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How Outsourcing Jobs Affects the U.S. Economy

What you need to know about outsourcing jobs

outsourcing skills jobs

How Job Outsourcing Affects the Economy

Technology outsourcing, call center outsourcing, human resources outsourcing, nafta job losses, jobs in mexico, india attracting u.s. companies, jobs in china, underpaid workers, rise in the freelance economy, the bottom line, frequently asked questions (faqs).

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Job outsourcing occurs when U.S. companies hire foreign workers instead of Americans. In 2019, U.S. overseas affiliates employed 14.6 million workers. Four industries that are often affected are technology, call centers, human resources, and manufacturing. 

Key Takeaways

  • Job outsourcing can help American companies compete by keeping prices low, but it has a negative effect on U.S. employment.
  • America has lost jobs to China, Mexico, India, and other countries with lower wage standards.
  • Companies outsource domestically as well and have been increasing their reliance on freelancers, temp workers, and part-timers.
  • Robots have also replaced some American workers.

Job outsourcing helps U.S. companies be more competitive in the global marketplace. It allows them to sell to foreign markets with overseas branches. They keep labor costs low by hiring in emerging markets with lower standards of living. That lowers prices on the goods they ship back to the United States.

The main negative effect of outsourcing is it increases U.S. unemployment. Outsourced jobs are often more than the number of unemployed Americans. If all those jobs were to return, it would be enough to hire millions who are working part-time but would prefer full-time positions.

That assumes the jobs could , of course, return successfully to the United States. Many foreign employees are hired to help with local marketing, contacts, and language. It also assumes the unemployed here have the skills needed for those positions. Would American workers be willing to accept the low wages paid to foreign employees? If not, American consumers would be forced to pay higher prices.

There's not an easy fix. Imposing laws to artificially restrict job outsourcing could make U.S. companies less competitive. If they are forced to hire expensive U.S. workers, they would raise prices and increase costs for consumers.

The pressure to outsource might lead some companies to even move their whole operation, including headquarters, overseas. Others might not be able to compete with higher costs and would be forced out of business. 

American companies send IT jobs to India and China because the skills are similar while the wages are much lower. Companies in Silicon Valley outsource tech jobs by offering H-1B visas to foreign-born workers.  

In the past 20 years, many call centers have been outsourced to India and the Philippines. That's because the workers there speak English. But that trend is changing. Unlike technology outsourcing, there is a much smaller wage discrepancy between call center workers in the U.S. and emerging markets.

Human resource outsourcing reduces costs by pooling thousands of businesses. This lowers the price of health benefit plans, retirement plans, workers’ compensation insurance, and legal expertise. Human resource outsourcing particularly benefits small businesses by offering a wider range of benefits. The Great Recession appears to have kicked off an increase in "domestic outsourcing," where companies outsource functions such as HR to American workers.

President Reagan envisioned NAFTA to help North America compete with the European Union. Unfortunately, it also sent around 850,000 jobs to Mexico. California, New York, Michigan, Texas, and Ohio were the most impacted states. At the same time, however, NAFTA did succeed in lowering prices on many products for American consumers and boosted exports to Canada and Mexico. NAFTA's successor, the U.S.-Mexico-Canada Agreement, was renegotiated to change wage and labor rules and took effect in July 2020.

Mexico is the sixth-largest auto manufacturer in the world, as of September 2021. But did that growth come at the expense of U.S. auto workers? Or is something else the real reason? The truth is Mexico maintains 13 free trade agreements with 50 different countries.

India attracts American companies because its labor force already speaks English. Plus, its universities rank in the top 20% of the world's best, and its legal system is similar to the U.S.

China is the world's largest exporter as of January 2020. But a lot of China's so-called "exports" are really for American companies. A lot of U.S. companies ship raw materials over, and the final goods are shipped back.

Some U.S. companies can only afford to sell products to China’s 1.4 billion people if they manufacture there.

Perhaps the U.S. should do the same thing. Imagine if all our imported products were partly manufactured in America? Other foreign companies should be required to follow the lead of Japanese automakers, who already do this. Of course, if the United States did that, it would mean higher prices for consumers. U.S. workers need a higher salary to pay for a better standard of living.

Workers in many  manufacturing industries  have been replaced by robots. To get new jobs, workers need training to operate the robots.

Innovations in technology are what actually allowed U.S. companies to move call centers to India. If technology is the culprit, it is also the answer. It's made the U.S. more competitive as a nation. Education, rather than protectionism, is the best way to both take advantage of technology and create jobs for U.S. workers.

In 2020, there were 37.2 million people living in poverty in the U.S. Meanwhile, the top 10% of workers earned almost 13 times the income that the bottom 90% of workers earned.

The freelance economy means that companies are laying off full-time—often older—workers and replacing them with part-timers, temp help, ​and freelance workers. It makes it easier to outsource jobs to workers who are not full-time.

The pandemic saw a rapid rise in both remote workers and freelancers, with many businesses expected to sustain or increase their use of freelancers in the future.

