Trade in High-Tech Services:
Understanding the Scope and Impact of Services Offshoring
J. Bradford Jensen
Peterson Institute
for International Economics
Prevalence and Impact of Trade in Services
• Diversity of opinion regarding the importance of trade in services
– “Non-tradable”
– “Is your job next?”
– Long-run implications for standards of living
• To examine implications of trade in services, need detailed data
– Weak statistical infrastructure relative to manufacturing
– Need to creatively fill gaps and draw inferences
Tradable Services?
• Draw on a new empirical approach to identify tradable services
– Identify service activities traded within U.S.
– Infer that these activities potentially tradable internationally
– Classify on industry and occupation
• Examine a number of features of these activities
• Examine establishment level microdata for select service
industry exporters and non-exporters
• Relate results to manufacturing sector results
Road Map
• Describe new methodology
• Examine characteristics of traded service workers
• Examine characteristics of service firms that export
• Compare to manufacturing
• Conclude
Empirical Approach: Economic Geography
Industrial Concentration: Seattle
20
18
16
Location Quotient
14
12
10
8
6
4
2
0
Aircraft and
parts
Aerospace
product and
parts
Ship and boat
building
Fishing, hunting,
trapping
Toys,
amusements,
and sporting
goods
Empirical Approach: Economic Geography
Industrial Concentration: Seattle
20
18
16
Location Quotient
14
12
10
8
6
4
2
0
Software
publishing
Aircraft and
parts
Aerospace
product and
parts
Ship and boat
building
Fishing, hunting,
trapping
Toys,
amusements,
and sporting
goods
Other
information
services
Electronic
shopping and
mail-order
houses
Geographic Concentration of Industries
Geographic Concentration of Industries
0.9
Mfg EMP –
86% T
0.8
Ag/Min EMP –
100% T
0.7
Prof Svc EMP –
70% T
Gini Coefficient
0.6
0.5
0.4
Ed/Health EMP –
98% N-T
Oth Svc EMP –
80% N-T
0.3
0.2
0.1
0
0
100
200
300
400
500
600
700
800
NAICS Industry
Ag
Mining
Utilities
Construction
Manufacturing
Wholesale
Retail
Transportation
Services
Public Admin
900
1000
Employment Shares by Industry
Tradable Industries' Share of Employment
Ag.
1%
Min, Util, Con
1%
Mfg.
12%
Ret./Whl.
7%
Prof. Srv.
14%
Non-Tradable
60%
Ed./Health
0%
Pers. Srv.
2%
Oth. Srv.
1%
Pub. Adm.
2%
Geographic Concentration of Occupations
Geographic Concentration of Occupations
0.8
0.7
0.6
Comp/Math EMP –
100% T
Scientific EMP –
84% T
Gini Coefficient
0.5
0.4
0.3
Social Svc/Ed EMP –
100% N-T
0.2
0.1
0
Mgt, 10
Bus/Fin Ops,
15
20
Arch/Eng EMP –
65% T
High-End Services
25
30
35
SOC Occupation
Other Services
Legal
Other Services
40
45
50
55
Prod EMP – 80% N-T
Production Related
Military Specific
60
Tradable High-Tech Occupations in Non-Tradable Industries
Major Occupation Group
Business and financial operations (13)
Non-Tradable Employment
Share
Tradable
Employment
Share
Computer and mathematical operations (15)
Tradable
Employment
Share
Architectural and Engineering (17)
Non-Tradable Employment
Share
Tradable
Employment
Share
Life, physical, and social science (19)
Non-Tradable Employment
Share
Tradable
Employment
Share
Non-Tradable Industry
Tradable Industry
757,406
14
1,487,523
28
945,273
18
2,176,721
41
757,018
24
2,369,198
76
220,040
8
345,980
13
717,880
28
1,318,203
51
85,095
7
426,274
36
105,527
9
551,382
47
About 3 million workers in tradable high-tech
occupations and non-tradable industries
Road Map
• Describe new methodology
• Examine characteristics of traded service workers
• Examine characteristics of service firms that export
• Compare to manufacturing
• Conclude
Earnings Differentials: Industry
Tradable vs. Non-Tradable Industry Incomes
$70,000
$60,000
$50,000
40%
$40,000
35%
$30,000
$20,000
$10,000
Tradable
t
or
t
pp
Su
in
/
Ad
m
M
an
ag
em
Se
rv
ic
e
h
f/T
ec
Pr
o
Non-Tradable
en
s
te
ea
R
su
In
nc
e/
lE
ra
st
a
nc
e
io
at
rm
In
fo
Fi
na
M
an
uf
ac
tu
rin
n
g
Al
l
$0
Earnings Differentials: Occupation
Tradable vs. Non-Tradable Occupation Incomes
140,000
120,000
100,000
80,000
60,000
20%
40,00080%
20,000
rt
po
lth
Su
p
ea
C
H
ea
lth
H
ce
s
Le
ga
l
h/
Ar
c
te
pu
om
Sc
ie
n
En
g
h
at
r/M
O
in
Bu
s/
F
M
an
ag
em
en
ps
t
Al
l
0
Non-Tradable
Tradable
Earnings Premia: Tradable Occupation and Industry
20%
18%
16%
Percent Difference
14%
12%
10%
8%
6%
4%
2%
0%
All Workers
Non-Tradable Industry and Tradable Occupation
Workers in Prof/Bus Service Industries
Tradable Industry and Non-Tradable Occupation
Workers in High-Tech Service Occupations
Tradable Industry and Tradable Occupation
Road Map
• Describe new methodology
• Examine characteristics of traded service workers
• Examine characteristics of service firms that export
• Compare to manufacturing
• Conclude
Service Exporters
• Select 2-digit NAICS industries in the Census of Services
include question on exports
• Information (51)
