattern of displacement translated into a change in its
occupational distribution in light of the predominance of blue-collar workers at
manufacturers and white-collar workers in the service sector. The probability of
permanent layoffs fell among blue-collar workers to 5.3%. It rose to 3.7% among
white-collar workers. (See bottom panel of Table 2.)
White-collar workers whose risk of displacement increased to the greatest extent
were employed in managerial occupations and in administrative support (including
clerical) occupations. The chance of job loss among executives, administrators, and
managers almost doubled to 4.8%. The increased focus of displacement on those
who themselves manage companies had a widespread psychological impact:
When people on higher rungs of the corporate ladder lose their jobs, it throws
fear into the hearts of thousands of workers. A highly visible firing is a corporate
vote of no confidence in any worker’s job security.40
Among those in administrative support jobs, the displacement rate rose by half to
3.8%. The likelihood of permanent layoffs increased somewhat among professionals
as well. These data lend support to the widespread belief of white-collar workers
that their jobs are less secure, but the change occurred before any noticeable
offshoring of service sector jobs.
Displacement rates improved virtually across-the-board during the long
economic expansion of the 1990s. Even when examined against a fairly comparable
period 10 years earlier, the probability of job loss was lower in 1999-2000. (See
Table 3). However, for the first time since the DWS data were collected, the risk of
permanent layoffs for services industry employees rose to the point that it equaled
the average displacement rate.41 The limited supply of workers available to U.S.
employers in the late 1990s was responsible for the reduced likelihood of being laid
off — with the possible exception of professionals.42 It has been suggested that any
offshoring of services that occurred during this time
can be seen as spinoffs from the US because of tight labor markets, rather than
job transfers out of the US in search of lower labor costs. However, the recent
downturn and...jobless recovery have legitimately given rise to the question
whether services outsourcing involves the transfer of US jobs and occupations
to other countries.43
40 Perri Capell, “Endangered Middle Managers,” American Demographics, Jan. 1992, p. 37.
41 Among the approximately 2 million workers displaced in 1999-2000, DWS data show
there were some 69,000 long-tenured workers permanently let go from the computer and
data processing services industry.
42 About 33,000 long-tenured computer systems analysts and scientists as well as some
11,000 long-tenured computer programmers were displaced during the 1999-2000 period
according to DWS data.
43 Bardhan and Kroll, The New Wave of Outsourcing, p. 3.

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CRS-13
Table 3. Displacement Rates by Industry and Occupation of
Lost Job, 1989-1990 and 1999-2000
Characteristic
1989-1990
1999-2000
All long-tenured workers age 20 and older
3.1
2.5
INDUSTRY
Mining
10.0
7.5
Construction
5.9
3.3
Manufacturing
5.0
4.7
Transportation and public utilities
3.6
2.7
Wholesale and retail trade
3.9
3.1
Finance, insurance, and real estate
3.5
3.7
Services
2.1
2.5
Government
0.4
0.5
Agriculture
3.2
1.7
OCCUPATION
WHITE-COLLAR WORKERS
2.7
2.4
Managerial and professional specialty
2.3
2.1
— Executive, administrative, and managerial
3.4
2.7
— Professional specialty
1.3
1.6
Technical, sales, and administrative
3.1
2.7
support
— Technicians and related support
3.2
2.7
— Sales occupations
2.9
2.9
— Administration support, including clerical
3.2
2.6
BLUE-COLLAR WORKERS
4.5
3.3
SERVICE WORKERS
1.6
1.4
FARMING, FORESTRY, AND FISHING
1.5
0.5
Source: Ryan T. Helwig, “Worker Displacement in a Strong Labor Market,” Monthly Labor Review,
June 2001; and unpublished data from the DWS.

