Offshoring and the Labour Market: The IT and call centres considered

1
Offshoring and the Labour Market The IT and call
centres considered

• Gawain Heckley
• Labour Market Division

2
The Media
THE SUNDAY TIMES. OCTOBER 5, 2003
This is the 8.15 to Mumbai. It is carrying Indian
commuters, on the way to do YOUR JOB
(Thanks to Tony Clayton for this)
3
UK Service Sector
Source LFS and Blue Book
4
Outline

• Trade Theory
• What is offshoring?
• UK trade background
• The UK labour market
• Labour Market conditions for IT enabled
  occupations explored

5
Trade theory An overview

• Two major drivers of trade
• Absolute advantage in production
• Comparative advantage in production

6
Trade theory An overview

• An example of comparative advantage

- Both US and UK have a labour force of 10
- Labour utilised in the same way in both
countries before trade
7
Trade theory An overview

• Two major drivers of trade
• Absolute advantage in production
• Comparative advantage in production

• A popular but false simile
• Trading countries are like firms competing in a
  market

• Theory suggests
• Usually a net gain from trade
• There may be short to medium term adjustment
  costs

8
Definitions and motivations

• Outsourcing
• A practice where companies transfer portions of
  work to outside domestic suppliers rather than
  completing it internally.

• Offshoring
• A practice where companies transfer portions of
  work either
• To an inside specialised unit abroad (FDI)
• To outside foreign suppliers (trade)

• The motivations for firms to offshore
• Cheaper cost base
• Excess demand can lead to shortage of domestic
  production capacity

9
Service sector offshoring

• Offshoring of services is a relatively new
  phenomenon
• BA early mover in 2002

• ICT has enabled some services to become
  non-dependent on where they are performed
• enabled by low cost high bandwidth global
  communications

• Offshoring is a business to business transaction
• This is a form of intermediate demand

10
Intermediate demand imports
Source Input-Output tables
11
Intermediate demand Exports
Source Input-Output tables
12
UK labour market

• No official data/reliable measures of offshoring
  effects on UK labour market

• Can look at economic conditions and trends of
  occupations that are IT enabled
• Those whose jobs are offshored are likely to be
  made redundant is there an upward trend in
  redundancies?
• What are the employment prospects of these
  occupations?

• The LFS and SOC2000 occupational codes allow us
  to investigate this

13
IT enabled occupations Overview

• Employment growth in last four years
• IT enabled occupations 8.8
• The economy as a whole 3.2

Source LFS

• Average redundancy rate over the last year for
• IT enabled occupations 25 per thousand
• The economy as a whole 5.6 per thousand

14
IT enabled occupations Re-employment
Source LFS
15
IT enabled occupations Re-employment
Source LFS
16
IT enabled occupations Skills
Source LFS
17
IT enabled occupations Wages
Source LFS
18
IT enabled occupations Regional employment
Source LFS
19
IT enabled occupations Conclusion

• Whilst offshoring is increasing we observe
• The UK has a trade surplus in these services (net
  exporter)
• High employment growth relative to whole economy
• Redundancy levels are falling, but high relative
  to whole economy
• Re-employment is improving, but low compared to
  the whole economy
• The observed differences in re-employment rates
  are hard to understand
• There seems to be no particular regional
  employment effect

20
Questions Comments