U.S. Department of Labor 

Bureau of International Labor Affairs 

Office of Trade and Labor Affairs 

Contract Research Program

Download this and other papers at 

http://www.dol.gov/ilab/media/reports/otla/

The views expressed here are those of the author(s) and do not 

necessarily represent the views or official positions of the U.S. 

Government or the U.S. Department of Labor. 
1

Trade in Services and U.S. Service Industry Employment and Wages 

Robert E. Lipsey 

Introduction

 The purpose of this paper is to try to understand the implications of the apparent 

expansions of U.S. export and import trade in services, the growth of U.S. firms’ service 

production in foreign countries and foreign firms’ service production in the United States, 

and the effects of these developments on the employment and wages of workers in the 

service producing sector within the United States. It is an introduction to the problems of 

interpreting the aggregate data on service trade that we hope to overcome later with the 

use of individual firm data in the second stage of the study. 

Much of the attention to this topic has isolated the “offshoring” of service 

production as the only issue of interest, but we view the developments more broadly as 

involving the evolution of production and consumption, transportation and 

communication, in service industries. Geographical distances between producers and 

consumers or between buyers and sellers, and the costs of bridging those distances, have 

always been one of the determinants of trade and investment, in models and in history. 

Great changes in the technology of transportation, one of the principal service industries, 

reduced the cost of goods transportation in past centuries, and those reductions in costs 

altered the geography of trade in goods. During the 19th Century, for example, the fall in 

ocean transportation costs and the development of refrigerated transportation made the 

United States the main supplier of grains and meats to Great Britain, driving continental 

European suppliers out of the market despite their advantage in proximity. Among the 

many ramifications of those developments was a rise in human migration. One grain 
2

producer and former supplier to Great Britain, Sweden, lost to emigration to the United 

States, during the late 19th and early 20th Centuries, about one and a half million people, 

approximately a quarter of the average population of Sweden during those years 

(Blomström, Lipsey, and Ohlsson, 1988, p. 5). 

 The fall in communication costs and the improvement in communications quality 

in recent decades have probably been far larger than the earlier declines in transportation 

costs on goods. For at least some services, communication costs are the equivalent of 

transport costs on goods. The fall in communication costs may have similar implications 

for many aspects of trade and production, widening the range of effects of differences in 

factor proportions and factor prices for goods industries as well as service industries, but 

especially the latter. 

 It is not only the data collection for service trade that is changing, but also the 

organization of the production and sales of services. Articles in the Survey of Current 

Business cite “...a continued shift of some affiliates’ activities away from manufacturing 

and toward the provision of services, particularly in computer systems design and related 

services...” Koncz and Flatness (2007, p. 108). In the other direction, Anderson (2008) 

refers to “...the reorientation of some wholesale trade affiliates from importing 

manufactured goods for sale in the United States to manufacturing goods at U.S. 

facilities.” (p. 196, fn. 9). 

 Although there have been enormous improvements in the last few years in the 

detail available for trade in services, the published data do not link the different types of 

trade to the institutions carrying out the trade. Much of service trade involves, as actors, 

firms operating mainly in other industries, and identified with those industries rather than 
3

with service industries. That means that although our knowledge of the phenomenon of 

trade in services has expanded, we cannot, without access to individual firm data, link the 

activity of trade in services to the characteristics of the firms carrying out the trade or of 

the workers whose employment and wages we wish to study. That will have to wait on 

our ability to use, in the second part of the study, individual firm data that link the service 

trade activity to the employment, wages, profits, and growth or decline of the firms 

producing the services. 

The United States in World Trade in Services

 One way of describing the role of the United States in world trade in services is to 

examine the trends in U.S. exports and imports of services, the cross-border trade 

included in the balance of payments accounts, and the revealed comparative advantage of 

the United States in that trade. Another way is to examine the provision of services to 

foreign consumers by foreign affiliates of U.S. firms and the provision of services to U.S. 

consumers by U.S. affiliates of foreign firms, much of which does not cross international 

borders and is not reported in the balance of payments accounts, but is an alternative to 

the cross-border trade. 

For over a century, from the 1870s to the 1960s, the United States was more an 

importer than an exporter of traded services. The largest identified elements of U.S. 

exports and imports were transportation and travel services, except during the WW I and 

WW II decades, when military expenditures overseas, which are considered imports of 

services, were the largest service import. Transportation and travel services accounted 

for about equal shares of imports, while transportation services dominated U.S. service 
4

exports (U.S. Bureau of the Census, 1975, Series U 1-25). After that, the trend switched. 

Exports began to surpass imports in the 1970s, and by increasing amounts through the 

next few decades (Lipsey, 2009, Table 1A.2). In the period since 1990, after that year’s 

recession, which reduced net exports sharply, they began to expand, growing from $66 

billion in 2002 (Kornfeld, 2009, Table B) to $130 billion in 2007 and $144 billion in 

2008, falling back to $136 billion in the twelve months ending in November 2009 (U.S. 

Bureau of Economic Analysis, 2010). 

 One feature of U.S. trade in services, particularly technological service trade, is 

that much of it takes place within firms. For several major categories of service trade, 

intrafirm trade, or trade with affiliates, outweighs trade with unaffiliated firms. In the 

case of royalties and license fees for industrial processes, trademarks, and computer 

software, of $92 billion in receipts on exports from the United States in 2008, $56 billion 

was from exports of technology by U.S. firms to their foreign affiliates, and another $ 4 

billion from exports to their parent firms by U.S. affiliates of foreign firms. On 

payments for imports of technology into the United States, out of $27 billion, U.S. 

affiliates of foreign parents paid $15 billion to their foreign parents for technological 

imports and U.S. parents paid $4 billion for such imports to their affiliates abroad (Koncz 

–Bruner and Flatness, 2009, Table 4.2). Thus, of U.S. service trade in the form of 

royalties and license fees, two-thirds of exports and about 70 percent of imports consisted 

of intrafirm trade. 

Among other U.S. service exports, Management, consulting, and public relations 

services ($27 billion in 2008), Research, development, and testing services, ($17 billion), 

and Advertising ($4 billion) were mostly intrafirm trade. Among U.S. service imports, 
5

the same first two groups, along with Operational leasing and Installation, maintenance, 

and repair of equipment, were mostly intrafirm trade. For that part of intrafirm service 

trade that involves U.S. service industry firms and their foreign affiliates, we do have 

some information about the actors and their labor forces, and we therefore concentrate 

our attention on that part of the service trade universe. 

It should also be noted that although we examine later some of the relationships 

between the growth of U.S.-owned affiliates abroad and employment and wages in the 

United States, the movement of the location of service activities is not a one way flow. 

Although the data on foreign-owned service industry establishments in the United States 

are not as full as on U.S. affiliates abroad, they do reveal a considerable amount of 

service production in the United States by foreign-owned firms. In 2007, for example, 

the value added in the United States by foreign-owned affiliates in several service 

industries was not too far from the value added abroad by affiliates of U.S. firms (Table 

1). 

 Table 1 

 Value Added by Affiliates in Selected Industries, 2007 

 By Industry of Affiliate ($ billion) 

_____________________________________________________________________ 

 Nonbank Foreign Affiliates Majority-owned U.S. Affiliates 

 of U.S. Firms of Foreign Firms 

 (MOFAs) (MOUSAs) 

 

Wholesale Trade 152 96 

Information 45 35 

Finance & Insur.,exc. Dep. 52 51 

Prof., Sci. & Technical 61 26 

Other services 134 90 

_____________________________________________________________________ 

Source: Barefoot and Mataloni (2009); Anderson and Zeile (2009). 
6

U.S. firms did own somewhat larger operations abroad in terms of value added 

than foreigners owned in the United States in these services, but the differences are not so 

large as to justify ignoring the foreign-owned operations as a source of employment in 

the United States. The one case for which the foreign-owned operations in the United 

States are much smaller than U.S. firms’ service industry operations abroad, is the 

category of Professional, Scientific, and Technical Services, as we might expect. 

