Now IT’s Personal: Offshoring and the Shifting Skill Composition of the US Information Technology Workforce

Abstract

We combine new IT offshoring and IT workforce micro-data to investigate how the availability of an offshore supply of IT workers is affecting the skill composition of the US onshore IT workforce. The analysis is based on the theory that occupations involving tasks which are “tradable,” such as tasks that require little personal communication or hands-on interaction with US-based objects, are vulnerable to being moved offshore. Consistent with this theory, we find that firms that have engaged in offshoring have 8% less of their onshore IT workforce involved in tradable occupations; those that have not engaged in offshoring 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 offshoring firms. 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.