Tradable Services: Understanding the Scope and Impact of Services Outsourcing

Working Paper
05-9
September 2005

What services can really be traded? By looking at which services are traded within the United States, the authors identify services that can be traded internationally. They find a significant number of service industries and occupations that are tradable--for example, financial services, software publishing and computer-related occupations not in the information technology sector, and legal services--and substantial employment in these activities. In addition, workers in these tradable activities have significantly higher incomes than similar workers in nontraded activities. But just because an activity is tradable does not mean that jobs will move to lower-cost locations. The authors suggest that many of these tradable service activities are consistent with US comparative advantage. One would expect that as technological and organizational change increases the potential for trade in services, US economic activity will shift to service industries where the United States has an edge. Therefore, further liberalization in international services trade would directly benefit workers and firms in the United States, and policymakers should devote more attention to understanding the impediments to services trade.