In terms of employment, also, the impact of foreign-owned operations in the 

United States is not negligible, although the timing of the surveys of inward foreign 

investment makes it difficult to relate it to U.S. parent employment and wages. The size 

of employment by foreign-owned service industry operations in the United States in 2007 

is compared with that of U.S. firms’ service industry operations abroad in Table 2. 

 Table 2 

Employment of Affiliates in Selected Industries, 2007 

by Industry of Affiliate (000) 

________________________________________________________________________ 

 Nonbank Majority-Owned Nonbank Majority-Owned 

 Foreign Affiliates of U.S. Firms U.S. Affiliates of Foreign Firms 

 (MOFAs) (MOUSAs) 

Wholesale Trade 775.5 422.2 

Information 354.5 203.2 

Finance (exc. Banks) 

 and Insurance 318.1 237.6 

Prof., Sci. & Tech. 621.8 332.7 

Other Services 3,031.6 2,603.4 

________________________________________________________________________ 

 Source: Barefoot and Mataloni (2009); Anderson and Zeile (2009). 
7

In the service industry sectors in which the United States and U.S. firms tend to be 

leaders, Information and Professional, Scientific, and Technical services, and for which 

fears of loss of U.S. leadership and U.S. employment are most often expressed, foreign 

firms’ employment in the United States is a little over half as large as U.S. firms’ 

employment abroad. However, it is far from negligible, at close to one million 

employees. 

Comparative Advantage and U.S. Trade in Services 

World production and consumption of services appear to be on a rising trend, but 

the reasons for that trend are difficult to analyze because essential features of service 

industries, such as production, consumption, prices, and trade are poorly covered by 

statistical data. It is widely assumed that the growth of trade in services relative to 

production of services and relative to trade in goods is partly accounted for by the decline 

of communication costs. They play the same role in determining the size of service trade 

that transportation costs play for the size of goods trade. Their role in the growth of 

service trade in general will be discussed below. 

 A partial solution to the deficiencies of the data is to examine comparative trends 

across countries, rather than absolute changes, in the hope that some of the defects of the 

data are common across countries. 

The U.S. share of world exports of a service reflects the suitability of the U.S. as a 

site for production of that service. That suitability, in turn, reflects the efficiency with 

which the service is produced in the United States, the prices of the factors of production 

most used in producing it, and the demand for the service within the United States. These 

factors, in combination, determine what is sometimes referred to as the “revealed 
8

comparative advantage,” of the United States in that industry. The calculation is 

explained more fully in Appendix A. 

Some of the changes in U.S. revealed export comparative advantage have been 

quite large in the ten years from 1997 through 2007, the most recent span of close to a 

decade for fairly detailed export data covering a large part of the service exporting world. 

The export comparative advantage of the United States in computer services fell by about 

two thirds between 1997 and 2002, before stabilizing. In other words, the share of 

Computer and Information Services in U.S. exports of services fell from about that of the 

world, on average, to about half that of the world, and then remained roughly constant. 

The shares that were in Finance (except depositary institutions), and especially in 

insurance, increased substantially over the decade (Appendix A, Table A2), although the 

next few years may present a different picture. Other services in which U.S. export 

comparative advantage rose substantially were personal and cultural services, which 

include education and medical services, and royalties, in both of which the U.S. 

comparative advantage levels reached about 2&1/2 or 3. The largest comparative 

advantage for the United States was in the item for royalties and license fees, principally 

payments for exports to U.S. affiliates abroad, about half of which were for industrial 

processes and most of the rest for trademarks and general use computer software. In 

recent years, the U.S. share in exports of these services was more than three times the 

overall U.S. share in exports of services. 

The reported decline in the U.S. share of exports of computer services points to 

the difficulty of measuring service exports and imports when the main input into 

production is intangible. A newspaper story in 2005 reported that Microsoft had 
9

transferred to an Irish affiliate in 1997 the ownership of software to be sold to European 

customers (Wall Street Journal, November 7, 2005, p. 1). The story continued that the 

subsidiary has “...a thin roster of employees...” and that the software was mainly 

developed outside Ireland (Lipsey, 2006). The reported export data suggest that some 

type of shift of ownership had taken place. Ireland, which had never reported exports of 

computer services before, started reporting in 1998 with exports of over $5 billion, 40 

percent higher than those of the United States. Ireland’s reported exports of computer 

services reached $26 billion in 2007, more than twice those of the United States and its 

export comparative advantage in computer services in the first year was over 15, while 

that of the United States was about .98. A further curiosity appears in reported U.S. 

imports of computer services, which jumped from $2 billion to $13 billion in 2006 after 

eight years of gradual growth. It is unlikely that such an increase is genuine, and likely 

that it represents either a corporate accounting change that transferred some technological 

assets from a U.S. parent to a foreign affiliate or a change in the BEA’s treatment of 

computer services. 

The pattern of changes in export comparative advantage in services was not 

uniform among developed countries, and it was quite different in the United States from 

that in the other 26 developed countries as a group (Table A3). In computer services, 

developed countries other than the United States showed a substantial, though decreasing 

and eventually disappearing, export comparative advantage, with a peak at the beginning 

of the period. Aside from computer services, other developed countries showed a 

stronger position than the United States as exporters of construction services, and a 

decline in comparative advantage in financial services while the United States was 
10

advancing in that area, at least before the current financial crisis. Other developed 

countries showed fairly stable export comparative advantages in transportation services, 

in contrast to the U.S. comparative disadvantage. The United States was weak as an 

exporter of Other business services, but showed strong and increasing export comparative 

advantages in Personal and cultural services, which include education and health, and as 

an exporter of technology, to judge by its strong comparative advantage in royalties. 

The United States was a particularly small importer of construction services and 

of personal and cultural services compared to the rest of the world (Table A4). Its earlier 

large share of communication services imports had disappeared by the end of the period 

In computer services, there was a low level of imports until a suspicious jump in 2006 

that is more likely to represent a corporate tax maneuver than a change in the source of 

technology. The United States was a major importer of insurance services and a 

somewhat smaller importer of technology, mainly payments to their parents by foreignowned affiliates in the United States. 

Among developed countries outside the United States (Table A5), import shares 

were somewhat high for communication services, computer services, financial services, 

and technology, as represented by royalties. They declined from high to low levels in 

construction services. 

As might be expected, export comparative advantages in services for the 75 or so 

developing countries for which we have data were very different from those of the 

developed countries (Table A6). The strong comparative advantage in Communication 

may reflect the growth of answering services, but the very large increase for computer 

services may represent more of what future specialization may be like. Developing 
11

countries have moved ahead as exporters of construction services and are also exporters 

of personal and cultural services and of travel services, but hardly visible as exporters of 

financial services. The high degree of specialization in insurance services may reflect the 

nominal role of affiliates in low-tax countries, especially in reinsurance, although the 

large role of Bermuda as an exporter to the United States is not visible in the Bermuda 

trade data. 

Aside from the changes in comparative advantage, which explain country shares 

in the world’s exports and imports of services, a major explanation for the growth in 

importance of service trade in general is the reduction in the cost of communication. 

That is the cost of transportation of a service that applies to all producing countries. In 

that case, the share of that service in every country’s exports and imports might rise, and 

the share of that service in each country’s exports would be positively correlated with the 

share in imports. 