The phenomenon of job outsourcing in the United States provokes great economic contention. On one hand, this prevalent practice lowers costs for U.S. companies, enables global competitiveness, and allows them to provide reasonably priced goods and services. The benefits also extend to countries on the outsourced end, many of which have grown their economies through U.S. outsourcing. On the other, it has hurt employment, raising the unemployment rate particularly in these hardest-hit sectors:

  • Manufacturing
  • Call centers
  • Human Resources

Outsourcing may not be the biggest threat to unemployment though. Technological growth in automated intelligence could very well replace many human jobs, enormously impacting the U.S. job market in the immanently near future.

Are foreign jobs ever outsourced to the U.S.?

Although U.S. outsourcing has risen, foreign companies do outsource jobs to the U.S., too. Some experts refer to this as "insourcing." About 8 million jobs in the U.S. were held by Americans who are working for foreign companies in 2019.

How do foreign countries benefit from U.S. jobs being outsourced to them?

Some countries have built strong economies based on outsourcing. This has led to investment in these countries, an improved standard of living for the outsourced workers, and the countries becoming part of the global economy , which could benefit the U.S. in the long term.

What are some U.S. companies that outsource jobs overseas?

Apple , IBM, Google, American Express, and Pfizer are a few of the U.S. companies that outsource jobs to overseas employees.

Bureau of Economic Analysis. “ Activities of U.S. Multinational Enterprises: 2019 .”

U.S. Department of Labor. " Domestic Outsourcing in the United States ," Page 1.

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Economic Policy Institute. " NAFTA’s Impact on the States ."

Office of the United States Trade Representative. " United States-Mexico-Canada Agreement ."

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 International Trade Administration. " Trade Agreements ."

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Upwork. " Future Workforce Report 2021: How Remote Work is Changing Businesses Forever ."

American Enterprise Institute. " We Hear a Lot About US Jobs Being Outsourced Overseas (‘Stolen’). But What About the 8M Insourced Jobs We ‘Stole’ From Overseas in 2019? "

Magellan Solutions. " US Companies That Outsource Jobs to Foreign Countries ."

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What Is Outsourcing?

Understanding outsourcing, special considerations.

  • Outsourcing FAQs

The Bottom Line

  • Business Essentials

Outsourcing: How It Works in Business, With Examples

outsourcing skills jobs

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

outsourcing skills jobs

Outsourcing is the business practice of hiring a party outside a company to perform services or create goods that were traditionally performed in-house by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office.

Outsourcing was first recognized as a business strategy in 1989 and became an integral part of business economics throughout the 1990s. The practice of outsourcing is subject to considerable controversy in many countries. Those opposed argue that it has caused the loss of domestic jobs, particularly in the manufacturing sector. Supporters say it creates an incentive for businesses and companies to allocate resources where they are most effective, and that outsourcing helps maintain the nature of  free-market economies on a global scale.

Key Takeaways

  • Companies use outsourcing to cut labor costs, including salaries for their personnel, overhead, equipment, and technology.
  • Outsourcing is also used by companies to dial down and focus on the core aspects of the business, spinning off the less critical operations to outside organizations.
  • On the downside , communication between the company and outside providers can be hard, and security threats can amp up when multiple parties can access sensitive data.
  • Some companies will outsource as a way to move things around on the balance sheet.
  • Outsourcing employees, such as with 1099 contract workers, can benefit the company when it comes to paying taxes.

Investopedia / Mira Norian

Outsourcing can help businesses reduce labor costs significantly. When a company uses outsourcing, it enlists the help of outside organizations not affiliated with the company to complete certain tasks. The outside organizations typically set up different compensation structures with their employees than the outsourcing company, enabling them to complete the work for less money. This ultimately enables the company that chose to outsource to lower its labor costs.

Businesses can also avoid expenses associated with overhead , equipment, and technology.

In addition to cost savings, companies can employ an outsourcing strategy to better focus on the core aspects of the business. Outsourcing non-core activities can improve efficiency and productivity because another entity performs these smaller tasks better than the firm itself. This strategy may also lead to faster turnaround times, increased competitiveness within an industry, and the cutting of overall operational costs.

Companies use outsourcing to cut labor costs and business expenses, but also to enable them to focus on the core aspects of the business.

Examples of Outsourcing

Outsourcing's biggest advantages are time and cost savings. A manufacturer of personal computers might buy internal components for its machines from other companies to save on production costs . A law firm might store and back up its files using a cloud-computing service provider, thus giving it access to digital technology without investing large amounts of money to actually own the technology.

A small company may decide to outsource bookkeeping duties to an accounting firm, as doing so may be cheaper than retaining an in-house accountant. Other companies find outsourcing the functions of human resource departments, such as payroll and health insurance, as beneficial. When used properly, outsourcing is an effective strategy to reduce expenses, and can even provide a business with a competitive advantage over rivals.

Criticism of Outsourcing

Outsourcing does have disadvantages. Signing contracts with other companies may take time and extra effort from a firm's legal team. Security threats occur if another party has access to a company's confidential information and then that party suffers a data breach. A lack of communication between the company and the outsourced provider may occur, which could delay the completion of projects.