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CRS-14
Data for more recent years of the current decade, when offshoring likely became
more prevalent, are not yet available from the DWS. When those figures are
released, one should contrast two comparable periods in order to avoid confusing
changes in displacement related to cyclical (short-run) as opposed to structural (long-
run) factors. Some observers have pointed to the more than doubling of the
unemployment rate among computer systems analysts, computer engineers, and
computer scientists as well as the quadrupling of the rate among computer
programmers vis-a-vis the much smaller increase across all professionals between
2000 and 2003 as evidence that something unusual had happened to these IT
occupations.44 It is argued, however, that those who use “the peak of the economy
and technology boom as the base for their analysis” are “ignoring the business cycle,
... and technology bust.”45 And prospectively, occupational employment projections
of the U.S. Bureau of Labor Statistics through 2012 place computer software
engineers (applications) and computer systems analysts among the fastest growing
occupations and among those expected to experience the largest job growth — this,
despite the Bureau’s acknowledgment of less rapid employment growth in computer
and mathematical occupations “as the software industry begins to mature and as
routine work is increasingly outsourced overseas.”46
Reemployment Prospects
In addition to the shift in focus of permanent layoffs toward white-collar service
sector workers, perceptions about “what happens afterwards” exacerbate concern
over job insecurity. If people think there are other jobs available that will pay them
as much as their current jobs, anxiety about displacement likely will be less intense
than if they think their chance for reemployment in comparable jobs is slim.
Despite variance in the size of the majority depending upon the
strength/weakness of the labor market, most displaced workers have been able to find
new employment. As shown in Table 4, 3 out of 4 workers displaced in 1999-2000
again had jobs in January 2002 despite the continuation of a net decline in
employment that followed the latest recession’s end. In addition, white-collar
workers who lose their jobs have proved to be more successful than others in
obtaining new positions. Their reemployment rate most recently was 78%, as against
70% for blue-collar workers. The issue for most displaced workers, then, is not so
much a lack of jobs per se as it is the quality of their new jobs vis-a-vis their former
jobs.
44 For more information on the labor market status of IT workers see CRS Report RL31973,
Education and Training Funded by the H-1B Visa Fee and the Demand for Information
Technology and Other Professional Specialty Workers, by Linda Levine.
45 Catherine L. Mann, “Globalization of IT Services and White Collar Jobs: The Next Wave
of Productivity Growth,” International Economics Policy Briefs, Dec. 2003, p. 6. See also
Daniel W. Drezner, “The Outsourcing Bogeyman,” Foreign Affairs, May/June 2004.
46 Daniel E. Hecker, “Occupational Employment Projections to 2012,” Monthly Labor
Review, Feb. 2004, p. 98.

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CRS-15
Table 4. Displaced Workers by Occupation of Job Lost in the
1999-2000 Period and Employment Status in January 2002
Total
Employment status (percent distribution)
Occupation of
(in
Unem-
Not in the
job lost
thousands)
Total
Employed
ployed
labor force
Total
2,005
100
74
10
15
White-collar workers
1,194
100
78
7
15
Managerial and
596
100
79
8
14
professional specialty
— Executive,
administrative, and
373
100
80
8
12
managerial
— Professional
223
100
76
6
17
specialty
Technical, sales, and
598
100
77
7
16
administrative support
— Technicians and
72
100
74
1
25
related
— Sales occupations
249
100
79
5
16
— Administrative
277
100
77
9
14
support
Blue-collar workers
646
100
70
15
15
Service workers
124
100
69
21
10
Farming, forestry,
11
100
55
0
45
and fishing
Source: Unpublished data from the DWS.
Wage Prospects
Job quality commonly is measured in terms of earnings levels. Of workers
displaced from and reemployed in full-time wage and salary jobs, 51% were earning
at least as much as in January 2002 as they had on the jobs they lost in the 1999-
2000. (See Table 5.) This pattern of a small majority (52%-61%) of full-time job
losers subsequently getting full-time jobs paying as much or more than they
previously earned was true in most prior survey periods as well.47
Those reemployed full-time workers who typically fare the best when pre- and
post-displacement earnings are compared include professionals. Most recently, 71%
of displaced professionals earned at least as much in their new jobs. The occupations
in which these displaced workers became reemployed provides a partial explanation
for this finding. Most workers who lose professional positions typically obtain new
47 The percentage was less than one-half in three periods: 1984, 1994, and 1996, when it
ranged narrowly between 47% and 49%.

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CRS-16
jobs within the same occupational group.48 Consequently, they tend to retain the
reward for experience (tenure) in their field that they would have lost had they
switched occupations.
Although trade-related job loss among IT and IT-enabled professionals is too
new a phenomenon for its consequences to have been researched, some surmise
from earlier studies of worker displacement that offshoring may prove to be less
“costly in terms of unemployment and permanent wage loss as earlier waves of blue-
collar, trade-related, job displacement were.”49 Their speculation is based upon the
studies’ findings that more educated workers usually have an easier time finding new
jobs and generally incur smaller wage declines.
Others argue, however, that offshoring will exert downward pressure on the
wages of higher skilled workers. To date, studies typically estimated that trade has
had a fairly small effect on the U.S. wage structure (e.g., by depressing the relative
wages of low skilled workers), but “if trade in services that involve more highly
skilled jobs continues to grow, trade will affect a larger share of the workforce, so the
effect on the wage structure could become larger over time.”50
48 “Displaced Professional Workers Most Likely to Return to the Same Occupation,”
Monthly Labor Review, Oct. 1999.
49 Karoly and Panis, The 21st Century at Work, pp. 172-173.
50 Ibid., p. 177.