The detail on US service trade was very coarse until recently, but we can 

compare, from the data in Koncz-Bruner and Flatness (2009), the correlation of changes 

in export shares and changes in import shares for 11 services since 1997, 15 services 

since 2001, and 27 services for the latest period, 2006 to 2008. For the two shorter 

periods, there is no significant correlation between the share of a service in US exports of 

services and the share in U.S. imports of services. However, for the longest period, since 

1997, there is a significant positive correlation between the export and import shares. In 

general, for the United States, if a service gained in its share in exports, it also gained it in 

imports as well. That positive relationship suggests that changes in transport or 

communications costs for the services, which affect exports and imports in the same 
12

direction, rather than changes in the nature of US comparative advantage, were primarily 

responsible for much of the growth of service trade. However, changes in measurement 

and in definitions also produce parallel movements of export and import shares. 

Another development that may explain some of the growth of service trade is the 

increased effort to measure it. That increased effort is represented by the addition of 

many new surveys in the United States, but also in parallel efforts in other countries. 

Theoretically, the service trade not recorded specifically was nevertheless counted and 

reported in catchall or miscellaneous categories, but it is likely that some of it was never 

identified as services. There has also been an effort to identify service transactions 

previously incorporated in measures of trade in goods, and move them to the service 

category, although this affects mainly the measures of services supplied to foreigners by 

U.S.-owned affiliates. One of the major changes has been the shift to treatment of 

wholesale and retail trade services as a category of services supplied rather than burying 

them as part of goods supplied. In 2007, for example, the calculation added $263 billion 

in wholesale and retail trade services supplied to foreign residents through U.S. MOFAs 

(Majority-Owned Foreign Affiliates) to previously estimated U.S. MOFA sales of 

services to foreign residents of $701 billion in all services (Koncz-Bruner and Flatness, 

2009, Table G). The same conceptual change on the side of services supplied to U.S. 

residents through MOUSAs (Majority-Owned US Affiliates) of foreign firms added $202 

billion to the former measure of sales of services to U.S. residents of $484 billion. 

Changes in U.S. service trade and in U.S. service industry employment and wages

 The linking of changes in U.S. service trade to changes in employment and wages 

in the U.S. as a whole and in U.S. service industry firms is difficult. That is partly 
13

because the measurement of service trade is uncertain and changing substantially, and 

partly because comprehensive data on the U.S. labor force in services are difficult to 

match with the trade data. One way to link the labor and trade changes is to trace them 

within the firms that have played a large part in the changes in service trade, U.S. service 

industry multinationals operating in the United States and foreign countries, and foreignowned service industry multinationals operating in their home countries and also in the 

United States and other countries. Our reliance on these data is encouraged by the 

judgment by the BEA that “...direct investment is the larger channel of delivery for both 

U.S. sales and U.S. purchases of services in international markets...” (Koncz and 

Flatness, 2008, p. 20). 

 The wage data available in BEA data are average wages, and employment is total 

employment, not distinguished by type of labor in terms of skill, occupation, or 

education. It is therefore not possible with these data to distinguish between changes in 

the wage for given types of labor and changes in the composition of the labor force, a 

distinction that would require matched employer-employee data that are not part of this 

study and would require a separate project. 

 Employment in U.S. affiliates and in parent firms at home 

 One possible source of any impact on U.S. labor of U.S. multinational firm 

(MNC) trade in services and production of services abroad is the competition in the world 

market between services produced by the parent firms in the United States and services 

produced by foreign affiliates of U.S. firms and sold in their host countries or exported to 

the United States and to other countries. If we judge by employment, there are strong 

indications that employment grew more quickly in the foreign affiliates than in the parent 
14

companies in a majority of the service industries. One extreme exception was the 

category of “Management of nonbank companies and enterprises,” which involved a 

change in definition that added to “management and consulting services” allocated 

expenses charged by a parent company to its affiliates for “general overhead and 

stewardship” (Koncz and Flatness, 2008, p. 34). The management and consulting 

services industry has been eliminated in all the regressions in the following tables 

because the coverage of the category changes sharply between beginning and end years.. 

 Aside from that one industry, there was only a positive, but weak relationship 

between the growth of employment in the foreign affiliates of firms in an industry and 

that in U.S. parent firms in the same industry (Table 3). The relationship was marginally 

significant in the comparison of 2005-2007 to 1999-2001. 

 There was a general tendency for U.S. service industry firms to shift their 

employment toward their foreign locations. The growth of employment by parent 

companies in a U.S. service industry was positively related to the growth of employment 

abroad in affiliates in that industry but the relationship was significant only at the 10 

percent level (Table 3). Thus, across U.S. service industries, there is no evidence linking 

faster growth in overseas employment in general to slower growth in home (U.S.) 

employment and weak evidence that employment growth at home and abroad were 

positively related. 

 Since most worries about the effects of overseas service production are about the 

competition of overseas affiliates in low income countries, we crudely test this possibility 

by dividing overseas service operation between those in developed (higher- income) and 

 
15

Table 3 

Regressions relating the growth of employment in U.S. parent firms in the United States 

to the growth of total employment in U.S. nonbank affiliates abroad, 

and in developed and developing countries a 

________________________________________________________________________ 

28 service industries 

 2007/1999

 Coefficient of affiliate employment & standard error .167(.189) 

 Adj. RSQ & Prob. > F -.008(.388) 

 Coefficients for developed and developing countries 

 Developed -.123(.190) 

 Developing -.063(.019) 

 Adj. RSQ & Prob.> F .252(.010) 

25 service industries 

 

 (2005-2007)/(1999-2001)

 Coefficient of affiliate employment & standard error .198(.107)

 Adj. RSQ & Prob. > F .092(.077) 

 

Coefficients for affiliate employment in developed and developing countries 

 Developed .361(.187) 

 Developing -.127(034) 

 Adj. RSQ & Prob. > F .328(.004) 

________________________________________________________________________ 

a

 These are approximate identifications. The country breakdowns in published BEA data permit 

only rough assignments to the two groups. Developed countries are defined here as Canada, 

Europe, Japan, and Australia, and all others are defined as developing. 

those in developing (lower- income) countries. The test must be crude because we do not 

have data for individual firms at present, as we will eventually, or complete country 

distributions of affiliates. We must therefore rely on industry data to divide affiliates 

between those industries in which affiliates are mostly located in developed countries and 

those in which they are mostly located in developing countries. 

The results of this test are that adding more employees in service industry 

affiliates in developing countries is significantly associated with slower growth of 
16

employment in the parent firm at home. Adding employees in affiliates in developed 

countries seems to result in larger employment in the parent firm, although that 

relationship is not as strong. 

If we wish to include the growth of MOUSAs (Majority-Owned U.S. Affiliates) 

of foreign firms in the United States in the explanation of changes in U.S. parent firm 

employment and wages, many compromises must be made. For example, the dates of the 

BEA’s inward investment surveys do not match the dates of the outward surveys, the 

published industry breakdowns in the two surveys do not match, and some quantities 

must be estimated by using midpoints of published ranges rather than exact measures. 

Some rough calculations on the available data, incorporating the necessary compromises, 

are shown in Table 4. 

Table 4 

The Relation of U.S. Service Industry Parent Employment to Employment in 

U.S. MOFAs in Developed and Developing Countries and 

Foreign MOUSAs from Developed and Developing Countries* 

 1999-2007 

12 service industries 

 Coefficient of MOFA employment in, and standard error 

 Developed countries .133 (.130) 

 Developing countries -.034(.052) 

 

 Coefficient of MOUSA employment from, and standard error 

 Developed countries -.047 (.024) 

 Developing countries -.0003 (.003) 

 Adj. RSQ & Prob. > F .122 (.332) 

*See Table 3 
17

 As in the second set of equations in Table 3, increases in MOFA employment in 

developed countries were associated with increases in parent employment, but increases 

in employment in developing country MOFA employment were associated with 

decreases at home. Neither coefficient is statistically significant. Increases in 

employment in MOUSAs were a negative influence on U.S. parent employment, 

although the only coefficient close to statistical significance was the one for affiliates of 

developed country firms. 

