Cities and the Offshoring of Work

Traditionally, the United States has worried about the offshoring of manufacturing jobs. But concern is mounting that as the rest of the world becomes increasingly well-educated and competitive, the desirable and high-paying service jobs previously considered immune to moving overseas are becoming increasingly vulnerable.

In a widely cited 2007 study, economist Alan Blinder estimated that between 22 and 29 percent of U.S. jobs were vulnerable to offshoring as of 2004. In a sobering Wall Street Journal op-ed published earlier this month (via Economist's View), economists Martin Neal Bailey, Matthew Slaughter, and Laura Tyson provide evidence that the global competition for jobs is heating up considerably. They note that multinationals have long been among the most important economic drivers of the U.S. economy, accounting for an estimated 19 percent of all private jobs, 25 percent of all private wages, and 41 percent of the increase in private labor productivity since 1990. Then they cite a McKinsey study based on personal interviews with senior executives from 26 of America's largest companies that finds the U.S. faces an unprecedented level of competition to "attract, retain and grow the operations of multinational companies that it's never faced before."

A 2008 Bureau of Labor Statistics report (via Derek Thompson) focused on the potential offshoring of service occupations and found that over 30 million of these jobs, about one-fifth of the total, were at risk of offshoring. The BLS definition of service jobs includes both high-paying, highly skilled, knowledge work - from scientists and engineers to architects and fashion designers, managers, business analysts, and CEOs - as well as lower-skilled, lower-paid service work like telemarketers and data entry clerks. The study found that the at-risk service jobs were, on average, higher-paying ($61,473 vs. $41,610) and more highly skilled - more than half of them (54 percent) required college degrees and eight in 10 required "some college."

But how might the offshoring or service work affect cities and metropolitan regions? Which cities and regions are most vulnerable to potential offshoring? And which have economies that are more insulated from the possible offshoring of service work?

To look more closely at how these trends might impact U.S. cities and regions, my team at the Martin Prosperity Institute used the BLS data and methodology to estimate the vulnerability of different metropolitan regions to offshoring. The BLS study used detailed data on job content and skill, spanning the years 2001-2007, to identify the characteristics of 515 U.S. occupations that make them vulnerable to offshoring and to rate them on their susceptibility to being moved offshore. They used four criteria, below:

The study ranked these occupations according to three categories of susceptibility to offshoring. The highest-ranked or most susceptible service jobs spanned 33 occupations - such as data entry clerks, telemarketers, tax preparers, pharmacy technicians, and paralegals - employing 9.5 million workers. The middle-ranked jobs spanned 94 occupations - including engineers, scientists, economists, fashion designers, writers and editors, medical scientists - and employed 14.3 million workers. The lowest-ranked or least at-risk service jobs included 33 occupations - CEOs, financial analysts, environmental engineers, art directors, and landscape architects - that employed 6.5 million workers. The chart below from the BLS study provides key data on the profile of each tier of at-risk service occupations.

My colleague Charlotta Mellander used the BLS ranking system to generate estimates of susceptibility to offshoring for U.S. regions, matching the at-risk service occupations in the BLS analysis to the occupational structures for all 392 U.S. metropolitan areas.

Across all metros, 22.5 percent of service jobs fell into the three at-risk categories. But there was considerable variation across regions. The most vulnerable regions had more than 30 percent of jobs at risk, compared to the least vulnerable regions where 7.5 to 8 percent of service jobs were at risk. I want to make it clear - there is virtually no chance that all the vulnerable jobs will be lost.  In fact, it is likely that only a small percentage will actually move offshore, particularly those in the lowest-risk category.

The chart below lists the 20 U.S. metro regions most susceptible to the offshoring of service work across all three categories of jobs: low, medium, and high-risk. These top 20 regions had between a quarter and more than a third of their service jobs at risk of offshoring.

Source: Regional data are from the BLS' Occupational and Employment and Wage Estimates for metropolitan areas, 2008.

The regions with the greatest percentage of at-risk jobs across all three BLS risk-categories are chiefly those with high percentages of higher-skill knowledge work. These include three regions in the Greater Boston area (Framingham, Boston, and Lowell), greater Washington, D.C. (the D.C./Northern Virginia area and Bethesda, Maryland, and its surroundings), San Jose (Silicon Valley) and San Francisco, and Greater New York. Seattle and Atlanta also number among these top 20 most vulnerable. While these overall figures are daunting, it is unlikely that some of the lower-risk jobs will be offshored in any significant or meaningful way. Clearly, some categories of service jobs are more likely to face offshoring than others, as the BLS methodology explicitly notes.

Presented by

Richard Florida is Co-founder and Editor at Large of and Senior Editor at The Atlantic. He is director of the Martin Prosperity Institute at the University of Toronto and Global Research Professor at NYU. More

Florida is author of The Rise of the Creative ClassWho's Your City?, and The Great Reset. He's also the founder of the Creative Class Group, and a list of his current clients can be found here

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