Exploding Offshoring Myths
McKinsey Global Institute
Exploding the Myths About Offshoring
April 2004 Martin N. Baily Diana Farrell
i
McKinsey Global Institute The McKinsey Global Institute (MGI) was established in 1990 as an independent economics think tank within McKinsey & Company to conduct original research on important global issues. Its primary purpose is to provide insights into the workings of the global economy and a factbase for decision-making for the benefit of business leaders and policymakers. MGI's staff members are drawn primarily from McKinsey's consultants. They serve 6- to 12-month assignments and then return to client work. MGI also commissions leading academics to participate in its research. The institute's director is Diana Farrell, a McKinsey partner.
Exploding the Myths About Offshoring
Total U.S. employment has fallen by over 2 million since 2000. While employment is rising again as the economy recovers, the pace of job growth has been agonizingly slow. Many people blame “offshoring,” or the nation's growing trade in services with emerging markets. Because of the digital revolution and the dramatic fall in international telecommunication costs, white-collar jobs that once were insulated from global competition can now be performed in low-wage nations like India for as little as one-tenth of the cost of U.S. labor. Employees with jobs as diverse as call-center agents, data processors, medical technicians, and software programmers are thought to be at risk. Even self-proclaimed free-trade advocates have wavered in their beliefs, and critics warn that as hiring favors the enormous supply of highly educated Indian and Chinese workers, millions of Americans will become jobless. In response to these concerns, Congress included in the fiscal 2004 omnibus spending bill a provision that prohibits federal agencies from outsourcing some kinds of work to private companies that use workers abroad. Over thirty states are considering similar restrictions; at least
Exploding the Myths About Offshoring
April 2004 Martin N. Baily Diana Farrell
i
McKinsey Global Institute The McKinsey Global Institute (MGI) was established in 1990 as an independent economics think tank within McKinsey & Company to conduct original research on important global issues. Its primary purpose is to provide insights into the workings of the global economy and a factbase for decision-making for the benefit of business leaders and policymakers. MGI's staff members are drawn primarily from McKinsey's consultants. They serve 6- to 12-month assignments and then return to client work. MGI also commissions leading academics to participate in its research. The institute's director is Diana Farrell, a McKinsey partner.
Exploding the Myths About Offshoring
Total U.S. employment has fallen by over 2 million since 2000. While employment is rising again as the economy recovers, the pace of job growth has been agonizingly slow. Many people blame “offshoring,” or the nation's growing trade in services with emerging markets. Because of the digital revolution and the dramatic fall in international telecommunication costs, white-collar jobs that once were insulated from global competition can now be performed in low-wage nations like India for as little as one-tenth of the cost of U.S. labor. Employees with jobs as diverse as call-center agents, data processors, medical technicians, and software programmers are thought to be at risk. Even self-proclaimed free-trade advocates have wavered in their beliefs, and critics warn that as hiring favors the enormous supply of highly educated Indian and Chinese workers, millions of Americans will become jobless. In response to these concerns, Congress included in the fiscal 2004 omnibus spending bill a provision that prohibits federal agencies from outsourcing some kinds of work to private companies that use workers abroad. Over thirty states are considering similar restrictions; at least