Employment in U.S. affiliates abroad and wages in parent firms at home

 Another effect of producing abroad might be to reduce or hold back on increases 

in the wage levels of workers in the United States, as firms expand their activities abroad. 

Table 5 gives the results of a test of that possibility, relating the growth of affiliate 

employment over the latest 5 years or so to the growth in parent wage levels. 

 We find no statistically significant relationships in these equations. The closest 

seems to be that in industries in which overseas employment grew in developed 

countries, parent firm wage levels tended to rise more than in other industries, but it 

should be stressed that no statistically significant differences emerged. 

The results for average wages are less definitive than those for parent 

employment. There is no clear evidence that more rapid additions to employment in 

affiliates, at least at the levels of such additions in this period, affected wages in the 

parent firms, whether the employment was added in developed or developing countries. 

Another possible influence of international investment on wages is through the 

effect of foreign firms’ service industry operations in the United States on wages in U.S. 
18

Table 5 

Regressions between growth of employment in U.S. nonbank affiliates abroad and 

growth in average wages in U.S. parent firms in the United States a 

______________________________________________________________________ 

29 service industries 

 

2007/1999

 Coefficient of affiliate employment and standard error -.083(.106) 

 Adj. RSQ & Prob. >F -0.014(.437) 

 Coefficients for Employment in Developed and Developing Countries 

 Developed .091(.112) 

 Developing -.004(.011) 

 Adj. RSQ & Prob. > F -0.04(.655) 

26 service industries 

 (2005-2007)/(1999-2001)

 Coefficient of affiliate employment and standard error -.159(.088) 

Adj. RSQ & Prob.>F .083(.084) 

Coefficients for Employment in Developed and Developing Countries 

 Developed -.160(.113) 

 Developing -.016(.021) 

Adj. RSQ & Prob.> F .065(.171) 

______________________________________________________________________ 

a

 See Table 3. 

parent service firms’ operations within the United States. That possible influence is 

explored in Table 6. 

The results for average wages are less definitive than those for parent 

employment. There is no clear evidence that more rapid additions to employment in 

affiliates, at least at the levels of such additions in this period, affected wages in the 

parent firms, whether the employment was added in developed or developing countries. 

 
19

Table 6 

Regressions relating growth in average wages in U.S. parent firms in service 

industries to employment in U.S. service industry MOFAs and foreign MOUSAs 

in the United States, 1999-2007* 

 

 12 service industries 

 Coefficient of MOFA employment in, and standard error 

 Developed countries .265 (.127) 

 Developing countries -.122 (.051) 

 Coefficient of MOUSA employment from, and standard error 

 Developed countries .017 (.024) 

 Developing countries .007 (.003) 

 Adj. RSQ & Prob.> F .378 (.122) 

 __________________________________________________________________ 

*See Table 3 

Another possible influence of international investment on wages is through the 

effect of foreign firms’ service industry operations in the United States on wages in U.S. 

parent service firms’ operations within the United States. That possible influence is 

explored in Table 6. 

While these calculations should not be given great weight because of the 

weakness of the data used, including the small number of service industries for which we 

could roughly match inward and outward FDI data, they do tend to confirm some 

impressions from other sources. In particular, they reinforce the suggestion that service 

firms’ investments in developed countries have different functions and different 

consequences from investments in developing countries. Additions to employment in 

U.S. service industry affiliates in developed countries are associated with increases in 

average parent wages in the United States. That increase might reflect a shift to higher-
20

skill services at home in the United States, as medium-skill services move to other 

developed countries. It would also be compatible with the possibility that U.S. industries 

expanding in developed countries abroad are the ones that are prospering and widening 

their markets. On the other hand, growth of employment in developing countries was 

associated with lower wages in the parent companies in the United States, as if the firms 

that invest in low-income countries have abandoned some of their higher-skilled services 

but are left with a core of immovable low-skill services. The growth of employment in 

the United States of affiliates of developed-country firms does not have any visible 

impact on U.S. parent wages but growth in employment in affiliates of developingcountry firms tends to raise average U.S. parent wages, as might be the case if these 

affiliates tended to drive U.S. parents out of low-skill services. 

These are speculations that can only be suggested by these inadequate data on 

whole industries. They cannot yield strong conclusions, but do suggest possibilities to 

check in the second phase of the study with individual firm data. 

Some useful evidence on changes in the composition of the U.S. service sector 

labor force as a whole is given in a recent paper by Ebenstein, Harrison, McMillan, and 

Phillips (2009) based on the Census Bureau’s CPS data. They divide the Service sector 

labor force from 1979 through 2002, by level of education, ranging from Less than high 

school, the lowest level, through High-school degree, Some college, College degree, and 

Advanced degree. The employment pattern shifted substantially among the groups, with 

a large decline in the lowest education class, much of it concentrated in recessions, but 

adding up to a substantial reduction in the share of that group in total employment over 

the period. The share of high school graduates increased, with only minor fluctuations, 
21

but the rate of increase diminished over time. The share of workers with college degrees 

or advanced degrees increased at an accelerating rate. The sharp differences among the 

trends in education groups’ shares of the service labor force as a whole suggest that any 

findings about changes in average wages in particular industries or firms could reflect 

changes in labor force composition. That was apparently the case for the service industry 

labor force as a whole and could, therefore, be more important for some of the individual 

industries in our wage calculations or for individual firms in our future calculations.. 

The advantage of comparing affiliate employment growth with parent 

employment and wage growth is that the data are available for the same classification of 

industries. A parallel analysis can be carried out for employment in foreign affiliates of 

U.S. firms and employment and wages in all firms in the same industries in the United 

States, but it is confined to the period 2002-2007 for an exact match of the industries in 

the two data sets. 

The relation between growth in U.S. affiliate employment abroad and growth in 

the same industries in the United States is described in Table 7. In industries in which 

U.S. multinational firms expanded their employment abroad within their affiliates in 

high-income countries, U.S. domestic employment also rose. There is no indication from 

the employment data that these overseas expansions in high-income county affiliates 

came at the expense of employment in the same industries at home. The data suggest 

instead the impact of rising demand for services of these industries in both the United 

States and other high-income countries, combined with the comparative advantage of 

U.S. multinationals in these industries on the employment of workers in these industries 

both at home and abroad. 
22

Table 7 

Regression between growth of employment in U.S. nonbank affiliates abroad and 

growth of employment in the corresponding industries in the United States, 2002-2007 a 

23 service industries 

 Coefficient of affiliate employment and standard error .147 (.038) 

 Adj. RSQ & Prob.>F 0.374 (.001) 

 Coefficients for employment in developed and developing countries 

 Developed .169 (.060) 

 Developing .002 (.006) 

 Adj. RSQ & Prob. > F .231 (.031) 

__________________________________________________________________ 

a

 See Table 3. 

 

 High growth of employment in U.S. service firms’ affiliates in developed 

countries did correspond with low wage growth in the same industries at home, as if the 

employment abroad competed with expansion at home in the industry as a whole, even if 

not significantly with expansion of employment in the parent firms (Table 8). 

A Comparison with the Results for Manufacturing

 The Ebenstein et al. (2009) paper deals mostly with employment and wages in 

manufacturing, but it is useful to compare some of the results with those we find in 

service industries. Their paper finds strong relationships between a U.S. employee’s 

predicted wage level growth and the growth of affiliate employment by the industry in 

low-income and high-income countries. For 1997-2002, the period closest to the one 

 
23

Table 8 

 Regression between growth of employment in U.S. nonbank affiliates abroad 

and average wages in the corresponding industries in the United States, 2002-2007 a 

23 service industries 

 Coefficient of affiliate employment and standard error -.028 (.011) 

 Adj. RSQ and prob. > F .176 (.024) 

 Coefficients for employment in developed and developing countries 

 Developed -.040 (.015) 

 Developing .001 (.001) 

 Adj. RSQ and prob. > F .196 (.048) 

a

 See Table 3. 

studied in this paper, the industry fixed-effect wage growth among employees of U.S. 

firms in industries increasing their employment in low-income countries was a decline of 

11 per cent, while wage growth in industries increasing their employment in high-income 

countries was a rise of 11 percent. In services, in contrast, we found, with our much 

cruder data, positive effects of growth in affiliate employment in developed countries on 

U.S. industry employment, but negative effects on industry wages. The difference in 

wage results may reflect genuine differences between the two sets of industries in the 

paths of wages, or they may reflect the different structures of manufacturing and service 

industries. 

