Outsource to India: The impact of service outsourcing to India on the labor market in the United States

Abstract

Service offshoring raises the fear of job loss for high‐skilled workers, unlike goods offshoring, because workers at home compete with highly educated workers in low‐income countries. This paper examines whether the increase in the United States's service offshoring to India has reduced the domestic employment of the occupations with greater exposure to Indian service imports. To account for endogeneity, I instrument for the growth of the United States's service imports from India by exploiting the change in Indian exports to European countries. Service offshoring reduces total employment from 2000 to 2006; however, this effect disappears overall and becomes positive for college‐educated workers in the later period from 2006 to 2016. Unlike goods offshoring, the employment effect is largely driven by college‐educated workers, and the employment growth in the later period is larger.