How Offshoring Affects IT Workers
Prasanna Tambe Stern School of Business, New York University 44 West 4th Street, Room 8-82 New York, NY 10012
[email protected] Lorin M. Hitt The Wharton School, University of Pennsylvania 500 Huntsman Hall, 3730 Walnut Street Philadelphia, PA 19104
[email protected]
Communications of the ACM, Forthcoming
Abstract Despite significant public, media, and academic interest in offshoring, there has been very little data available through which to assess how offshoring has affected US-based information technology workers. In this study, we use data from two new surveys to examine how offshoring has already affected the US based IT workforce, and to test the hypothesis that offshoring is making interpersonal skills more valuable for US-based IT workers. Overall, about 30% of firms report that they send IT work overseas. Among the IT workers surveyed, about 8% report ever having experienced offshoring-related job displacement, double the average offshoring-related displacement rate across all other worker types, but still implying an annual offshoring-related displacement rate of only about 1% per year. We also provide evidence that workers who provide services requiring face-to-face contact or physical presence (“personally delivered services”) are at smaller risk of offshoring-related job displacement, suggesting that interpersonal skills are becoming relatively more valuable among IT workers. A one standard deviation increase in our measure of how “personal” a job is decreases the likelihood of being displaced due to offshoring by about 25% relative to the base rate. IT workers in functions that involve cross-divisional communication or hands-on support are less likely to be affected by offshoring. Keywords: offshoring, IT workers, turnover, skills, globalization
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[email protected]. The authors gratefully acknowledge feedback from Peter Cappelli, Eric Clemons, Lori Rosenkopf, and three anonymous reviewers. This paper was previously circulated under the title “How Does Offshoring Affect Information Technology Workers?”
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Electronic copy available at: http://ssrn.com/abstract=1259323
INTRODUCTION Although the outsourcing of information technology (IT) services has long been a topic of academic interest [22], the potential for the global sourcing of IT services to have long term impact on the domestic IT workforce has recently attracted significant interest from the press, the public, and the academic community [15, 1, 6, 3, 23, 19]. The central focus of this paper is to use new survey data to characterize the effect that offshoring has already had on the US IT workforce, and to determine how it will affect the demand for IT skills among US IT workers in the future. Understanding the effects of offshoring on domestic employment is potentially important for understanding the training needs of existing and future IT workers, and to enable policy makers to frame initiatives that ease the transition to a global IT workforce. However, our current understanding is limited by a paucity of data on firms’ offshoring activities. Most existing discussion of offshoring has relied on anecdotes, press reports or theoretical arguments. Indeed, the US government has recognized that the development of better offshoring data is a pressing policy concern [9]. The primary contribution of this study is the collection and analysis of new data describing how offshoring affects the US workforce. These data come from two complementary, unusually large surveys collected in late 2007--the first from 3,014 human resource managers, and the second from over 6,000 workers employed in a variety of occupations. These data allow us to provide general statistics about the overall rate of IT offshoring and to examine two specific questions: 1) Do the rates of offshoring IT workers differ significantly from the offshoring rates for workers in other occupations? 2) Is the pattern of offshoring IT occupations consistent with the theory that whether or not a job requires face-to-face customer contact or the physical presence of an employee in a particular location is a principal determinant of whether it is offshorable? Our interest in the second question is motivated by work that has suggested that characteristics of jobs – such as the need for customer contact or physical presence and information intensity – are closely 2
Electronic copy available at: http://ssrn.com/abstract=1259323
related to their potential rate of offshoring [2, 5, 11, 18]. In this study, use data on offshoring-related displacement by occupation, combined with Blinder’s classification of offshorability of different occupations to understand how job characteristics correlate with offshoring rates [5]. Our findings indicate that about 15% of all firms and 40% of technology firms in the US engage in some offshoring activity, and that about 30% of all firms offshore IT workers. About 8% of IT workers report having ever been displaced due to offshoring, more than twice the percentage of any other type of employee in the survey. However, this rate implies an annual displacement rate of about 1% per year, a relatively small fraction of the annual worker turnover rate in the US economy. In addition, offshoring of some IT occupations such as programmers and software developers are especially likely to be associated with domestic job displacement. Other occupations that require more interpersonal interaction such as systems analysts are less likely to be offshored, and overseas employment in other occupations such as sales and management, which require local presence, may be directed at serving offshore customers and therefore are also less likely to be associated with job displacement in the US. Our paper makes three separate contributions to our understanding of how offshoring affects domestic IT workers. It is one of the first studies to quantify the extent to which offshoring is affecting IT workers. Second, our investigation into the relationship between occupational attributes and offshoringrelated displacement provides empirical support for emerging theories on how offshoring is driving the global disaggregation of skills [2, 5]. Third, it contributes to the literature demonstrating the growing importance of managerial and interpersonal skills for IT workers [13, 18, 21].
