The offshoring of jobs from the U.S. has raised a number of questions for policy makers related to the most likely effects on U.S. output, employment and our standard of living. Is offshoring a problem that requires restrictive government actions or are other kinds of policies more appropriate to give Americans the highest possible living standard?

     The economic effects of offshoring and possible policy responses are examined in "Offshoring in the Service Sector: Economic Impact and Policy Issues," by C. Alan Garner, assistant vice president and economist at the Federal Reserve Bank of Kansas City. The article is featured in the third quarter edition of The Economic Review.

     Garner writes that although the offshoring of service jobs displaces workers who may experience anxiety and lasting economic loss, offshoring should not permanently lower the nation’s employment or production. He notes that it is likely to improve the average U.S. living standard if displaced workers are retrained and moved into new jobs.

     He says that U.S. policymakers must choose the right policy actions, noting that laws protecting a particular service industry will likely raise the costs of services to consumers and other businesses, hurting overall welfare.

     "Instead, policymakers should ease the movement of resources from sectors that are losing to international competition towards sectors that are gaining," Garner writes. "Improved educational systems, better trade adjustment programs and international negotiations to open foreign markets and guarantee intellectual property rights are areas where proactive policy can improve national welfare."

     The article and past editions of The Economic Review are available on the Bank’s Web site at www.kc.frb.org.

# # #

Return to www.kansascityfed.org