Outsourcing internationally can help companies benefit from the differences in labor and production costs among countries. Price dispersion in another country may entice a business to relocate some or all of its operations to the cheaper country in order to increase profitability and stay competitive within an industry. Many large corporations have eliminated their entire in-house customer service call centers, outsourcing that function to third-party outfits located in lower-cost locations.

First seen as a formal business strategy in 1989, outsourcing is the process of hiring third parties to conduct services that were typically performed by the company. Often, outsourcing is used so that a company can focus on its core operations. It is also used to cut costs on labor, among others. While privacy has been a recent area of controversy for outsourcing contractors, it has also drawn criticism for its impact on the labor market in domestic economies.

What Is an Example of Outsourcing?

Consider a bank that outsources its customer service operations. Here, all customer-facing inquiries or complaints with concern to its online banking service would be handled by a third party. While choosing to outsource some business operations is often a complex decision, the bank determined that it would prove to be the most effective allocation of capital, given both consumer demand, the specialty of the third-party, and cost-saving attributes. 

What Are the Disadvantages of Outsourcing?

The disadvantages of outsourcing include communication difficulties, security threats where sensitive data is increasingly at stake, and additional legal duties. On a broader level, outsourcing may have the potential to disrupt a labor force. One example that often comes to mind is the manufacturing industry in America, where now a large extent of production has moved internationally. In turn, higher-skilled manufacturing jobs, such as robotics or precision machines, have emerged at a greater scale.

While outsourcing can be advantageous to an organization that values time over money, some downsides can materialize if the organization needs to retain control. Outsourcing manufacturing of a simple item like clothing will carry much less risk than outsourcing something complex like rocket fuel or financial modeling. Businesses looking to outsource need to adequately compare the benefits and risks before moving forward.

International Business Machines. " IBM Global Services: A Brief History ."

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What is outsourcing? Definitions, benefits, challenges, processes, advice

Outsourcing can bring big benefits, but risks and challenges abound when negotiating and managing outsourcing relationships. Here’s what you need to know to ensure your IT outsourcing initiatives s쳮d.

tech workers in data center outsourcing

Outsourcing definition

Outsourcing is a business practice in which services or job functions are hired out to a third party on a contract or ongoing basis. In IT, an outsourcing initiative with a technology provider can involve a range of operations, from the entirety of the IT function to discrete, easily defined components, such as disaster recovery, network services, software development, or QA testing.

Companies may choose to outsource services onshore (within their own country), nearshore (to a neighboring country or one in the same time zone), or offshore (to a more distant country). Nearshore and offshore outsourcing have traditionally been pursued to save costs.

Outsourcing services

Business process outsourcing (BPO) is an overarching term for the outsourcing of a specific business process task, such as payroll. BPO is often divided into two categories: back-office BPO, which includes internal business functions such as billing or purchasing, and front-office BPO, which includes customer-related services such as marketing or tech support.

IT outsourcing is a subset of business process outsourcing, and it falls traditionally into one of two categories: infrastructure outsourcing and application outsourcing. Infrastructure outsourcing can include service desk capabilities, data center outsourcing, network services, managed security operations, or overall infrastructure management. Application outsourcing may include new application development, legacy system maintenance, testing and QA services, and packaged software implementation and management.

Today, however, IT outsourcing can also include relationships with providers of software-, infrastructure-, and platforms-as-a-service. These cloud services are increasingly offered not only by traditional outsourcing providers but by global and niche software vendors or even industrial companies offering technology-enabled services.

For more on the latest trends in outsourcing, see “ 7 hot IT outsourcing trends — and 7 going cold .”

Outsourcing pros and cons

The business case for outsourcing varies by situation, but the benefits and risks of outsourcing often include the following:

IT outsourcing models and pricing

The appropriate model for an IT service is determined by the service provided. Most outsourcing contracts have been billed on a time and materials or fixed price basis. But as outsourcing services have matured to include strategic transformation and innovation initiatives , contractual approaches have evolved to include managed services and outcome-based arrangements.

The most common ways to structure an outsourcing engagement include:

Outsourcing vs. offshoring

The term outsourcing is often used interchangeably — and incorrectly — with offshoring, usually by those in a heated debate. But offshoring is a subset of outsourcing wherein a company outsources services to a third party in a country other than the one in which the client company is based, typically to take advantage of lower labor costs. This subject continues to be charged politically because offshore outsourcing is more likely to result in layoffs.

Outsourcing of jobs

Estimates of jobs displaced or jobs created due to offshoring tend to vary widely due to lack of reliable data. In some cases, global companies set up their own captive offshore IT service centers to reduce costs or access skills. Some roles typically offshored include software development, application support and management, maintenance, testing, help desk/technical support, database development or management, and infrastructure support.

In recent years, IT service providers increased investments in IT delivery centers in the US, according to a report from Everest Group. Offshore outsourcing providers have also increased their hiring of US IT professionals to gird against potential increased restrictions on the H-1B visas they use to bring offshore workers to the US to work on client sites.

Some industry experts point out that increased automation and robotic capabilities may actually eliminate more IT jobs than offshore outsourcing.

