January 2006

High-Tech Concerns in the GAO Offshoring Report

by Russell Lefevre

In November 2005, the Government Accountability Office (GAO) published a study detailing an investigation of the issues surrounding offshoring of services, including those specifically associated with high-tech jobs. GAO's major conclusion was that it would be very difficult to formulate appropriate policy responses to the offshoring phenomena, due to the limited state of knowledge about the extent and impact of offshoring.

GAO's report, Offshoring of Services: An Overview of the Issues, [Report GAO-06-5], was developed using the agency's standard methodology. The report's authors conducted their review between May 2004 and November 2005. During that time, they completed an extensive literature search, including IEEE-USA's policy position on Offshore Outsourcing; interviewed many experts, including IEEE-USA's Vice President for Career Activities Dr. Ron Hira; and attended several conferences on services offshoring.

The report is an excellent review of differing views on the potential effects of offshoring, and the types of policy responses that have been proposed. It highlights key areas where additional research is needed to provide useful information for policy makers to consider. It is important to note that the report does not attempt to resolve differing opinions on the phenomena. It is simply a compendium of key issues and related public perspectives.

The report focuses on offshoring's effects on four areas: the U.S. standard of living; employment and job loss; distribution of income; and security and consumer privacy. The results, in brief, are summarized below:

• Traditional economic theory generally predicts that offshoring will benefit U.S. standards in the long run. However, some economists have argued that offshoring could harm long-term U.S. living standards under certain scenarios, e.g., if offshoring undermines U.S. technological leadership. Congress is increasingly concerned about this scenario.

• Economic theory generally predicts that offshoring will have little effect on overall U.S. employment levels in the long-run. However, there is widespread recognition that pockets of workers will lose jobs due to offshoring, though disagreement exists over the expected magnitude of job loss and implications for displaced workers. Recent news about offshoring high-tech jobs seems to indicate that U.S. IEEE members may be among those adversely affected.

• Some economists maintain that offshoring could increase income inequality in the United States; others argue that changes in the income distribution are driven primarily by factors other than offshoring, such as technological change.

• Experts express varying degrees of concern about the impact of services offshoring on the security of our national defense system and critical infrastructure, as well as the privacy and security of consumers’ financial and medical information.

Although a wide range of policies have been proposed in response to the concerns outlined above, a national consensus has not yet emerged. Four categories of policies that have been identified are: (1) improving U.S. global competitiveness; (2) addressing effects on the U.S. workforce; (3) addressing security concerns; and (4) reducing the extent of offshoring. Recent activity in Congress is designed to address the first two policy categories.

The 82-page report can be obtained by going to www.gao.gov/cgi-bin/ordtab.pl.

Russell Lefevre is IEEE-USA's Vice President for Technology Policy Activities. Comments may be submitted to todaysengineer@ieee.org.