Improving communications technologies make it easier to import services from abroad.
Eric Bellman and Nathan Koppel report that "More U.S. Legal Work Moves to India's Low-Cost Lawyers" in today's Wall Street Journal.
Salaries and perks are both lower there. "That's partly because being a lawyer isn't a high-prestige, big-income profession in India. 'The pecking order is engineering, medicine, M.B.A., CPA and then law...'"
India has an advantage in this business compared to other developing countries because so many Indians speak English, of course, but also because, "the legal systems in India, the U.S. and the U.K. are all rooted in British common law..."
The scale of potential cost savings: Roamware Inc of San Jose, California hired an Indian firm to "create an electronic data base highlighting the key terms in about 200 contracts in order to monitor contract compliance..." A project that would have cost $60,000 in the U.S. cost about $5,000 in India.
Moderate prestige, maybe, but there are plenty of Indian lawyers. Indian law schools graduate 200,000 Indians a year. That's five times as many as graduate from U.S. law schools each year.
J. Bradford Jensen and Lori G. Kletzer have written Tradable Services: Understanding the Scope and Impact of Services Offshoring for the Institute of International Economics. They find:
...Contrary to conventional views of service activities as nontradable, we find a significant number of service industries and occupations that appear tradable and substantial employment in these tradable activities.
Workers employed in tradable service activities differ from those employed in tradable manufacturing and nontradable services. Workers in tradable service activities have higher skill levels and are paid higher wages than manufacturing workers or workers in nontradable service activities.
In general, we find little evidence that tradable service activities have lower employment growth than other service activities. However, evidence suggests lower employment growth at the lowest end of the skill distribution.
There is also evidence of higher worker displacement rates in tradable services.
Workers displaced from tradable service activities are different from displaced manufacturing workers: Displaced tradable service workers have higher skills and higher predisplacement earnings than displaced manufacturing workers.
(From the abstract - divided into paragraphs for this post.)
Which services are tradable?
...The occupational groups with large shares of employment classified as tradable include business and financial operations (68 percent); computer and mathematical occupations (100 percent); architecture and engineering (63 percent); legal (96 percent); and life, physical, and social sciences (83 percent).13 The notable nontradable occupational groups include education and library (99 percent nontradable); healthcare practitioners (86 percent); healthcare support (97 percent); and food preparation (96 percent). On the blue-collar side, 90 percent of employment in installation, maintenance, and repair is classified as nontradable, as is 80 percent of production14 and 89 percent of transportation and material moving.
How do they know which are tradable and which are not?
To develop our baseline measure of tradable services, we rely upon the economic intuition that nontraded services will not exhibit geographic concentration in production. We observe that goods that are traded tend to be geographically concentrated (to capitalize on increasing returns to scale, access to inputs like natural resources, etc.), while goods that are not traded tend to be more ubiquitously distributed. We will apply this same intuition to service production...
...The idea is that when something is traded, the production of the activity is concentrated in a particular region to take advantage of some economies in production. As a result, not all regions will support local production of the good, and some regions will devote a disproportionate share of productive activity to a good and then trade it.4 We will use the geographic concentration of service activity within the United States as an indicator that the service is traded within the United States and thus potentially tradable internationally.
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