Now IT's Personal: Offshoring and the Shifting Skill Composition of the U.S. Information Technology Workforce

Abstract

We combine new information technology (IT) offshoring and IT workforce microdata to investigate how the use of IT offshore captive centers is affecting the skill composition of the U.S. onshore IT workforce. The analysis is based on the theory that occupations involving tasks that are “tradable,” such as tasks that require little personal communication or hands-on interaction with U.S.-based objects, are vulnerable to being moved offshore. Consistent with this theory, we find that firms that have offshore IT captive centers have 8% less of their onshore IT workforce involved in tradable occupations; those without offshore captive centers have increased the proportion of onshore employment in these same occupations by 3%. In addition, we find that hourly IT workers (e.g., IT contractors) are disproportionately employed in tradable jobs, and their onshore employment is 2%–3% lower in firms with offshore captive centers. These findings persist after considering different measures of employment composition, including controls for human capital, firm performance, domestic outsourcing, and whether firms choose to build or buy software. Instrumental variables and corroborating regressions suggest that our estimates are conservative—the magnitude of the effect generally rises after accounting for reverse causality and measurement error. This paper was accepted by by Chris Forman, guest department editor.