40 Million Jobs Up for Grabs

Alan Blinder, Princeton economics professor and former vice-chairman of the U.S. Federal Reserve, has provided updated estimates of how many of the 140 million jobs in the world's largest economy could be offshored.

Hold your chair -- his new estimate is that between 30-40 million jobs (22-29 percent) could move outside of the country, versus about 1 percent of U.S. jobs today. Blinder is not saying that that many jobs will go to poorer countries; the actual figure will for sure be lower. But it shows the potential bonanza awaiting developing countries, and the massive disruption that could hit the American labor force.

In a recent paper (Blinder, 2006), I argued that the migration of service sector jobs from the United States and other rich countries to other (mostly poorer) nations, while a minor phenomenon to date, is likely to become a major one in the coming decades—perhaps extensive enough to constitute a “new industrial revolution.” While the movement of manufacturing jobs abroad is a decades-old story, the phenomenon of service sector offshoring is a relatively new wrinkle that has been enabled by two majordevelopments of fairly recent vintage: stunning advances in computerized telecommunications technology (e.g., the Internet), and the entry of several “new” countries (principally India and China) into the global economy since the 1990s, and especially in this decade.

We've already seen what has happened in China, which has become the workshop of the world because its manufacturing costs are a fraction of those in the U.S. or Europe. In the process whole industries have been hollowed out.

Blinder points out in an earlier paper that the potential for American service jobs moving abroad is greater. The same cost differential that drove manufacturers to locate in China will drive service companies to locate in developing Asia; just look at this example: U.S. minimum wage of US$5.15 an hour is what a worker in the Philippines earns in a day. In other words, the migration of service jobs out of the U.S. to the rest of the world is just beginning.

But I believe that service-sector offshoring will eventually exceed manufacturing-sector offshoring by a hefty margin—for three main reasons. The first is simple arithmetic: There are vastly more service jobs than manufacturing jobs in the United States (and in other rich countries). Second, the technological advances that have made service-sector offshoring possible will continue and accelerate, so the range of services that can be moved offshore will increase ineluctably. Third, the number of, e.g., Indian and Chinese workers capableof performing service jobs offshore seems certain to grow, perhaps exponentially.

The scarier part for Americans is this: Binder has argued in this paper that education will not be the bullwark against a job going to a lower-cost place.

For example, it is easy to offshore working in a call center, typing transcripts, writing computer code, and reading X-rays. The first two require little education; the last two require quite a lot. On the other hand, it is either impossible or very difficult to offshore janitorial services, working in a fast-food restaurant, college teaching, and open-heart surgery. Again, the first two occupations require little or no education, while the last two require a great deal. There seems to be little or no correlation between educational requirements (the old concern) and how “offshorable” jobs are (the new one).