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Study: Service offshoring and employment

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The Daily


Tuesday, May 22, 2007
1987 to 2006

A new study found no clear evidence that occupations potentially subject to service offshoring displayed smaller employment growth than other occupations in recent years.

The study identified industries with a large share of occupations subject to foreign outsourcing of services, or service offshoring, in 1994 and 1995. Then it compared employment trends in these industries to those observed in other industries between two periods: 1987 to 1995 and 1996 to 2006.

The study found no evidence that industries with a relatively large share of occupations subject to service offshoring in the mid-1990s had recently undergone a deceleration in employment growth relative to other industries.

Furthermore, there was little evidence that employment in these occupations had grown at a slower rate in industries that experienced substantial increases in service offshoring to non-Organisation of Economic Co-operation and Development (OECD) countries than in similar occupations located in other industries.

Overall, the findings suggest that if foreign outsourcing of services has indeed had an impact on Canadian employment, this impact is likely to have been modest so far. Thus, it is unlikely to be detected with either industry-level data or occupation-level data.


Note to readers

This release is based on a research paper "Offshoring and employment in Canada: Some basic facts," available today.

The study uses a wide variety of data sets to produce a first set of stylized facts about service offshoring and the evolution of Canadian employment in recent years.

In this release, the terms "service offshoring" and "foreign outsourcing of services" are used interchangeably. They are measured using Canada's imports of computer, information and other business services. These imports include transactions between non-affiliated firms as well as those conducted between affiliated parties. Data are from the Balance of Payments Division.

In 2004, Canada's imports of computer, information and other business services totalled $18 billion. In contrast, Canada's imports of goods amounted to $364 billion that year.

Occupations potentially subject to service offshoring are defined based on four criteria: they make intensive use of information and communication technologies (ICTs); they produce an output that can be traded or transmitted by ICTs; they have a knowledge content that is highly codifiable; and they require no face-to-face contacts.

High-skill service industries include: information and cultural industries, finance and insurance, real estate and rental leasing, professional, scientific and technical services, management of companies and enterprises and administrative support, waste management and remediation services.


Some Canadian firms recently implemented service offshoring. That is, they have started to contract out abroad activities for certain services such as architecture, engineering, informatics, data entry and payroll administration.

Countries such as India, China and other non-OECD countries have often provided the work force required for these jobs, some of which pay relatively high wages in Canada.

These new forms of foreign outsourcing have led to an increase in Canada's imports of computer, information and other business services from non-OECD countries. One concern is that they may reduce employment in Canada.

Roughly half of the jobs potentially subject to service offshoring are in clerical occupations such as telephone operators, payroll clerks and data entry clerks. The other half are in professional occupations such as engineers, computer programmers and architects.

It should be emphasized that employment in specific firms in certain industries might well have been affected positively or negatively by service offshoring in recent years. However, the data currently available in Canada are not detailed enough to allow thorough analysis of the impact of service offshoring at the firm level.

No clear link between service offshoring and slower employment growth

Concerns that international competition is driving jobs offshore are not recent. In the early 1980s, it was argued that many manufacturing jobs in advanced economies were being lost to developing countries.

Recently, some observers have argued that employers now use foreign outsourcing not only for manufactured goods, but also for labour services such as engineering, informatics and payroll administration.

Concerns have been expressed that employment growth in these occupations might decline or even stop. The study found little evidence consistent with that view.

Between 2000 and 2006, employment in occupations potentially affected by service offshoring grew 1.8% per year, on average. Employment in other occupations grew at the same rate.

While employment grew a solid 2.8% per year in professional occupations potentially subject to service offshoring, it was almost stagnant among clerical occupations potentially subject to service offshoring. This suggests that service offshoring might have restricted employment growth in these clerical occupations in recent years.

The study offers several pieces of evidence that do not support this conjecture.

First, employment in clerical occupations potentially subject to service offshoring was stagnant well before 2000. In fact, it fell almost continuously between 1987 and 2000, a period during which service offshoring was likely negligible.

Second, industries that had a relatively high percentage of jobs in clerical occupations potentially affected by service offshoring in the mid-1990s did not see their employment growth decelerate (relative to other industries) between the period from 1994 to 2000 and the period from 2000 to 2006. A similar conclusion was held for the two following periods: 1987 to 1995 and 1996 to 2006.

Third, clerical occupations potentially subject to service offshoring did not display smaller employment growth in industries that experienced substantial increases in service offshoring to non-OECD countries, as compared to similar occupations located in other industries.

Taken together, these findings suggest that the poor employment record of clerical occupations potentially subject to service offshoring between 2000 and 2006 might result from other factors such as technological changes that led to the automation of tasks previously performed by clerical employees.

Canadian firms increasingly involved in foreign "insourcing" of services, as well as outsourcing

The study measured service offshoring using Canada's imports of computer, information and other business services.

In 2004 — the year for which the most recent data are available — Canadian firms imported roughly $18 billion of computer, information and other business services. Of these, roughly $1 billion came from non-OECD countries.

While some Canadian firms purchased these services abroad, others sold these services outside Canada. In 2004, exports of computer, information and other business services totalled roughly $20 billion. Of this, $3.5 billion went to non-OECD countries.

In fact, Canada's exports of these services to non-OECD countries exceeded its imports between 1996 and 2004, a period during which consistent data on these services are available.

This indicates that while some Canadian firms were increasingly involved in the foreign outsourcing of services, others were also benefiting from foreign insourcing.

Occupations included in analyses of service offshoring have specific characteristics

Occupations that may have been subject to service offshoring were included in the study. These occupations have particular characteristics.

They make intensive use of information and communication technologies (ICTs), produce an output that can be traded or transmitted by ICTs, have a knowledge content that is highly codifiable, and require no face-to-face contacts.

Using these four criteria, the study identified a set of occupations that could be included in any analysis of service offshoring.

About one-half of these occupations were found in high skill service industries such as professional, scientific and technical services, finance and insurance, real estate as well as information and cultural industries. About one-third paid $25 or more per hour (in 2006 dollars).

Clerical occupations and professional occupations each represented roughly one half of the jobs included.

Since women are overrepresented in clerical occupations, they hold a large share of these jobs. In 2006, almost two-thirds of the jobs included in the study were held by women.

In contrast, since men are overrepresented in professional occupations, they hold most of the high-paying jobs that should be included in any analysis of service offshoring. In 2006, 61% of the jobs included that paid $25 or more per hour were held by male workers.

The research paper "Offshoring and employment in Canada: Some basic facts" is now available as part of the Analytical Studies Branch Research Paper Series (11F0019MIE2007300, free) from the Analytical Studies module of our website.

Related studies from the Business and Labour Market Analysis Division can be found under Update on Analytical Studies Research (11-015-XIE, free) on our website.

For further information or to enquire about the concepts, methods or data quality of this release, contact René Morissette (613-951-3608), Business and Labour Market Analysis Division.