Outsourcing risks and challenges

The failure rate of outsourcing relationships remains high, ranging from 40% to 70%. At the heart of the problem is the inherent conflict of interest in any outsourcing arrangement. The client seeks better service, often at lower costs, than it would get doing the work itself. The vendor, however, wants to make a profit. That tension must be managed closely to ensure a successful outcome for both client and vendor. A service level agreement (SLA) is one lever for navigating this conflict — when implemented correctly . An SLA is a contract between an IT services provider and a customer that specifies, usually in measurable terms, what services the vendor will furnish. Service levels are determined at the beginning of any outsourcing relationship and are used to measure and monitor a supplier’s performance.

For more on outsourcing contracts, see “ 11 keys to a successful outsourcing relationship ” and “ 7 tips for managing an IT outsourcing contract .”

Another cause of outsourcing failure is the rush to outsource as a “quick fix” cost-cutting maneuver rather than an investment designed to enhance capabilities, expand globally, increase agility and profitability, or bolster competitive advantage.

Generally speaking, risks increase as the boundaries between client and vendor responsibilities blur and the scope of responsibilities expands. Whatever the type of outsourcing, the relationship will succeed only if both the vendor and the client achieve expected benefits.

See also: “ 9 IT outsourcing mistakes to avoid ” and “ 10 early warning signs of IT outsourcing disaster .”

Types of outsourcing

Many years ago, the multi-billion-dollar megadeal for one vendor hit an all-time high, but wholesale outsourcing proved difficult to manage for many companies. These days, CIOs have embraced the multi-vendor approach , incorporating services from several best-of-breed vendors.

Multisourcing, however, is not without challenges. The customer must have mature governance and vendor management practices in place. In contract negotiations, CIOs need to spell out that vendors must cooperate or else risk losing the job. CIOs need to find qualified staff with financial as well as technical skills to help run a project management office or some other body that can manage the outsourcing portfolio.

The rise of digital transformation has initiated a shift away from siloed IT services. As companies embrace new development methodologies and infrastructure choices, many standalone IT service areas no longer make sense. Some IT service providers seek to become one-stop shops for clients through brokerage services or partnership agreements, offering clients a full spectrum of services from best-in-class providers.

How to select a service provider

Selecting a service provider is a difficult decision, and no one outsourcer will be an exact fit for your needs. Trade-offs will be necessary.

To make an informed decision, articulate what you want from the outsourcing relationship to extract the most important criteria you seek. It’s important to figure this out before soliciting outsourcers, as they will come in with their own ideas of what’s best for your organization, based largely on their own capabilities and strengths.

Some examples of the questions you’ll need to consider include:

  • What’s more important to you: the total amount of savings an outsourcer can provide you or how quickly they can cut your costs?
  • Do you want broad capabilities or expertise in a specific area?
  • Do you want low, fixed costs or more variable price options?

Once you define and prioritize your needs, you’ll be better able to decide what trade-offs are worth making.

Outsourcing advisers

Many organizations bring in a sourcing consultant to help establish requirements and priorities. Third-party expertise can help, but it’s important to research the adviser well. Some consultants may have a vested interested in getting you to pursue outsourcing rather than helping you figure out if outsourcing is a good option for your business. A good adviser can help an inexperienced buyer through the vendor-selection process, aiding them in steps like conducting due diligence, choosing providers to participate in the RFP process, creating a model or scoring system for evaluating responses, and making the final decision.

For more advice, see “ Outsourcing advisors: 6 tips for selecting the right one .”

Negotiating the best outsourcing deal

Balancing the risks and benefits for both parties is the goal of the negotiation process , which can get emotional and even contentious. But smart buyers will take the lead in negotiations , prioritizing issues that are important to them, rather than being led around by the outsourcer.

Creating a timeline and completion date for negotiations will help rein in the process. Without one, discussions could go on forever. But if an issue needs time, don’t be a slave to the date.

Finally, don’t take any steps toward transitioning the work to the outsourcer while in negotiations. An outsourcing contract is never a done deal until you sign on the dotted line, and if you begin moving the work to the outsourcer, you will be handing over more power over the negotiating process to them as well.

Outsourcing’s hidden costs

Depending on what is outsourced and to whom, studies show that an organization will end up spending at least 10% percent above the agreed-upon figure to manage the deal over the long haul. Among the most significant additional expenses associated with outsourcing are:

  • the cost of benchmarking and analysis to determine whether outsourcing is the right choice
  • the cost of investigating and selecting a vendor
  • the cost of transitioning work and knowledge to the outsourcer
  • costs resulting from possible layoffs and their associated HR issues
  • costs of ongoing staffing and management of the outsourcing relationship

It’s important to consider these hidden costs when making a business case for outsourcing.

The outsourcing transition

Vantage Partners once called the outsourcing transition period — during which the provider’s delivery team gets up to speed on your business, existing capabilities and processes, expectations and organizational culture — the “valley of despair.” During this period, the new team is trying to integrate transferred employees and assets, begin the process of driving out costs and inefficiencies, while still keeping the lights on. Throughout this period, which can range from several months to a couple of years, productivity very often takes a nosedive.