– Software, newspaper, periodical book publishers
– Motion picture and sound recording industries
– Broadcasting, internet, ISP and telecommunications
• Professional and Technical (54)
– Legal, accounting, architectural, engineering, consulting,
marketing, and scientific
• Admin Support (56)
– Administrative, temporary help, telemarketing and collection
– Facilities management, security, janitorial, and landscaping
Service Exporters
NAICS
Establishments
Employment
31-33
350,828
14,699,536
51
1,259,566
137,678
19,721,420
3,736,061
54
771,305
7,243,505
56
350,583
8,741,854
(Export Question Not Asked)
Educational Services
61
Health Care and Social
Assistance
62
Corporate, Subsidiary,
Regional Offices
55
Arts, Entertainment, and
Recreation
71
Other Services (except
Public Administration)
81
Source: 2002 Economic Census, Subject Series, from
http://www.census.gov/econ/census02/guide/SUBSUMM.HTM
1,438,567
49,319
23,260,394
430,164
704,526
15,052,255
36,833
2,453,991
110,313
1,848,674
537,576
3,475,310
Manufacturing
Sector
Service Sector:
Service Sector:
(Export Question Asked)
Information
Professional, Scientific,
and Technical Services
Admin Support and
Waste Mgt Services
Service Exporters (con’t)
• Similar in nature to plant level manufacturing data
– Establishments report exports of services
– Have basic operating characteristics of the establishment:
• Employment
• Sales
• Payroll
• Location
– Construct:
• Average wage
• Other input intensity
• Labor productivity
• Geographic concentration
Exporting Across Service Industries
Service Sector -- by 2-digit NAICS Code
Information Professional Admin Support Mfg
51
54
56
31-33
Exporter
0.114
0.049
0.008
0.270
Export Shipments
239
66
10
2,150
Exports/Sales
0.010
0.008
0.002
0.040
Sales ($000)
7,324
3,206
2,750
22,571
Employment
31
26
58
80
Average Wage ($000)
45
51
30
35
Labor Productivity ($000)
207
135
87
192
Other Inputs/Worker ($000)
162
84
57
158
Geographic Concentration (Gini)
0.275
0.212
0.161
0.376
Exporting Across Service Industries
Service Sector: (Export Question Asked)
N=125
Exports/Sales
Share
Exporters
Gini
Labor
Productivity
Other Inputs/
Worker Average Wage
Share Exporters
0.55479
<.0001
Gini
0.43616
<.0001
0.52284
<.0001
Labor Productivity
0.37735
<.0001
0.49168
<.0001
0.48887
<.0001
Other Inputs/Worker
0.32229
0.0002
0.42311
<.0001
0.3833
<.0001
0.94977
<.0001
Average Wage
0.37415
<.0001
0.44083
<.0001
0.44902
<.0001
0.74043
<.0001
0.56375
<.0001
-0.03931
0.6634
0.09516
0.2911
0.06823
0.4496
-0.11826
0.189
-0.19934
0.0258
Average Plant Size
-0.04734
0.6001
Exporters Within Industries
Exporter Premia
Service Sector -- Export Question Asked
N
390,377
log(Employment)
41%
69%
log(Sales)
--
117%
99%
26%
log(Average Wage)
54%
20%
13%
log(Labor Productivity)
73%
27%
26%
log(Other Inputs/Worker)
85%
30%
33%
No
No
No
Yes
No
No
Yes
Yes
Yes
6-digit NAICS Industry Controls
State Controls
Employment
Road Map
• Describe new methodology
• Examine characteristics of traded service workers
• Examine characteristics of service firms that export
• Compare to manufacturing
• Conclude
What we know from Manufacturing
• Exporters are relatively rare and different from other plants
– Exporters are larger, more capital intensive, pay higher wages,
more productive
• Changes in trade costs (policy and technology) cause a
reallocation across and within industries
– When trade costs fall, low productivity plants exit, relatively high
productivity non-exporters start exporting, exporters increase
exports
• Comparative advantage works both across and within
industries
– Low-wage, labor intensive production across and within industries
most vulnerable to low-wage import competition
Employment Growth
• Examine changes in industry employment growth
– Use County Business Pattern data for 1998-2004
NAICS 50s Non-Tradable
Tradable
N
13
Mean Std. Dev.
0.145
0.123
27
0.127
0.181
Conclusions
• Significant number of service activities are tradable
• Workers in tradable services have higher skills/earnings
• Service exporters are more fixed cost intensive and skill
intensive across and within industries
• Tradable services do not appear to have different
employment growth than non-tradable services
• Expect trade in services to have a similar impact as in
manufacturing
– Reallocation towards U.S. comparative advantage
resulting in productivity growth
Thank You
Next Steps
• What is traded?
– BEA microdata on outbound FDI
– Census microdata on service establishment exporters
– Detailed industry case studies with Sloan Industry
Center researchers
• What is impact?
– Census microdata on service sector producer
dynamics
– Census microdata on employment and wage dynamics
– Displaced Worker survey
What U.S. Industries are Low-Wage Countries
Entering?
Evolution of Low-Wage Import Share, 1972-92
Evolution of Number of Products Share by SIC4 and
Time, 1972-92
Number of Products Share