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CRS-17
Table 5. Workers Displaced From and Reemployed in
Full-Time Wage and Salary Jobs, by Earnings on
Pre- and Post-Displacement Jobs
Reemployed in full-time wage and salary job
(percent distribution)
Earnings compared to those on job lost
(percent distribution)
Total
Below
At least
who
At least
but
equal but
At least
reported
20%
within
within
20%
Occupation of job lost
earnings
below
20%
20%
above
Total
100
26
23
31
20
White-collar workers
100
27
20
30
23
Managerial and professional
100
25
20
33
22
specialty
— Executive, administrative,
100
30
22
29
18
and managerial
— Professional specialty
100
15
15
41
30
Technical, sales, and
100
30
20
26
24
administrative support
— Technicians and related
100
35
15
21
29
— Sales occupations
100
22
18
44
17
— Administrative support
100
34
23
16
27
Blue-collar workers
100
26
29
29
16
Service workers
100
7
13
67
13
Source: Unpublished data from the DWS.
Administrative support workers experienced the widest gap in pre- and post-
displacement earnings. Some 43% of individuals who had been in administrative
support positions were again earning at least as much as they previously had. A
below-average share of executive, administrative, and managerial workers as well as
blue-collar workers also were in new full-time wage and salary jobs that paid more
than their former jobs (47% and 45%, respectively). Differences in the degree of
earnings loss by occupation may have to do with the nature of the skills — general
or specific — that members of occupational groups typically possess. An analysis
of white-collar displacement found evidence to “suggest that managers experience

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CRS-18
larger earnings losses than otherwise equivalent white-collar workers,”51 which
accords with the idea that a fairly large portion of the skills that managers and blue-
collar workers possess are job- or industry-specific. Because skills of this nature are
not readily transferable from one job to the next, managers and blue-collar workers
appear to be less able than others to command wages on their new jobs that are
comparable to their past earnings levels.52 And, an above-average share of displaced
blue-collar workers finds new jobs in service occupations (e.g., cleaning, food,
health, and personal service positions) — usually the lowest paying of all
occupational groups.53
Another measure of how good a job is, other than earnings, is hours worked.
A minority of workers displaced from full-time wage and salary jobs typically are
reemployed in part-time positions. In 2002, this was true of less than 8% of
reemployed workers who lost full-time jobs. (The DWS data do not indicate either
the extent to which those who accepted part-time work might have wanted fewer
hours of employment or the difference in their pre- and post-displacement earnings.)
Past media accounts of the aftermath of layoffs often described former
employees of large corporations unhappily going into business for themselves or
otherwise entering contingent employment arrangements (e.g., as temporary
workers). Some regard these arrangements as inferior to full-time wage and salary
jobs because they appear to be less secure. Relatively few workers who lose full-time
jobs subsequently go into work for themselves, however. In 2002, the figure was
under 6%. (The DWS data do not indicate whether workers wanted to work for
themselves and whether self-employed workers were better or worse off financially
than they had been.)
51 Lori G. Kletzer, “White-Collar Job Displacement,” Proceedings of the 47th Annual
Meeting, Industrial Relations Research Association, 1995, p. 105.
52 According to Derek Neal, “Industry-Specific Human Capital: Evidence from Displaced
Workers,” Journal of Labor Economics, vol. 13, no. 4, Oct. 1995, workers who switch
industries upon reemployment (e.g., due to the long-term employment decline at
manufacturers) incur larger wage costs than workers able to remain in their pre-displacement
industries.
53 Ryan Helwig, “Worker Displacement in a Strong Labor Market,” Monthly Labor Review,
June 2001.