 Despite the ambiguities in the data and the inherent difficulty of measuring flows 

of services provided to a large extent by intangible assets, certain tendencies seem to 
24

emerge, similar for services to what has been observed for goods. The role of technology 

and worker skill levels in determining the preservation or enlargement of the number of 

jobs is one, reflected in the types of services in which the United States has retained or 

increased its comparative advantage. It is also reflected in the more positive effects on 

parent employment of the parent’s production in developed countries. 

 The same implications of the skill bias of shifts in trade in services appear in a 

study by Kierkegaard (2008), with an emphasis on IT services. “Low-wage/low-skilled 

IT-related jobs are swiftly disappearing, while high-wage/high-skilled IT-related jobs 

continue to be created at a brisk pace.” (p. 413). 

While it may appear that parent production in high- and low-income countries are 

two aspects of the same phenomenon, they may not be. Production in low-income 

countries is more likely to represent a defensive reaction for the parent. It is a way of 

exiting from a line of production no longer viable in the home country because of 

changes in cost or technology, without losing all the capital, in terms of consumer good 

will, brand names, consumer familiarity and confidence, and technological knowledge 

that the firm has accumulated. Production in high-income countries is more likely to 

represent an expansion of a successful continuing operation, still in the growing stage, 

that has outgrown the limitations of the home market. One is intended as a substitution 

of one production location for another and the other is intended as an expansion of 

production. 

 In the current recession, trade in services has been much more resilient than trade 

in goods (Borchert and Mattoo, 2009). It is less dependent than goods trade on financing, 

since production and consumption are simultaneous, or close to it in many cases, it is not 
25

subject to the fragmentation that tends to magnify the effects of goods trade declines by 

counting the same products several times as they pass along a firm’s production chain, 

and the demand for services is, in general, less income-elastic than demand for goods. 

The authors fear that the contribution of service trade to recovery and growth is 

threatened by the many protectionist moves incorporated into various countries’ stimulus 

measures. 

Concluding Remarks

 The uncertainties surrounding the data on trade in services and their relation to 

data on the domestic economy make any conclusions about the effects of trade tentative 

and subject to error, especially until the second part of the study, based on individual firm 

data, has been completed. However, several aspects of the aggregate data seem to point 

to at least a rough picture of the direction in which trade in services is moving the 

economy. 

 Perhaps the strongest fear about the effects of trade in services, accentuated by the 

shock of rising imports of relatively skill-intensive services, was that the large decline in 

costs of communication was leading to a loss of domestic markets for worker skills, 

formerly protected by high costs of communication, biases against foreign service 

suppliers, and low skills in foreign labor forces. That anxiety produced a flood of studies 

of “offshoring” or “foreign outsourcing” and of projections of possible future job and 

wage losses for American workers. While the increase in foreign worker and foreign 

firm skill levels continues, it appears that the consequences are more complex than 

predicted at first. 
26

 Our own survey and analysis of the data suggests several aspects of service 

industry trade and investment that indicate that the impacts on employment and wages 

are, at least so far, not as unfavorable as has been projected. One is that the United States 

has continued to enjoy a strong and so far increasing, comparative advantage in exports 

of technology, as represented by royalties and license fees. Other comparative 

advantages in exporting of services are in insurance and other financial services, and 

particularly in personal, cultural, and recreational services. Most of these are high-skill 

services and the lead of the United States over both other developed and developing 

countries seems to be undisturbed. The main exception, computer and information 

services, where the U.S. appears to export very little, seems to be affected by differences 

between the United States and other countries in the way the data are classified and by 

the tendency of U.S. multinational firms to transfer these assets to their affiliates in other 

countries with lower corporate tax rates. The comparative advantage of the United States 

in cross-border trade in high-skill services is magnified if the supply of services to 

foreigners through affiliates of U.S. firms is included. 

 Our tests of effects of US firms’ foreign operations on domestic employment and 

wages were inconclusive, but mostly suggested that high employee skill remains a basis 

for the success of U.S. firms and their participation in trade in services. One indication of 

this link is that the growth of affiliate employment in developed countries, presumably 

relatively skilled, tends to be associated with increases in home employment, while 

growth in developing countries, presumably lower skilled, is more frequently associated 

with decreases in employment at home. Within the United States, it is the growth in 

employment of firms from developed countries, presumably relatively skilled, that seems 
27

to compete with U.S. parent employment. Wage relationships were weak, but there is 

some indication that more employment in affiliates of developed country firms, was 

associated with lower wages in U.S. parents, but higher wages in the whole U.S. 

industries in which they operated. 

 One interpretation of the effects of U.S. firms’ operations is that expansions of 

U.S. affiliates in developed countries are very different in motivation and effects from 

expansions in developing countries. The former may be thought of as “aggressive” 

expansions by firms that are prospering in the United States and want to exploit their firm 

technologies or other firm-specific comparative advantages in wider markets. The latter 

are “defensive” expansions that are by firms that no longer find it as profitable to produce 

in the United States because of changes in costs or competition, but wish to continue to 

produce where costs are more suitable in order to continue to exploit their capital in the 

form of consumer loyalty, reputation for quality, or other firm-specific assets. Because 

the motivations are different, the effects of an increase in foreign operations are different. 

The firms that expand in high-income countries are expanding markets, not at the 

expense of home production. The firms that expand in low-income countries are 

replacing uneconomical home production with more economical foreign production, but 

are not mainly expanding their markets. 

 We expect different responses of parent employment and wages in these two 

cases. The results only sporadically fit the expectation, but rarely showed the opposite 

relationships. We hope that the work with individual firm data will confirm or disprove 

this speculation. 
28

 More broadly, we do not find that expansions of service production abroad 

substitute for service production that would otherwise take place in the United States 

Although we do not have direct indicators of employee skills, several of the other studies 

cited do, and they point to the continued specialization of the United States in services 

(and goods) embodying high skills, at least so far. The study of IT employment by 

Kierkegaard emphasizes that dependence for the IT industry, but it is probably more 

general than that. The crucial issue may be how to maintain and increase skill levels 

rather than how to affect trade flows. 

 
29

 Appendix A: Data on Trade in Services

Any present study of the determinants and consequences of U.S. trade in services 

must be a work in progress, because not only is the trade changing rapidly, but the data 

available to study it are changing even faster. The main reason for the changes in data 

availability is the growing number of surveys conducted by the Bureau of Economic 

Analysis (BEA) of the U.S. Department of Commerce. The improvements in the BEA 

data from 1990 through 2003 are summarized in Borga and Mann (2003), and subsequent 

additions and improvements are described in the October articles on Service trade in later 

years in the Survey of Current Business. That growth stemmed from the realization that 

the basis for analysis of the implications of trade in services was very weak. As a result 

of the expansion in knowledge, there have been large changes in the definitions and 

measures of U.S. trade in various services and its attribution to producing industries. A 

few of these recent changes and the problems they raise for analysis, are illustrated by 

Table A1, which compares, for two types of service, the estimates of U.S. exports and 

imports of services in 2006 between two recent BEA reports, the 2007 and 2008 annual 

Survey of Current Business articles on trade in services. 
30

Table A1 

U.S. Exports and Imports of Selected Services, 2006, 

as Reported in 2007, 2008, and 2009 

($ billion) 

________________________________________________________________________ 

 Reported in 

 2007 2008________2009

U.S. Exports of Services 

 Royalties and License Fees $62 $72 $71 

 Financial Services 43 47 48 

 Bus., Prof., and Tech. Services 96 90 86 

 Management & Consulting Services 7 22 21 

 Operational Leasing 11 10 6 

 Other Bus, Prof.., Tech. Services 55 34 36 

U.S. Imports of Services 

 Bus., Prof., &Tech Services 58 61 61 

 Computer & Information Services 11 14 13 

 Management & Consulting Services 7 19 19 

 Other Bus., Prof., & Tech. Services 29 18 18 

 

________________________________________________________________________ 

Source: Koncz and Flatness, 2007 and 2008; Koncz-Bruner and Flatness, 2009. 

