Report: Offshoring Does Not Put Downward Pressure on US Wages

To say that outsourcing jobs to low-cost countries pushes down wages in the US labor market is an overstatement, but the practice has both positive and negative effects, …

Image courtesy of UC Berkeley

To say that outsourcing jobs to low-cost countries pushes down wages in the US labor market is an overstatement, but the practice has both positive and negative effects, according to a joint report from the Massachusetts Institute of Technology (MIT) and the University of Berkeley.

The majority of employers in the US outsource work to contractors and suppliers within the country, though about a quarter of US companies offshore work to other countries, the report noted. The majority of those offshoring jobs are in the manufacturing sector.

“The portrait that emerges is of two economies – an entirely domestic one made up of small firms and public organizations, and another one consisting of large firms with much deeper global engagement,” says Tim Sturgeon, a senior research affiliate with MIT’s Industrial Performance Center.  The report is co-authored by Sturgeon and UC Berkeley’s economics professor Clair Brown.

This is important because big firms employ more than 20% of the country’s full-time workers and tend to offer higher-quality jobs with better wages and benefits than the average U.S. employers do, Brown noted.

The researchers, whose study relied on data from a 2010 survey, said there is no solid evidence to say that the offshored jobs go to developing countries where workers are paid near-poverty wages. A huge amount of work is outsourced to high-cost locations such as Canada and Western Europe, the report noted.

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With the US economy recovering, the researchers say, both offshoring and domestic outsourcing will expand in the days to come. “The recovery allows companies to restructure and expand through more offshoring and outsourcing, instead of just rehiring and returning to old practices,” said Brown.

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