The problem is, this is also the time when executives on the client side look most avidly for the deal’s promised gains; business unit heads and line managers wonder why IT service levels aren’t improving; and IT workers wonder what their place is in this new mixed-source environment. The best advice is to anticipate that the transition period will be trying, attempt to manage the business side’s expectations, and set up management plans and governance tools to get the organization over the hump.

Outsourcing governance

A highly collaborative relationship based on effective contract management and trust can add value to an outsourcing relationship. An acrimonious relationship, however, can detract significantly from the value of the arrangement, the positives degraded by the greater need for monitoring and auditing. In that environment, conflicts frequently escalate and projects don’t get done.

Successful outsourcing is about relationships as much as it is actual IT services or transactions. As a result, outsourcing governance is the single most important factor in determining the success of an outsourcing deal. Without it, carefully negotiated and documented rights in an outsourcing contract run the risk of not being enforced, and the relationship that develops may look nothing like what you envisioned.

For more on outsourcing governance, see “ 7 tips for managing an IT outsourcing contract .”

Repatriating IT

Repatriating or backsourcing IT work (bringing an outsourced service back in-house ) when an outsourcing arrangement is not working — either because there was no good business case for it in the first place or because the business environment changed — is always an option. However, it is not always easy to extricate yourself from an outsourcing relationship, and for that reason many clients dissatisfied with outsourcing results renegotiate and reorganize their contracts and relationships rather than attempt to return to the pre-outsourced state. But, in some cases, bringing IT back in house is the best option, and in those cases it must be handled with care .

For more on repatriating IT, see “ How to bring outsourced services back in-house .”

More on outsourcing:

  • 7 hot IT outsourcing trends — and 7 going cold
  • Top 10 IT outsourcing providers
  • 9 outsourcing myths debunked
  • The hidden costs of outsourcing
  • 11 keys to a successful outsourcing relationship
  • 9 IT outsourcing mistakes to avoid
  • 10 early warning signs of IT outsourcing disaster
  • 12 signs your strategic partnership has gone wrong
  • 7 keys to transformational outsourcing success
  • SLA guide: Best practices for service-level agreements
  • 10 dos and don’ts for crafting more effective SLAs
  • How to contract for outsourcing agile development

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Bad news, graduates: LinkedIn says the hottest skill to have right now in 2024 can’t be learned in a textbook

Business woman on a video job interview with a young male candidate

The skills-based revolution isn’t the future, it’s already here: It’s been over a year since major employers like Google , Microsoft , IBM , and Apple , eliminated their long-held degree requirements for jobs to remove barriers to entry and recruit more diverse talent—much to the dismay of those who have splashed out thousands on a college degree.

Now, LinkedIn has put the final nail in the coffin for those hoping that a stellar education alone is enough to land you a killer job. 

That’s because the top skill of 2024 isn’t one you can learn from textbooks—or even a YouTube tutorial, for that matter.

According to the networking platform’s analysis of its 1 billion global users, the hottest skill to have right now is adaptability .

Its surging popularity comes as leaders scramble to understand what the rising popularity of artificial intelligence means for their businesses.

“As organizations come to grasp the full extent of what AI can do, they’re also coming to terms with all that it can’t do—those tasks that require the uniquely human skills that all businesses need,” warns Dan Brodnitz, global head of content strategy at LinkedIn Learning

It’s why being adaptable during these uncertain times is “indispensable,” Brodnitz says, adding that it will only “become even more important as the pace of change increases.”

LinkedIn reveals the most in-demand skills for 2024

LinkedIn also looked at those who have been recently hired among its enormous user base, as well as the skills listed in job ads to predict what the most-in-demand skills will be for the year ahead—and it provides more bad news for those who have just burdened themselves with huge debt for a degree.

Soft skills (nontechnical skills) are equally important to hiring managers as hard skills, according to the data.

What’s more, the pendulum is only going to swing further in favor of soft skills, according to the research.

Nine out of 10 global executives LinkedIn surveyed think that “human” skills are more important than ever, as we move into a new world of work thanks to AI, remote work, et al.

So, it’s not surprising that communication (a soft skill) ranks No. 1 on the 2024 list of overall most in-demand skills. 

“In an era of hybrid work, employees communicate across an ever-expanding range of channels and platforms,” Brodnitz explains.

“Since in-person collaboration is no longer the default, effective communication from company and team leadership across channels helps connect, motivate, and inspire your teams.” 

Other soft skills to make the list include teamwork, problem-solving, and leadership—which shouldn’t be snubbed by those at the start of their career.

Unlike management, which is about delivering measurable results, leadership is more about influencing change and motivating others.

“Regardless of your position in the org chart, leadership skills continue to be business-critical,” Brodnitz insists.

Meanwhile, the hard skills that continue to capture employers’ attention include customer service, project management, and analytics.

Top 10 skills for 2024

1. Communication 2. Customer service  3. Leadership  4. Project management  5. Management  6. Analytics 7. Teamwork 8. Sales  9. Problem-solving 10. Research

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When Your Technical Skills Are Eclipsed, Your Humanity Will Matter More Than Ever

A graphic depicting a door being opened to  reveals a handshake, a cup of a coffee, a briefcase and a swirl of colors.

By Aneesh Raman and Maria Flynn

Mr. Raman is a work force expert at LinkedIn. Ms. Flynn is the president of Jobs for the Future.