DATA AND METHODS Our primary data are compiled from two separate questionnaires, both of which were administered in the winter of 2007 by a third-party survey firm on behalf of one of the largest online recruitment and career advancement companies in the US. Our first survey focused on the offshoring practices of individual firms, including whether or not they offshore, why they offshore, what types of work they offshore, and to what countries they offshore. The survey was conducted within the U.S. 3
among 3,016 hiring managers and human resource professionals who were employed full-time and had significant involvement in hiring decisions. Respondents were also asked questions about firm characteristics, such as firm size and industry. The second survey was administered to individual workers, and included questions relating to whether or not they had been displaced due to offshoring. The survey was also conducted online within the US among 6,704 U.S. employees who were employed full-time, and included questions about firm characteristics such as industry and firm size, as well as worker characteristics, such as age, salary, and job level. To test the hypothesis that job characteristics affect the likelihood of a job being offshored, we use probit models in which the dependent variable is 1 if an employee reports being displaced due to offshoring or an employer reports offshoring a particular type of work, and we include a measure of the importance of face-to-face contact or physical presence as an independent variable. Rather than restrict our sample to IT workers, we include all occupations in our analysis to increase the variation in the skill content of jobs. We utilize Huber-White robust (clustered) standard errors to account for possible random firm effects. We capture the importance of face-to-face contact or physical presence in our regression models by including index values computed in a recent study of the offshorability of different occupations [5]. Blinder’s index is derived by placing jobs into categories depending on whether they require face-to-face interaction (e.g. child care workers) and whether they require the worker to be in a particular location (e.g. construction workers). For brevity and to maintain consistency with Blinder’s classification, we adopt the term “personally delivered” or “personal” services to describe tasks that require customer contact or physical presence, and “impersonal” services to describe tasks that require neither of these. Higher values on this scale indicate that workers in these jobs provide less personally delivered services (i.e. “impersonal” jobs), and are therefore more likely to be offshored, all else being equal. We also include additional variables in our regressions to control for other factors that may affect an employee’s chances of being displaced due to offshoring. Since the relative benefit of offshoring a particular worker depends heavily on the cost to the firm of that worker, we include a measure of 4
employee salary (coded in discrete levels).
Employees are less likely to be displaced if they have more
firm-specific knowledge or experience with the firm. Although we do not have access to organizational tenure variables, we include the individual’s job level, coded in discrete levels. We include demographic variables for employees as there is evidence that factors such as race, age, or gender influence displacement (see [12] for a review of the job displacement literature). We also include the number of employees at the firm to control for firm-size, as well as a dummy variable indicating the industry in which the firm participates. Finally, in some regressions, we also include the state in which the firm operates, to control for regional differences.
RESULTS
Employer Statistics Table 1 reports the overall incidence of offshoring by industry. The proportion of firms reporting offshoring any type of work across all industries is 15.2%. However, within the technology services and telecommunications industries, over 40% of firms in the sample report offshoring some type of work. The hypothesis that offshoring is more common in these high-tech industries than in other industries is significant at the p