 The largest changes, in management and consulting services, are attributed to a 

recognition as international flows of services of parent firm charges to affiliates for 

parent services to them. 

The revisions in concepts of service trade also encompass the treatment of the 

delivery of services to consumers in one country by affiliates of firms headquartered in 

another country as a form of trade in services even though they do not appear in trade 

data in the balance of payments. For many services provided to foreign consumers by 

U.S. firms and to the United States by foreign-owned firms, delivery is mainly through 

U.S.-owned affiliates in foreign countries and through foreign-owned affiliates in the 

United States. For example, the earlier estimate of “sales of services” by U.S. majority-
31

owned affiliates to foreign countries in 2005 was $528 billion, while the later estimate of 

“services supplied” was $725 billion (Koncz and Flatness, 2008, p. 38). The largest 

additions were for wholesale and retail trade services, transferred from manufacturing, 

where they had been hidden in the prices of manufactured goods. In the United States, 

the largest increases from estimates of sales of services to services supplied by majorityowned affiliates of foreign-owned firms was also for wholesale and retail trade, partly 

offset by a reduction in the estimate of insurance services, adding up to a revision from 

$388 billion to $527 billion (ibid.). 

Although it is common to speak about exports and imports of services as 

analogous to exports and imports of goods, the meaning of the terms “exports” and 

“imports” is different in the goods and services universes, and the differences account for 

many of the difficulties of measuring trade in services. The measurement of exports and 

imports of goods has been governed by rules set forth in United Nations (2004) and by 

the United Nations Statistical Commission, amplified by United Nations (2008), basing 

the concepts on the event of the crossing of a national border. The measurement of goods 

trade for the balance of payments is different in principle; it has as its objective the 

measurement of changes in the ownership of goods between residents and non-residents 

of a country. However, since the great majority of changes in ownership take place in 

connection with the movement of goods across national borders, the distinction between 

the two measures is not of great quantitative importance, aside from the separation of 

insurance and freight costs from the prices of imported goods and their transfer to the 

service accounts. 
32

The story is very different for trade in services. Exports and imports of services 

frequently cannot be observed crossing national borders, and in many cases, do not cross 

national borders. They are part of the balance-of-payments universe, and many of the 

difficulties of measurement arise from the fact that many service trades cannot be 

observed. Since they cannot be observed, they are subject to manipulation to reduce 

corporate income taxes. That is a subject on which there is an extensive literature 

applying to the United States and many other countries, some of which is referred to in 

Lipsey (2008), pp. 46-47. 

The core problem of the measurement of output, and especially trade, in services 

is that a large part of the input is either financial assets or intangible assets such as 

production or distribution techniques, patents, copyrights, trademarks, corporate logos, 

computer programs, designs, etc. The reported location of these assets can be shifted 

around the world by the firms that own them, moving their reported location from where 

they are produced, if that can even be identified, to locations in low tax countries. These 

countries then appear in the data as the producers and exporters of the services from these 

assets, although they did not create them and may contribute nothing to the production 

from them except their low tax regimes. 

The main sources for data on trade in services covering many countries are the 

International Monetary Fund Balance of Payment Statistical Yearbooks and CD-ROM, 

but many countries that report to the IMF do not report exports and imports of services. 

In order to follow world trends, we construct a fixed panel of approximately 150 

countries that have reported service exports and imports to the IMF for the period from 

1997 through 2007. Not every country reports trade in every service category, even the 
33

broad ones we use, and we can only assume that the countries that omit a category are not 

major exporters in it. The categories reported by almost all respondents are travel and 

transportation and “Other business services” aside from computer and information 

services, financial services, and insurance. The smallest number of reported exporters is 

for royalties. 

We use the export distributions by type of service to calculate measures of 

“revealed comparative advantage.” These are analogous to the measure for goods export 

defined in Balassa (1965), except that these measures might be better described as 

“revealed comparative advantage in exports of services,” since it is the share of a service 

in a country’s exports of services compared to the share of that service in the service 

exports of the roughly 150 countries that we treat as the world.. Table A2 through A6 

report our calculations of revealed comparative advantage in service exports for several 

groupings of countries and an analogous calculation for U.S. service imports. We treated 

as developed, following the IMF World Economic Outlook, 27 entities, Australia, 

Austria, Belgium, Canada, Cyprus, Denmark, Finland, France, Germany, Greece, Hong 

Kong, Luxembourg, Netherlands, New Zealand, Norway, Portugal Singapore, Spain, 

Sweden, Switzerland, The United Kingdom,.and the United States. The data for New 

Zealand appeared to contain a large discontinuity in 2003 and were roughly adjusted to 

eliminate it. 
34

Table A2: Revealed U.S. Export Comparative Advantages in Individual Services 

Year Commun. 

services 

Computer 

& info. 

services 

Constr. 

services 

Financial 

services 

Insurance 

services 

Other 

business 

services 

Personal, 

cultural, 

& 

recreat. 

services 

Royalties 

& license 

fees 

Transp. Travel

1997 0.82 0.97 0.46 0.93 0.46 0.64 1.39 2.79 0.83 1.07 

1998 1.03 0.68 0.52 0.94 0.62 0.66 1.41 2.86 0.78 1.05 

1999 0.80 0.79 0.84 0.89 0.58 0.72 1.61 2.77 0.75 1.02 

2000 0.65 0.62 0.42 0.91 0.75 0.73 1.57 2.73 0.75 1.08 

2001 0.72 0.56 0.52 0.96 0.67 0.80 1.83 2.77 0.73 1.05 

2002 0.67 0.51 0.41 1.08 0.57 0.84 1.65 2.95 0.74 1.01 

2003 0.70 0.51 0.45 1.14 0.69 0.83 1.75 3.05 0.74 0.98 

2004 0.63 0.45 0.49 1.29 0.86 0.79 1.64 3.10 0.72 0.97 

2005 0.57 0.44 0.48 1.22 1.02 0.78 1.51 3.13 0.76 1.00 

2006 0.71 0.50 0.58 1.43 1.02 0.64 2.36 3.16 0.76 0.97 

2007 0.70 0.48 0.57 1.42 0.91 0.65 2.45 3.32 0.74 0.98 

 

*These data do not incorporate the latest revisions in U.S. service trade data. 