There have been just a handful of moments over the centuries when we have experienced a huge shift in the skills our economy values most. We are entering one such moment now. Technical and data skills that have been highly sought after for decades appear to be among the most exposed to advances in artificial intelligence. But other skills, particularly the people skills that we have long undervalued as soft, will very likely remain the most durable. That is a hopeful sign that A.I. could usher in a world of work that is anchored more, not less, around human ability.

A moment like this compels us to think differently about how we are training our workers, especially the heavy premium we have placed on skills like coding and data analysis that continue to reshape the fields of higher education and worker training. The early signals of what A.I. can do should compel us to think differently about ourselves as a species. Our abilities to effectively communicate, develop empathy and think critically have allowed humans to collaborate, innovate and adapt for millenniums. Those skills are ones we all possess and can improve, yet they have never been properly valued in our economy or prioritized in our education and training. That needs to change.

In today’s knowledge economy, many students are focused on gaining technical skills because those skills are seen as the most competitive when it comes to getting a good job. And for good reason. For decades, we have viewed those jobs as future-proof, given the growth of technology companies and the fact that engineering majors land the highest-paying jobs .

The number of students seeking four-year degrees in computer science and information technology shot up 41 percent between the spring of 2018 and the spring of 2023, while the number of humanities majors plummeted. Workers who didn’t go to college and those who needed additional skills and wanted to take advantage of a lucrative job boom flocked to dozens of coding boot camps and online technical programs.

Now comes the realization of the power of generative A.I., with its vast capabilities in skills like writing, programming and translation. (Microsoft, which owns LinkedIn, is a major investor in the technology.) LinkedIn researchers recently looked at which skills any given job requires and then identified over 500 likely to be affected by generative A.I. technologies. They then estimated that 96 percent of a software engineer’s current skills — mainly proficiency in programming languages — can eventually be replicated by A.I. Skills associated with jobs like legal associates and finance officers will also be highly exposed.

In fact, given the broad impact A.I. is set to have, it is quite likely to affect all of our work to some degree or another.

We believe there will be engineers in the future, but they will most likely spend less time coding and more time on tasks like collaboration and communication. We also believe that there will be new categories of jobs that emerge as a result of A.I.’s capabilities — just like we’ve seen in past moments of technological advancement — and that those jobs will probably be anchored increasingly around people skills.

Circling around this research is the big question emerging across so many conversations about A.I. and work, namely: What are our core capabilities as humans?

If we answer that question from a place of fear about what’s left for people in the age of A.I., we can end up conceding a diminished view of human capability. Instead, it’s critical for us all to start from a place that imagines what’s possible for humans in the age of A.I. When you do that, you find yourself focusing quickly on people skills that allow us to collaborate and innovate in ways technology can amplify but never replace. And you find yourself — whatever the role or career stage you’re in — with agency to better manage this moment of historic change.

Communication is already the most in-demand skill across jobs on LinkedIn today. Even experts in A.I. are observing that the skills we need to work well with A.I. systems, such as prompting, are similar to the skills we need to communicate and reason effectively with other people.

Over 70 percent of executives surveyed by LinkedIn last year said soft skills were more important to their organizations than highly technical A.I. skills. And a recent Jobs for the Future survey found that 78 percent of the 10 top-employing occupations classified uniquely human skills and tasks as “important” or “very important.” These are skills like building interpersonal relationships, negotiating between parties and guiding and motivating teams.

Now is the time for leaders, across sectors, to develop new ways for students to learn that are more directly, and more dynamically, tied to where our economy is going, not where it has been. Critically, that involves bringing the same level of rigor to training around people skills that we have brought to technical skills.

Colleges and universities have a critical role to play. Over the past few decades, we have seen a prioritization of science and engineering, often at the expense of the humanities. That calibration will need to be reconsidered.

Those not pursuing a four-year degree should look for those training providers that have long emphasized people skills and are invested in social capital development.

Employers will need to be educators not just around A.I. tools but also on people skills and people-to-people collaboration. Major employers like Walmart and American Airlines are already exploring ways to put A.I. in the hands of employees so they can spend less time on routine tasks and more time on personal engagement with customers.

Ultimately, for our society, this comes down to whether we believe in the potential of humans with as much conviction as we believe in the potential of A.I. If we do, it is entirely possible to build a world of work that not only is more human but also is a place where all people are valued for the unique skills they have, enabling us to deliver new levels of human achievement across so many areas that affect all of our lives, from health care to transportation to education. Along the way, we could meaningfully increase equity in our economy, in part by addressing the persistent gender gap that exists when we undervalue skills that women bring to work at a higher percentage than men.

Almost anticipating this moment a few years ago, Minouche Shafik, who is now the president of Columbia University, said: “In the past, jobs were about muscles. Now they’re about brains, but in the future, they’ll be about the heart.”

The knowledge economy that we have lived in for decades emerged out of a goods economy that we lived in for millenniums, fueled by agriculture and manufacturing. Today the knowledge economy is giving way to a relationship economy, in which people skills and social abilities are going to become even more core to success than ever before. That possibility is not just cause for new thinking when it comes to work force training. It is also cause for greater imagination when it comes to what is possible for us as humans not simply as individuals and organizations but as a species.