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CRS-19
Current Law and Proposals to Assist
Workers Displaced by Offshoring
Congress has demonstrated a longstanding interest in assisting workers who
have lost jobs through no fault of their own (e.g., it has provided regular and, from
time to time, extended unemployment insurance benefits). The following discussion
is limited to proposals meant to mitigate the adverse impact of offshore outsourcing
on U.S. workers.
Current Federal Law
When displacement is expected to be caused by government action, such as
enactment of international trade agreements, Congress has created special programs
to help these individuals. The Trade Adjustment Assistance (TAA) program was
initiated in 1962 and is now authorized by the Trade Act of 1974 (P.L. 93-618) as
amended. Generally speaking, the program offers an additional period of income
support once workers displaced by the importation of articles or shift in goods
production outside the United States have exhausted their regular and extended
unemployment benefits and have met a job training requirement. These workers also
are eligible to receive search and relocation allowances, as well as tax credits to make
obtaining health insurance more affordable. TAA is a vehicle that policymakers are
showing interest in utilizing to assist workers in the service sector who lose their jobs
to offshoring.54
The Worker Adjustment and Retraining Notification Act (WARN) also was
enacted to help workers laid off through no fault of their own to more quickly find
new employment. P.L. 100-379, enacted in 1988, requires employers to provide
written notice of mass layoffs and plant closings to workers or their representatives,
state dislocated worker units, and the chief elected official of a unit of local
government at least 60 days before the event. The advance notice requirement
applies to employers, closings, and layoffs of a certain size. Some Members have
proposed extending WARN to explicitly cover offshoring that results in job losses.55
Education and training frequently are mentioned as ways not only to enable
displaced workers to obtain new jobs but also to empower individuals to take
advantage of technology’s effects on the world of work. At present, the Workforce
Investment Act (WIA, P.L. 105-220) provides services targeted at “dislocated
workers” who include job losers unlikely to be recalled to work in their former
industries and occupations. Unlike TAA, training for dislocated workers through
WIA is not an entitlement.56 Tax incentives also are in place to encourage people to
54 For specific information on legislative proposals see CRS Electronic Briefing Book,
Trade, page on “Trade Adjustment Assistance for Workers” by Paul Graney and Celinda
Franco at [http://www.congress.gov/brbk/html/ebtra85.html].
55 For more information see CRS Report RL31250, The Worker Adjustment and Retraining
Notification Act (WARN), by Linda Levine.
56 For further information see CRS Report 97-536, Job Training Under the Workforce
Investment Act (WIA): An Overview, by Ann Lordeman.

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CRS-20
utilize their own resources to expand and improve their skill sets.57 However, some
individuals who lose their jobs to offshoring might not think they need to undertake
retraining or skill upgrading because, for example, they expect hiring of experienced
workers with IT qualifications to pick up once firms resume substantial computer-
related spending. Others, while acknowledging their need to retrain, may be stymied
by the widening range of work that appears susceptible to international trade
competition.
The Most Often Mentioned New Proposal
Offshore outsourcing generally was not being discussed when Kletzer and Litan
suggested in early 2001 that “wage insurance” be provided to mitigate the adverse
impact of involuntary worker displacement. They propose that for those long-time
full-time employees who become unemployed through no fault of their own and who
subsequently accept full-time jobs paying less than their pre-displacement wages,
government provide a subsidy through the federal-state Unemployment Insurance
system equal to a portion of the wage loss for up to two years following
reemployment.58 Such a program, they contend, would reduce worker anxiety over
trade liberalization, among other factors that can result in job loss (e.g., technological
innovation), and would help speed reemployment of dislocated workers.
At a 2004 briefing on offshore outsourcing, Catherine Mann of the Institute for
International Economics pointed to the wage insurance program in the Trade Act of
2002 as model for serving a broader eligible population.59 The existing
demonstration program is available only to some older workers who lose their jobs
due to international trade.60
The McKinsey Global Institute put forth a wage insurance proposal that has
private sector rather than government funding. It recommends that, as part of a
severance package, businesses purchase insurance for displaced workers to cover
their lost wages during the median period of unemployment for their occupational
group and provide them with a portion of any wage loss incurred upon reemployment
in full-time jobs.61
57 For more information see CRS Report RL31129, Higher Education Tax Credits and
Deduction, by Adam Stoll, James B. Stedman, and Linda Levine.
58 Lori G. Kletzer and Robert E. Litan, A Prescription to Relieve Worker Anxiety, Institute
for International Economics, Policy Brief 01-2, Feb. 2001.
59 Fawn H. Johnson, “Expanded Wage Insurance Programs Would Calm Outsourcing Fears,
Analysts Say,” Daily Labor Report, Apr. 5, 2004.
60 For additional information see CRS Report 94-478, Trade Adjustment Assistance for
Workers: A Fact Sheet, by Paul J. Graney.
61 McKinsey Global Institute, Offshoring: Is It a Win-Win Game?.

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