Source: International Monetary Fund, Balance of Payments Yearbook

Table A3: Revealed Export Comparative Advantages in Individual Services, All Developed Countries Except the 

US 

Year Commun. 

services 

Computer 

& info. 

services 

Constr. 

services 

Financial 

services 

Insurance 

services 

Other 

business 

services 

Personal, 

cultural, 

& 

recreat. 

services 

Royalties 

& license 

fees 

Transp. Travel

1997 0.90 1.29 1.13 1.27 1.14 0.99 0.93 1.28 1.05 0.89 

1998 0.90 1.28 1.11 1.25 1.03 1.01 0.83 1.26 1.05 0.89 

1999 0.90 1.24 1.08 1.24 1.05 1.02 0.89 1.25 1.04 0.89 

2000 0.90 1.09 1.07 1.24 1.01 1.05 0.94 1.25 1.04 0.86 

2001 0.94 1.02 1.06 1.24 1.05 1.08 0.99 1.25 1.03 0.84 

2002 0.95 1.01 1.02 1.23 1.16 1.08 0.88 1.24 1.02 0.85 

2003 0.96 1.00 1.02 1.23 1.16 1.08 0.92 1.24 1.01 0.86 

2004 0.93 0.99 1.01 1.24 1.15 1.08 0.91 1.24 1.02 0.85 

2005 0.91 0.95 1.01 1.26 1.09 1.07 0.94 1.26 1.00 0.84 

2006 0.88 0.91 1.01 1.27 1.14 1.07 0.95 1.26 0.99 0.83 

2007 0.88 0.89 0.98 1.28 1.14 1.07 0.94 1.28 0.98 0.83 
35

Table A4: Share of Individual Service in US Imports, Compared to World 

Year Commun. 

services 

Computer 

& info. 

services 

Constr. 

services 

Financial 

services 

Insurance 

services 

Other 

business 

services 

Personal, 

cultural, 

& 

recreat. 

services 

Royalties 

& license 

fees 

Transp. Travel

1997 2.35 0.39 0.13 0.91 1.24 0.58 0.07 1.16 1.03 1.10 

1998 1.89 0.42 0.16 0.85 1.39 0.59 0.05 1.20 1.05 1.09 

1999 1.55 0.46 0.15 0.67 1.51 0.70 0.04 1.19 1.06 1.03 

2000 1.19 0.42 0.15 0.79 1.67 0.68 0.04 1.28 1.08 1.03 

2001 1.02 0.43 0.16 0.76 2.05 0.68 0.04 1.30 1.05 1.01 

2002 0.88 0.34 0.15 0.69 2.19 0.68 0.05 1.41 1.00 0.96 

2003 0.83 0.39 0.15 0.62 2.18 0.68 0.06 1.26 1.03 0.89 

2004 0.82 0.38 0.12 0.69 2.23 0.67 0.12 1.30 1.02 0.89 

2005 0.77 0.36 0.08 0.69 2.18 0.71 0.26 1.31 1.07 0.90 

2006 0.86 1.47 0.22 1.15 2.35 0.59 0.38 1.19 1.01 0.89 

2007 0.91 1.47 0.21 1.35 2.53 0.58 0.40 1.18 0.97 0.91 

Table A5: Share of Individual Service in Imports of All Developed Countries Except the US, Relative to the World 

Year Commun. 

services 

Computer 

& info. 

services 

Constr. 

services 

Financial 

services 

Insurance 

services 

Other 

business 

services 

Personal, 

cultural, 

& 

recreat. 

services 

Royalties 

& license 

services 

Transp. Travel

1997 1.12 1.28 1.11 1.15 0.80 0.94 1.05 1.22 0.96 1.06 

1998 1.11 1.22 1.10 1.14 0.77 0.97 0.98 1.20 0.95 1.05 

1999 1.10 1.16 1.00 1.14 0.71 0.98 0.99 1.15 0.95 1.05 

2000 1.13 1.11 1.00 1.10 0.63 1.00 1.10 1.15 0.97 1.03 

2001 1.11 1.10 0.92 1.08 0.69 1.03 1.14 1.15 0.96 1.02 

2002 1.08 1.08 0.87 1.11 0.75 1.04 0.98 1.13 0.96 1.02 

2003 1.09 1.10 0.84 1.14 0.78 1.03 0.98 1.12 0.95 1.03 

2004 1.08 1.09 0.85 1.14 0.77 1.04 1.03 1.11 0.95 1.04 

2005 1.10 1.08 0.79 1.17 0.75 1.04 1.04 1.12 0.92 1.04 

2006 1.12 1.08 0.77 1.19 0.76 1.03 1.08 1.10 0.92 1.03 

2007 1.12 1.09 0.77 1.21 0.76 1.03 1.08 1.12 0.91 1.04 
36

Table A6: Revealed Export Comparative Advantages in Individual Services: All Developing Countries 

Year Commun. 

services 

Computer 

& info. 

services 

Constr. 

services 

Financial 

services 

Insurance 

services 

Other 

business 

services 

Personal, 

cultural, 

& 

recreat. 

services 

Royalties 

& license 

fees 

Transp. Travel

1997 1.30 0.14 0.60 0.20 0.59 1.03 1.19 0.17 0.85 1.33 

1998 1.33 0.11 0.63 0.20 0.91 0.96 1.57 0.15 0.85 1.37 

1999 1.34 0.17 0.72 0.18 0.83 0.93 1.39 0.14 0.86 1.40 

2000 1.32 0.69 0.78 0.19 0.98 0.83 1.21 0.15 0.85 1.47 

2001 1.20 0.92 0.80 0.20 0.82 0.72 1.02 0.14 0.89 1.53 

2002 1.17 0.95 0.93 0.21 0.45 0.71 1.40 0.17 0.95 1.51 

2003 1.15 1.01 0.94 0.20 0.44 0.73 1.27 0.16 0.97 1.49 

2004 1.23 1.04 0.98 0.19 0.50 0.75 1.29 0.19 0.95 1.50 

2005 1.27 1.16 0.98 0.19 0.73 0.77 1.18 0.19 1.00 1.49 

2006 1.37 1.26 0.97 0.19 0.58 0.78 1.14 0.23 1.03 1.49 

2007 1.35 1.31 1.07 0.20 0.60 0.81 1.18 0.18 1.05 1.47 
37

Appendix B: Bibliographic Notes

 The most comprehensive summary of current issues involving trade in services is 

Mattoo, Stern, and Zanini, Edtors, A Handbook of International Trade in Services. Much 

of the volume concentrates on issues involved in international negotiations on trade in 

services, but there are also chapters on measuring trade in services, barriers to trade, 

problems of measurement, and other general topics. There are also separate descriptions 

of trends in China and Latin America and chapters dealing with individual service 

sectors, such as transport, telecommunications, and health services. There is a 

particularly informative chapter on “The Temporary Movement of Workers to Provide 

Services (GATS mode 4). 

The recent literature on U.S. service trade has continued to concentrate on 

measuring the extent of, or predicting the future extent of “offshoring” or “offshore 

outsourcing” by U.S. firms, and their effects on employment and wages in the United 

States, particularly in goods- producing industries. 

One service industry frequently mentioned as a candidate for offshoring is health 

services, which has been described as vulnerable to foreign entry via what is called 

“mode 1” in the GATS (General Agreement on Trade in Services) classification, crossborder supply, in such areas as radiology, where contact between customer and supplier 

is not necessary. A paper by Herman (2009) reviews the worldwide data on various types 

of trade in health care services and concludes that cross-border trade is “minimal and 

rather insignificant” (p. 5). However, trade in health services by modes 2 (consumption 

abroad) and 4 (presence of natural persons) appears to be more significant, although the 
38

data on both are somewhat ambiguous. The former may be affected by personal income 

tax considerations and the latter by the difficulty of distinguishing it from migration. 

A more general summary of the prospects for health services trade is offered in a 

paper by Cattaneo (2009) which covers a wide range of services and of modes of supply. 

It reviews the current state of trade in each of the four GATS modes and includes several 

brief case studies of country policies and measures to promote both exports and imports 

of health services. The conclusions are optimistic about prospects for future development 

of health services trade and the potential benefits to exporters and importers. 