Aneesh Raman is a vice president and work force expert at LinkedIn. Maria Flynn is the president of Jobs for the Future.

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An earlier version of this article misstated the group surveyed in a poll on worker skills. The respondents were executives in the United States, not executives at LinkedIn.

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Tech spending shifts to meet AI demand, forces a 'reshuffling of skills' for workers

With ai 'sucking the air out of almost all non-ai investments in the whole tech world,' companies are cutting what they believe are unnecessary jobs — and replacing them with ai-skilled workers..

Senior Reporter, Computerworld |

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Tech companies such Google,  Amazon ,  Meta (Facebook) and others laid off tens of thousands of workers last year as an adjustment to over-hiring during the COVID-19 pandemic.

But the firings have not abated in 2024.

In January, job cuts leaped 136% over December and hit a 10-month high, according to a new  report by outplacement firm Challenger, Gray and Christmas . The surge in firings was led by the tech and financial services sectors. (In fact, Cisco may be eyeing significant layoffs .)

US-based employers announced 82,307 cuts in January, compared to 34,817  cuts the month before , according to the outplacement firm’s report. While that January number is down 20% from the 102,943  cuts announced in January 2023 , they’re a sign the tech job market is shifting.

In 2024, tech employers making or planning  significant cuts include SAP, EBay, Microsoft, and Google (Alphabet). So far this year, 135 tech companies laid off nearly 34,000 workers, according to Layoffs.fyi , which began tracking tech layoffs in March 2020. That compares to all of 2023, when there were at least 154,000 layoffs at more than 1,000 tech companies, according to Layoffs.fyi.

Biggest tech layoffs since Covid-19

There are several factors behind the increase in layoffs; historically, January tends to have more layoffs than other months as companies lean into restructuring plans, roll out reorganizations and set new fiscal directions.

Recent layoffs appear to be driven by broader economic trends, including a strategic shift toward increased automation and AI adoption in various sectors, “though in most cases, companies point to cost-cutting as the main driver for layoffs,” said Andrew Challenger, senior vice president of Challenger, Gray & Christmas.

“The way I often describe this is AI is sucking the air out of almost all non-AI investments in the whole tech world." -- Harvard Business School Professor David Yoffie.

While unemployment rates remain near historic lows, getting a bead on how tech workers are faring is complicated. Unemployment rates in the US IT market vary wildly  depending on whether the data comes from CompTIA, an IT trade association, or Janco Associates, an IT business consultancy.

CompTIA pegs the IT unemployment rate in the US at 2.3%, more than a full percentage point below the national unemployment average of 3.7%. Janco Associates, however, puts IT unemployment at 5.5%, more than a full point above the national average. And Janco’s data paint a far grimmer picture for 156,000 unemployed IT pros.

Like Challenger, Janco Associates CEO Victor Janulaitis places some of the blame for layoffs at the feet of AI, mainly because the technology’s ability to automate tasks will eliminate workforce needs.

“Layoff will continue as more ‘routine’ IT jobs are eliminated,” Janulaitis said. The first to go are help and service desks as AI eliminates those positions. Next, entry-level programmers will be eliminated as AI applications generate code, he said.

Experts say they’re seeing a shift in popular occupations. The adoption of AI, and more specifically generative AI (genAI), is causing organizations to rethink what skills are most needed for the future. Massive investment in AI tech is prompting organizations to cut workers to free up additional funds for further investing.

Enterprises spent about $19.4 billion worldwide on genAI technologies in 2023; that  amount is expected to double this year, according to  research by IDC .

“The way I often describe this is AI is sucking the air out of almost all non-AI investments in the whole tech world,” said Harvard Business School Professor  David Yoffie .

At large tech companies such as Microsoft, Amazon, Google, and Meta, AI has not been a traditional area of investment. And it requires a very large investment of financial resources. That leads to portfolio decisions by companies to rebalance spending in order to pay for the very large investments they’re making in building data centers, doing training, and buying GPUs to run AI.

That, according to Yoffie, leads organizations to look at marginal parts of their business that haven't paid off. 

“So, Amazon starts cutting Alexa, and they start cutting health [tech]. Microsoft starts cutting games. Google has a lot of non-core businesses that they’ve been making long-term investments in that haven’t delivered significant results, and so they’re all looking for ways to save resources in order to make the investments required to be competitive in AI,” Yoffie said.

By 2030, as many as 375 million workers — or roughly 14% of the global workforce — might need to switch occupational categories as digitization, automation, advances in Al, and other technologies disrupt the world of work, according to management consulting firm McKinsey & Co.

The adoption of AI has the potential to reshape the workforce, though many employees could be looking at reskilling instead of separation. According to a 2023 survey  of 1,684 C-suite executives by McKinsey Global Institute, about four in 10  respondents reporting AI adoption expect more than 20% of their companies’ workforces will be reskilled in the next three years; and 8% expect the size of their workforces to decrease by more than 20%.

