International trade in services is growing rapidly. Coincident with increasing services trade, the composition of displaced workers in the US is changing - while manufacturing workers historically accounted for more than half of displaced workers, non-manufacturing workers accounted for 70 percent of displaced workers in the most recent recession. If these trends are related, the changing mix of industries exposed to international trade may have deep implications for the structure of US industry and labor markets in the future. Currently, there is little understanding of the size and extent of services offshoring or what impact it is having on the US economy. More fundamentally, there is little empirical research examining international trade in services. The broad availability of detailed product information on goods trade and access to firm and plant level information on producers has spawned a wealth of empirical research on the impact of trade on US manufacturing. The broad availability of data has also fostered an empirical literature on the labor market impacts of international trade, again focused on the manufacturing sector. No such literatures exist for trade in services. An important factor in the scarcity of empirical research on trade in services, and its implications for the domestic economy, is the relative lack of detail in official statistical data on services trade. The objectives of this project are to develop measures of the size and scope of trade in services and to construct estimates of the impact of this trade on US firms and US workers. To address the inadequacy of official statistical data, the project will develop a new empirical approach to identify, at a detailed level, service activities that are potentially exposed to international trade. The approach to identifying service activities that are potentially tradable is novel: the project uses an implication of theoretical models of trade to develop a measure of the geographic concentration of service activities to identify industries and occupations that appear to be traded within the US. The ability to identify both industries and occupations that are tradable is an important feature of the empirical strategy because many of the service activities that are reportedly being offshored are tasks within the service 'production' process (for example, the banking relationship is not relocated offshore, rather the customer service/call center component is moved); occupations correspond more closely to these types of activities than do industries. Service activities that can be traded within the US are inferred to be potentially tradable internationally. The project will refine the list of potentially traded services by developing and examining detailed firm-level microdata on what service activities are actually traded. The project will use information on US multinationals' services imports and exports collected by the Bureau of Economic Analysis (BEA) and establishment-level microdata on US firms' services exports collected by the Census Bureau to identify at a detailed level service activities that are actually traded. The BEA and Census Bureau data provide a way to test and improve the tradability implications of the geographic concentration methodology. With the refined list of traded service activities, the project will examine the impact of trade in services on domestic firms using longitudinal plant-level microdata on service establishments at the Census Bureau. Lastly, the project will investigate the impact of trade in services on domestic labor market outcomes, including the risk of job loss, likelihood of reemployment, duration of joblessness, and earnings change, using the Displaced Worker Survey. The results from this project will make a significant contribution to the empirical literature in economics on international trade in services and the implications of services trade for US firms and workers. The project is also anticipated to have a significant impact on the ongoing public policy debate regarding the implications of international trade in services. In addition to analytical results, the project will develop new data resources at the Census Bureau and BEA that researchers can use to pursue additional research on trade in services.
