Offshore Outsourcing and Itпїѕs Economic Impact on U.S

Recent discussions about the extent of outsourcing in the American economy have raised questions about their possible impact on productivity measures. In order to understand the impact, it is necessary to understand the construction of productivity measures and to look at historical trends in the productivity series.

Around 1990, output per hour or labor productivity in the business sector began growing at a faster rate than had been seen in the previous 17 years. Given that productivity measures tend to grow faster during the early stages of economic recovery, the faster growth rate was not widely viewed as unusual at the time.

What was unusual was that the rate of productivity growth accelerated even further beginning around 1995 when normally it would be expected to slow as the recovery matured. While several explanations have been suggested, most economists believed that firms were finally able to harness the information technology revolution to introduce new methods of production, management controls, and services. This view, sometimes called the New Economy Paradigm, argued that a new permanently higher trend rate of productivity