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Whether they intend to stoke up a debate in the IT sector or it's just part of the political agenda, a number of US economists are asserting that moving IT jobs to so-called offshore locations will add jobs to the US economy, writes Bloor Research analyst Bob McDowall.

One economist, Lawrence Klein, has used his own economic model to project the addition of 300,000 jobs per year by 2008. In the context of IT, it is asserted that offshoring has increased the net salaries in the IT industry in the USA, albeit marginally and that in 2003 there was a net increase of just under 100,000 IT jobs in the USA.

The rationale behind the economists' thinking is that "an overseas workers become complementary to the on shore worker". In other words an increased number of "lower value" jobs created overseas brings with it an increased demand for jobs involving the logistics, research and development, control and management of those offshore activities. If this is correct then offshoring is not an economically-efficient model. Statistics over the past ten years would indicate that nearly 3 million jobs were created by US corporations overseas, while over five million were created within the USA. Again, if there is any correlation to these figures, it argues against the economic benefits of off-shoring.

Economists would further argue that offshoring is the most efficient way to distribute and expand the product and service markets for US corporations. Further benefits are derived from offshoring through the ability of US corporations to deliver their services back to the USA more cheaply. They conspicuously fail to state the impact of a weak or declining US$ in this context, though they do asset that by raising the purchasing power capabilities, this leads to stronger domestic US spending and overall a stronger economy.

These are fine macro-economic arguments but they actually do not support the cost, benefit messages of the major outsourcing organisations. They ignore the costs and requirements to retrain and re-skill those redundant through off-shoring. They assume easy labour mobility across the USA, a myth perpetuated by politicians and businessmen. These are proponents of mass flexible labour mobility, epitomised by sentimental memories of wagon trains and the historical treks westward.

Can these assertions be applied to other mature western economies? The answer is probably not. The labour markets are more structured and regulated than in the USA. The costs associated with delivering offshoring of operations from Western European countries takes longer to deliver; in general western European Companies do not have the scale and depth to deliver back to their own economies cheaper services from overseas or at least we have had little or no demonstration of this.

Finally, the European Central Bank has not demonstrated it can exercise its management of the Euro to the benefit of all of the members of the European Monetary Union, and to the collective benefit of their export markets.

© IT-Analysis.com

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