Trade in High-Tech Services: Understanding the Scope and Impact of Services Offshoring

1. Trade in High-Tech Services:Understanding the Scope and Impact of Services Offshoring J. Bradford Jensen Peterson Institute for International Economics

2. Prevalence and Impact of Trade in Services • Diversity of opinion regarding the importance of trade in services • “Non-tradable” • “Is your job next?” • Long-run implications for standards of living • To examine implications of trade in services, need detailed data • Weak statistical infrastructure relative to manufacturing • Need to creatively fill gaps and draw inferences

3. Tradable Services? • Draw on a new empirical approach to identify tradable services • Identify service activities traded within U.S. • Infer that these activities potentially tradable internationally • Classify on industry and occupation • Examine a number of features of these activities • Examine establishment level microdata for select service industry exporters and non-exporters • Relate results to manufacturing sector results

4. Road Map • Describe new methodology • Examine characteristics of traded service workers • Examine characteristics of service firms that export • Compare to manufacturing • Conclude

5. Empirical Approach: Economic Geography

6. Empirical Approach: Economic Geography

7. Geographic Concentration of Industries Mfg EMP – 86% T Ag/Min EMP – 100% T Prof Svc EMP – 70% T Ed/Health EMP – 98% N-T Oth Svc EMP – 80% N-T

8. Employment Shares by Industry

9. Geographic Concentration of Occupations Comp/Math EMP – 100% T Scientific EMP – 84% T Social Svc/Ed EMP – 100% N-T Mgt, Bus/Fin Ops, Arch/Eng EMP – 65% T Prod EMP – 80% N-T

10. Tradable High-Tech Occupations in Non-Tradable Industries About 3 million workers in tradable high-tech occupations and non-tradable industries

11. Road Map • Describe new methodology • Examine characteristics of traded service workers • Examine characteristics of service firms that export • Compare to manufacturing • Conclude

12. Earnings Differentials: Industry 40% 35%

13. Earnings Differentials: Occupation 20% 80%

14. Earnings Premia: Tradable Occupation and Industry

15. Road Map • Describe new methodology • Examine characteristics of traded service workers • Examine characteristics of service firms that export • Compare to manufacturing • Conclude

16. Service Exporters • Select 2-digit NAICS industries in the Census of Services include question on exports • Information (51) • Software, newspaper, periodical book publishers • Motion picture and sound recording industries • Broadcasting, internet, ISP and telecommunications • Professional and Technical (54) • Legal, accounting, architectural, engineering, consulting, marketing, and scientific • Admin Support (56) • Administrative, temporary help, telemarketing and collection • Facilities management, security, janitorial, and landscaping

17. Service Exporters

18. Service Exporters (con’t) • Similar in nature to plant level manufacturing data • Establishments report exports of services • Have basic operating characteristics of the establishment: • Employment • Sales • Payroll • Location • Construct: • Average wage • Other input intensity • Labor productivity • Geographic concentration

19. Exporting Across Service Industries

20. Exporting Across Service Industries

21. Exporters Within Industries

22. Road Map • Describe new methodology • Examine characteristics of traded service workers • Examine characteristics of service firms that export • Compare to manufacturing • Conclude

23. What we know from Manufacturing • Exporters are relatively rare and different from other plants • Exporters are larger, more capital intensive, pay higher wages, more productive • Changes in trade costs (policy and technology) cause a reallocation across and within industries • When trade costs fall, low productivity plants exit, relatively high productivity non-exporters start exporting, exporters increase exports • Comparative advantage works both across and within industries • Low-wage, labor intensive production across and within industries most vulnerable to low-wage import competition

24. Employment Growth • Examine changes in industry employment growth • Use County Business Pattern data for 1998-2004

25. Conclusions • Significant number of service activities are tradable • Workers in tradable services have higher skills/earnings • Service exporters are more fixed cost intensive and skill intensive across and within industries • Tradable services do not appear to have different employment growth than non-tradable services • Expect trade in services to have a similar impact as in manufacturing • Reallocation towards U.S. comparative advantage resulting in productivity growth

26. Thank You

27. Next Steps • What is traded? • BEA microdata on outbound FDI • Census microdata on service establishment exporters • Detailed industry case studies with Sloan Industry Center researchers • What is impact? • Census microdata on service sector producer dynamics • Census microdata on employment and wage dynamics • Displaced Worker survey

28. What U.S. Industries are Low-Wage Countries Entering? Evolution of Low-Wage Import Share, 1972-92

29. Evolution of Number of Products Share by SIC4 and Time, 1972-92 Number of Products Share