Cutting employees to hire more

While some companies may still be adjusting to pandemic era over-hiring, there is a significant reallocation of resources across the board into anything AI related.

"Our latest survey results show changes in the roles that organizations are filling to support their AI ambitions," McKinsey said in its report. "Roles in prompt engineering have recently emerged, as the need for that skill set rises alongside gen AI adoption, with 7% of respondents whose organizations have adopted AI reporting those hires in the past year."

Organizations are spending on genAI software as well as related infrastructure hardware and IT/business services. By 2027, spending is expected to reach $151.1 billion, representing a compound annual growth rate of 85.9% during the 2023-2027 period.

Looking specifically at genAI’s predicted impact, service operations is the only function in which most respondents to McKinsey & Co's survey expect to see a decrease in workforce size at their organizations.

"This finding generally aligns with what our recent research suggests: while the emergence of genAI increased our estimate of the percentage of worker activities that could be automated (60% to 70%), this doesn’t necessarily translate into the automation of an entire role," McKinsey said in it's report.

Megan Way, an associate professor of economics at Babson College in Massachusetts, said businesses are now “reshuffling” resources to move more quickly into the genAI space.

“They’re all very concerned. They need to dump a lot of resources into that now in order to make their numbers, please Wall Street, and cut workers in some places where there might be some slack because of hiring they did in 2020 and 2021,” Way said.

Way, however, pointed out those same companies need to start hiring or retrain existing employees to support their genAI initiatives; she sees a coming hiring boom, “it’s just going to be in a different area.”

“Companies like Facebook will continue to lay off as they look to improve productivity. Facebook shed employees and improved earnings. Over time we see that size pollutes." -- Janco Associates CEO Victor Janulaitis.

Employee attrition has more to do with a reallocation of financial resources than simply the elimination of unneeded workers, according to experts.

Last month, Google cut hundreds of employees, many of them on teams that produce Google's Nest, Pixel and Fitbit devices, as well as the company's augmented reality team. Those layoffs came  a year after the company cut nearly 12,000 jobs , about 6% of its workforce.

Many organizations still think that high headcounts result in more revenue and so they don't look to improve productivity as another solution, Janulaitis explained.

“Companies like Facebook will continue to lay off as they look to improve productivity,” he said. “Facebook…shed employees and improved earnings. Over time we see that ‘size pollutes.’ Facebook now understands that and they are actively reducing headcounts and improving productivity."

Even as layoffs have continued, tech companies added nearly 18,000 new workers in January, the second consecutive month of job growth, according to CompTIA. Its data shows employer job postings for future IT hiring increased to more than 392,000.

According to data from US Bureau of Labor Statistics (BLS), the picture is more nuanced. The BLS does not break out data for tech or IT jobs but does track  "information" careers ; employment there rose 15,000 in January, but over a longer timeline its down 76,000 from its recent peak in November 2022.

Tech talent is still in high demand

Ger Doyle, senior vice president of IT jobs resource firm Experis , said roles most US companies are expecting to hire for in Q1 are in IT (55%), followed by financial services and real estate (43%). This is the fifth consecutive quarter that IT roles have been at the top of recruiters’ lists.

“In general, they continue to keep IT talent — particularly cloud, software development, AI and cybersecurity. Those roles are still red hot from a demand perspective within big tech and even more so in industries that are now beginning to move to AI and are picking up any new talent coming from big tech,” Doyle said.

There’s also a “huge demand” for high-end developers, full-stack developers, and talent in the cloud and infrastructure space, according to Doyle. And companies also need more data analyst talent who can track, oversee, and make sense of the big data their technologies collect.

“Net new hiring is slower for sure, but there is still is not enough of the in-demand talent out there. Upskilling is key to solving this,” Doyle said. “There’s simply not enough people out there with those skills so we are looking at continuing to upskill and reskill people to get ready for the next avalanche of talent requests around AI and automation.”

According to the Top Employers Institute , a provider of human resources employee assessment programs, skills tech workers should attain in order to keep themselves competitive include:

  • AI, as demand on how to implement and manage it is growing fast.
  • Cloud architecture for those organizations that run on a multi-cloud platforms.
  • Cybersecurity, because the use of AI has created more viruses and phishing emails to compromise organization's data.
  • Python programming, because of its versatility to use for data analytics, web/software development, and AI.

Top tech jobs that are still high on the list for hiring and career growth include DevOps Engineer, IT Director, Cybersecurity Analyst, AI Developer, Data Analyst, and Cloud Engineer, according to Trevor Bogan, regional director of the Americas at the Top Employers Institute.

IT workers, in particular, need to stay on the skills “cutting edge,” Way said, and that means getting versed in AI.

“If they were someone who was in marketing, communications or customer service, etc, they should be getting literate in the AI space in terms of marketing, communications and customer support. All those areas,” Way said. “I don’t see that [companies are] not going to need more workers. I think they’re going to be doing quite a bit of hiring soon; it’s just going to be in a different area.”

  • Artificial Intelligence
  • Emerging Technology
  • Technology Industry

Senior Reporter Lucas Mearian covers AI in the enterprise, Future of Work issues, healthcare IT and FinTech.

Copyright © 2024 IDG Communications, Inc.

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