A broader view, mainly concentrating on IT industries, is taken in a paper by 

Kierkegaard (2008) that emphasizes the “rapidly deepening skill bias affecting these 

types of employment” (p. 413) in the United States. The paper expresses some 

skepticism about the elasticity of supply of highly skilled IT workers, even in India. The 

paper suggests that the growth of the most successful service-exporting firms in foreign 

countries will lead them to expand their own affiliate operations in the United States to 

take advantage of the highest-skill workers. 

Another analysis of the consequences of the growth of service exports on the 

exporting country is the paper by Ahmed (2009) on service exports from India. The 

simulations project large wage increases in the wages of skilled workers as a 

consequence of the growth in the service export sector, confirming Kiekegard’s 

expectations about wages in the IT sector. The simulations also project losses for capital 

in manufacturing and agriculture. 

A recent (unpublished and undated) study of IT workers based on two surveys 

(Tambe and Hitt, n.d.), one of human resource managers and one of workers, concluded 
39

that IT work was “...the most commonly offshored type of work,” leading to 

displacement rates of 1-2% per year. The study found that jobs not requiring 

“interpersonal skills” were particularly subject to displacement. 

An analysis of the impact of service exports from India by Ahmed (2009) found, 

in agreement with Kierkegaard’s analysis, discussed in the text, that the growth of India’s 

service exports had significantly increased skilled labor wages and skilled, relative to 

unskilled labor, wages. It had also reduced returns to capital in agriculture and 

manufacturing. 

The impact of foreign-owned service affiliates in Italy on locally-owned 

manufacturing firms is analyzed in Nicolini et al., which finds that the entrance of foreign 

MNEs in service sectors has a positive influence on local firms’ total factor productivity 

through forward linkage. 

A paper by Ebenstein, Harrison, McMillan, and Phillips (2009) deals mainly with 

effects of trade and offshoring on manufacturing workers, but also contains useful 

information from the Current Population surveys on the service sector. That includes 

data on the education level of the service industry labor force. In manufacturing, the 

industries in which firms expanded employment in high-income countries showed 

average wage increases in the United States, while industries expanding in low-income 

countries showed average wage decreases in the United States. 
40

References

Ahmed, S. Amer (2009), “The Impact of Trade in Services on Factor Incomes: Results 

from a Global Simulation Model,” Policy Research Working Paper 

5155,Washington, DC, The World Bank Development Research Gtoup, Trade 

and Integration Team, December. 

Anderson, Thomas (2008), “U.S. Affiliates of Foreign Companies: Operations in 2006,” 

Survey of Current Business, Vol. 88, No. 8, August, pp. 186-203. 

_______________ , and William J. Zeile (2009), “Operations of U.S. Affiliates of 

Foreign Companies: Preliminary Results From the 2007 Benchmark Survey,” 

Survey of Current Business, Vol. 89, No. 11, November, pp. 43-65. 

Balassa, Bela (1965), “Trade Liberalization and Revealed Comparative Advantage,” The 

Manchester School of Economic and Social Studies, Vol. 33, Issue 2, pp. 99-123. 

Barefoot, Kevin, and Raymond J. Mataloni, Jr.,(2009), “U.S. Multinational Companies: 

Operations in the United States and Abroad in 2007,” Survey of Current Business, 

Vol. 89, No. 8, pp. 63-87. 

Bensidoun, Isabelle, and Deniz Unal-Kesenci (2008), “Globalization in Services: From 

Measurement To Analysis,” Paris, OECD Working papers, March. 

Blomström, Magnus, Robert E. Lipsey, and Lennart Ohlsson (1988), Economic Relations 

between the United States and Sweden, Stockholm, Svenska Handelsbanken and 

The Federation of Swedish Industries. 

Borchert, Ingo, and Aaditya Mattoo (2009), “The Crisis-Resilience of Services Trade,” 

Washington, DC, World Bank Policy Research Working Paper, April. 
41

Borga, Maria, and Michael Mann (2002), “U.S. International Services: Cross-Border 

Trade in 2001 and Sales Through Affiliates in 2000,” Survey of Current Business, 

Vol. 82, No. 10, October, pp. 67-83. 

___________________________ (2003), “U.S. International Services: Cross-Border 

Trade in 2002 and Sales Through Affiliates in 2001,” Survey of Current Business, 

Vol. 83, No. 10, October, pp. 58-118.

Cattaneo, Olivier (2009), “Trade in Health Services: What’s in it for Developing 

Countries?, World Bank Policy Research Working Paper 5115, Washington, DC, 

The World Bank, November. 

Ebenstein, Avraham, Ann Harrison, Margaret McMillan, and Shannon Phillips (2009), 

“Estimating the Impact of Trade and Offshoring on American Workers Using the 

Current Population Surveys,” NBER Working Paper 15107, Cambridge, MA, 

NBER, June. 

Herman, Lior (2009), “Assessing International Trade in Healthcare Services,” ECIPE 

Working Paper No. 03/2009, Brussels, European Centre for International Political 

Economy. 

International Monetary Fund (IMF), (2009), Balance of Payments Yearbook,

Washington, D.C., September. 

Kirkegaard, Jacob F (2008), “Offshoring, Outsourcing, and Production Relocation—

Labor Market Effects in the OECD and Developing Asia,” The Singapore 

Economic Review, Vol.53, No. 3, pp. 371-418. 
42

Koncz, Jennifer, and Ann Flatness (2007), “U.S. International Services: Cross-Border 

Trade in 2006 and Sales Through Affiliates in 2005,” Survey of Current Business, 

Vol. 87, No. 10, October, pp. 94-146. 

___________________________ (2008), “U.S. International Services: Cross-Border 

Trade in 2007 and Services Supplied Through Affiliates in 2006,” Survey of 

Current Business, Vol. 88, No. 10, October, pp. 16-62. 

Koncz-Bruner, Jennifer, and Anne Flatness (2009), “U.S. International Trade in Services: 

Cross-Border Trade in 2008 and Services Supplied Through Affiliates in 2007, 

Survey of Current Business, Vol. 89, Number 10, October, pp. 22-64. 

Kornfeld, Robert (2009), “Initial Results of the 2009 Comprehensive Revision of the 

National Income and Product Accounts,” Survey of Current Business, Vol. 89, 

Number 8, August, pp. 6-49. 

Lipsey, Robert E. (2006) Cambridge, MA “Measuring International Trade in Services,” 

NBER Working Paper 12271. 

______________ (2008), “Measuring the Location of Production in a World of 

Intangible Productive Assets, FDI, and Intrafirm Trade,” Cambridge, MA, NBER 

Working Paper, 14121, June. 

______________ (2009), “Measuring International Trade in Services,” in Marshall 

Reinsdorf and Matthew J. Slaughter, Editors, International Trade in Services and 

Intangibles in the Era of Globalization, Studies in Income and Wealth, Vol. 69, 

Chicago, University of Chicago Press, pp. 27-70. 

Mattoo, Aaditya, Robert M. Stern, and Gianni Zanini, Editors (2008), A Handbook of 

International Trade in Services, Oxford University Press. 
43

Nicolini, Marcella, Sergio Mariotti, and Lucia Piscitello (2009), “The impact of foreign 

MNEs in service sectors on productivity of local manufacturing firms: Vertical 

linkages and spillovers,” Unpublished paper available from 

http://ssrn.com/abstract=1534587. 

United Nations (2004), International Merchandise Trade Statistics Compilers Manual, 

Department of Economic and Social Affairs, Statistics Division, New York, 

United Nations. 

____________ (2008), International Merchandise Trade Statistics: Supplement to the 

Compilers Manual, Department of Economic and Social Affairs, Statistics 

Divison, United Nations. 

U.S., Bureau of the Census (1975), Historical Statistics of the United States, Colonial 

Times to 1970, Bicentennial Edition, Washington, DC. 

U.S., Bureau of Economic Analysis (2010), “U.S. International Trade in Goods and 

Services, November 2009” BEA News Release, Washington, DC, January 12, 

2010.