Of course, that did not take into account how painful that transition was for the workers who were displaced. One study over a 21-year period found that 17 million workers lost jobs in the manufacturing sector — 6.4 million due to high import competition. Approximately 21% of those workers were high school dropouts. About 70% of those workers found other jobs, but with approximately 13% lower wages. Almost 25% of those workers experienced earnings losses of 30% or more. Those who had the highest earnings losses were the older, less-educated, and lower-skilled production workers with the longest tenure at their jobs (Source: Federal Reserve Bank of Cleveland, January 15, 2005). While the overall economy benefited, many individuals found themselves worse off.

While imports were partially responsible for that shift, it was also seen as part of a broader shift from a manufacturing to a service economy. In fact, service occupations account for almost 90% of employment now (Source: Federal Reserve Bank of Cleveland, January 15, 2005). It was generally thought that service jobs could not be outsourced to other countries. But with increasing reports of call centers, customer service areas, programmers, and other jobs going overseas, all jobs suddenly seem vulnerable.

How much risk are service jobs exposed to? Many of these jobs could not have been transplanted without the advent of computers, the Internet, and global telecommunications networks, which integrated the United States more completely with other parts of the world. Computers have also made it easier to disseminate information needed to perform a job. For instance, customer service representatives in any country can find answers to common questions about a company’s products, or telemarketers in any country can read call scripts.

Estimates of the number of service jobs at risk for outsourcing to other countries vary. One widely quoted figure estimates that 3.3 million jobs will locate overseas (Source: Economic Perspectives, Second Quarter 2005). Another estimate indicates that up to 14 million jobs are vulnerable to offshoring, but that leaves 96 million jobs with a low risk of offshoring (Source: Economic Review, Third Quarter 2004). Actual loss of service jobs in the early 2000s is estimated at approximately 100,000 jobs a year, or less than .1% of total employment (Source: Economic Review, Third Quarter 2004).

The main reason that service jobs are being sent overseas is the lower labor costs in other countries, including lower costs for benefits such as health insurance and retirement benefits. Yet, U.S. workers tend to be more productive than their overseas counterparts, due to more advanced technology and large amounts of capital per worker.

Some service jobs will probably never be sent overseas, because the work must be performed near the customer. Examples would include a hair stylist or doctor. But not all jobs in a sector will be secure. For instance, doctors typically need to be close to their patients, but x-rays are now routinely screened by radiologists in India. The following job characteristics are more likely to result in offshoring a job:

• Labor-intensive — Because labor costs are much higher in the United States, jobs where labor is a high percentage of production costs are more susceptible to being sent overseas.

• Information-based — Jobs such as customer service or billing and accounting, where information can be centralized and made available to all workers, are easier to send overseas.

• Codifiable — Jobs that can be reduced to a set of rules or guidelines are easier to send overseas.

Once a job goes overseas, the displaced worker is unlikely to be called back to the company to perform a similar job. Typically, displaced workers must then find work in a different occupation or different location. This can lead to longer unemployment periods and long-term income losses.

But if the experience of displaced manufacturing workers is any indication, it will be the displaced service workers with the highest levels of education and skills who will more readily adapt to these changes. If education is important in our economy now, it is bound to become even more important in the future.