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Mark Twain Institute For Your Information From Harry Freeman
Aug 5, 2003

Did you know that there is a growing movement, so far largely at the state level, to impose restrictions on companies that outsource work to companies abroad. Outsourcing is the services sector's version of "imports," and growing import competition is not going over well in some sectors, most notably the information technology sector.

A 2002 Forrester Research study predicts 3.3 million U.S. service industry jobs (1 million in IT) will move to other countries in the next 15 years; another Deloitte Research report estimates that the world's 100 largest financial services companies will transfer 2 million jobs to low-cost countries over the next 5 years.

This trend has led at least six states so far to consider legislation that would require that workers hired under state contracts be American citizens or legal aliens, or fill a specialty niche Americans could not. Other legislation would restrict companies' access to H1B visas to make it more difficult for American companies to bring workers to the United States for training, and then outsource work to them after they return home.

American companies across the services sector are increasingly relying on outsourcing to stay competitive. Jobs now increasingly being outsourced from U.S.-based companies to workers (most commonly in India) include customer service, architectural drafting, call centers, tax preparation, reservations agents, insurance claims processing, credit card processing, medical evaluations, motion picture special effects production, payroll and accounting jobs.

It won't be long, many fear, before formal restrictions on outsourcing will be introduced in Congress. India has already promised to challenge such restrictions - even at the state level - before the World Trade Organization. Services industries, long immune from the challenges of fending off import barriers, may not be immune much longer.

* The Mark Twain Institute, a Washington think tank dedicated to work on economic statistics. Mr. Freeman can be contacted at MTI@marktwaininstitute.org. The Institute's web site is www.marktwaininstitute.org.

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