McKinsey Global Institute

US offshoring: Rethinking the response

Fewer US jobs can be performed remotely than is commonly presumed. Rather than trying to stop globalization, the goal must be to facilitate and ease the changes it brings.

By 2008, US companies are expected to offshore 2.8 million jobs, affecting less than 2 percent of all service employment. This is far fewer than the normal rate of job turnover in the economy: 4.7 million Americans started jobs with a new employer in May 2005.

Impact of offshoring services
Offshoring benefits both the US and developing countries. The challenge is in making sure everyone gets a piece of the pie.

Nonetheless, while the US economy gains from offshoring and other forms of trade, none of the benefits flow directly to those who undeniably suffer as a result—those workers whose jobs move overseas. Companies and governments can—and should—do more to help citizens cope with the faster rate of job change.

The US ranks at the low end of what developed nations allocate to policies that assist displaced workers, spending only 0.5 percent of GDP. Further spending is necessary.

For example, job retraining credits and continuing education grants give workers a chance to build those skills that are in demand. Portable medical insurance plans and pension benefits are also essential to a workforce changing jobs more frequently.

Companies benefiting from offshoring could provide generous severance packages and fund wage insurance programs that make up some or all of the difference between workers’ previous wages and their new ones, thus encouraging them to get back into the workforce quickly and avoid long-term unemployment.

These measures—if properly implemented—would cost only a fraction of the economic benefits that offshoring will bring.

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