CIAO DATE: 08/05

Outsourcing and Offshoring: Pushing the European Model Over the Hill, Rather Than Off the Cliff!

Abstract

Once again a specter is haunting Europe-not in the shape that Marx saw it but in the form of outsourcing and offshoring, which allegedly will empty Europe of the highly skilled high-paying jobs of the future. This working paper argues that the specter needs to be dispelled. Today, Europe faces challenges in the form of low productivity growth and low labor utilization/high unemployment.1 Outsourcing and offshoring, far from being a blight, are powerful tools to help solve the productivity growth problem and may also-provided the right structural reforms are implemented-assist in solving Europe's low employment problem.

European governments must realize that offshoring and outsourcing are not simply "a trade issue" but require policy responses on far broader fronts, such as labor markets, education, and regional policies. Auspiciously, EU members2 already have many of the required solutions at hand in the Lisbon Agenda to generate both higher productivity growth and higher employment from outsourcing and offshoring-what matters is that they are implemented. Managing the impact of outsourcing and offshoring presents an opportunity to solve Europe's most pressing problems of low productivity growth and low employment. Outsourcing and offshoring, however, also connote a very important additional imperative for structural reforms in Europe. European economies cannot simply opt out of either outsourcing or offshoring, and the two will substantially increase the costs to Europe of not quickly implementing relevant parts of the Lisbon Agenda and other reforms. Today Europe, through offshoring and outsourcing, is feeling the "gaiatsu" of an outside world that has raised its game in terms of competitiveness and human talent to new heights. This rapid development of the world around them must make European decision makers realize that the status quo is now even less sustainable. If Europe stands still now, it will be run over.

This working paper starts off with a brief discussion of the definition of outsourcing and offshoring and in section II attempts to grasp from available sources the extent of outsourcing and offshoring in Europe. Section III identifies the winners and losers from the phenomenon in the EU- 15. Section IV details which of Europe's policy areas currently pose obstacles to the continent benefiting from offshoring and outsourcing, and section V provides prescriptions to remedy these impediments and indicates what Europe should do to utilize outsourcing and offshoring to solve her underlying structural problems of low productivity growth and low employment. Concluding remarks round up the paper.

Full text (PDF format, 40 pages, 359.1 KB)