	Background

		Defining Offshoring

Offshoring generally refers to a company’s purchases from abroad  (imports) of goods or services that were previously produced  domestically. This diversity of views reflects several factors: the  fact that services offshoring is a relatively recent development in  international trade whose impact is not yet fully known; the limitations of  currently available data about the extent of offshoring and its impacts; and  different theoretical expectations about the likely impact of expanded  trade in services on the U.S. economy. Potential Impacts on the Average U.S. Standard of Living

Traditional economic theory on international trade predicts that  offshoring is likely to be beneficial for the average U.S. standard of living  in the long run; however, some economists have argued that offshoring  could harm U.S. living standards. Traditional Economic Theory Predicts that Offshoring Will Benefit Average U.S. There is disagreement about  the expected direction of any structural changes in the labor market due  to offshoring, the expected magnitude of job displacement due to  offshoring, and the implications of this displacement for those workers  who are directly affected by it. Potential Impacts on the Distribution of Income

Some economists have expressed concern that offshoring could accelerate  income inequality in the U.S.; however, others argue that changes in the  income distribution are driven primarily by factors unrelated to offshoring,  and still others point out that offshoring could potentially decrease income  inequality. A Wide Range of Policies Have Been Proposed to Address Concerns about Offshoring’s Potential Impacts

Offshoring observers have proposed a broad range of policies in response  to offshoring, representing a variety of different ideas about how public  policies could address the concerns raised by offshoring. We have  categorized these proposals into four types on the basis of concerns they  seek to address: (1) improving U.S. global competitiveness, (2) addressing  effects on the U.S. workforce, (3) addressing security concerns, and   (4) reducing the extent of offshoring. Some analysts have proposed  policies in more than one of these areas. Additional Research in Key Areas May Help Advance the Offshoring Debate

Determining appropriate policy responses to the offshoring phenomenon  is challenging for several reasons. Nevertheless, there are some key areas where further research might help  to provide more information about the impacts and policy implications of  services offshoring. These areas include  impacts of offshoring on various sectors of the U.S. economy, and  especially the sectors that are emerging as new sources of comparative  advantage; impacts of offshoring on the workforce, such as numbers of workers  displaced and their reemployment experiences; impacts of offshoring on the U.S. income distribution, including trends in  wage levels of jobs moving offshore; and    any increased security-related risks posed by offshoring and the extent to  which these are mitigated by current practices and laws. We have highlighted some key areas where further research might help  advance the debate about the impacts and policy implications of  offshoring. Agency Comments

We provided a draft of this report to the Departments of Commerce,  Labor, Treasury, and the Office of the United States Trade Representative. Appendix I: Scope and Methodology

Our objectives in this study were to: (1) describe experts’ views about the  potential effects of services offshoring on the U.S. economy, workforce,  national security, and consumer privacy; (2) describe the types of policies  that have been proposed in response to offshoring; and (3) discuss areas  where further research could advance the debate on offshoring. “Understanding the Offshoring Challenge.” Policy  Report. Job Loss: Causes and Policy  Implications. Defense Security Service.
Why GAO Did This Study

Much attention has focused on the "offshoring" of services to lower-wage locations abroad. Offshoring generally refers to an organization's purchase of goods or services from abroad that were previously produced domestically. Extensive public debate has arisen about both the potential benefits of services offshoring, such as lower consumer prices and higher U.S. productivity, as well as the potential costs, such as increased job displacement for selected U.S. workers. In response to widespread congressional interest, GAO conducted work under the Comptroller General's authority to help policy makers better understand the potential impacts and policy implications of services offshoring. This report: (1) provides an overview of experts' views on the potential impacts of services offshoring, (2) describes the types of policies that have been proposed in response to offshoring, and (3) highlights some key areas where additional research might help advance the debate about offshoring. In its comments, the Department of Commerce generally agreed with the findings of this report. Commerce, Treasury, and the Office of the United States Trade Representative also provided technical comments that have been incorporated as appropriate.

What GAO Found

Analysts of the offshoring phenomenon have expressed a range of views about the likely impacts of offshoring on four broad areas. The differing views reflect several factors: the fact that services offshoring is a relatively recent development whose impact is not fully known, the limitations of available data on offshoring, and different theoretical expectations about how services offshoring will impact the U.S. economy. The average U.S. standard of living: Traditional economic theory generally predicts that offshoring will benefit U.S. living standards in the long run. However, some economists have argued that offshoring could harm U.S. long-term living standards under certain scenarios, such as if offshoring undermines U.S. technological leadership. Employment and job loss: While economic theory generally predicts that offshoring will have little effect on overall U.S. employment levels in the long-run, there is widespread recognition that pockets of workers will lose jobs due to offshoring, though there is disagreement about the expected magnitude of job loss and implications for displaced workers. Distribution of income: Some economists maintain that offshoring could increase income inequality in the U.S., while others argue that changes in the income distribution are driven primarily by factors other than offshoring, such as technological change. Security and consumer privacy: Experts express varying degrees of concern about the impact of services offshoring on the security of our national defense system and critical infrastructure--such as utilities and communication networks--as well as the privacy and security of consumers' financial and medical information. A wide range of policies has been proposed in response to concerns about offshoring and its potential effects. These proposals can be categorized into four areas by the concerns they seek to address: (1) improving U.S. global competitiveness, (2) addressing effects on the U.S. workforce, (3) addressing security concerns, and (4) reducing the extent of offshoring. Some analysts have recommended policies in more than one area. Determining appropriate policy responses to the offshoring phenomenon is challenging due to the limited state of knowledge about the extent and impacts of offshoring. Nonetheless, there are some key areas where additional research might help advance the debate, such as trends in the wages and skill levels of jobs being offshored, reemployment experiences of workers displaced by offshoring, and the extent to which current laws and practices in different sectors of the economy mitigate any increased security-related risks posed by offshoring. In the face of limited federal data, researchers have begun using a variety of approaches to examine such areas.