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« Pundit Roundtable | WILLisms.com | Trivia Tidbit Of The Day: Part 248-- Meanest Cities To Homeless. »

Trivia Tidbit Of The Day: Part 247 -- Offshoring & Outsourcing.


Outsourcing. It was a buzz word during the 2004 campaign. It's still the focus of inordinate levels of media coverage. It is the root of (and symptom of) all economic problems in this country, according to some.

Outsourcing (or, to be more precise, "offshoring") is an easy issue to demagogue. After all, what politician is against Americans working? Who could possibly be for Indian or Chinese or Korean or Russian or Taiwanese people taking American jobs?

Well, economies are not zero sum. There are not a fixed number of jobs available in the world. Sometimes you need to shed some old jobs and industries to pave the way for newer, more productive ones. It's easy to see why protectionists can manipulate the public on this issue. It's difficult to explain in a 7-second soundbyte that creative destruction is a good thing-- and not just in the long run.

Outsourcing (again, it should really be called "offshoring") can be painful in the short term for those living in manufacturing/textile communities, but ultimately those jobs can and will be replaced with better, more modern ones.

And in the meantime, the net effect of outsourcing is positive for America-- and most Americans:

...overall net U.S. income rises by about 12-14 cents for every dollar of outsourcing (that is, gross income rises by $1.12-1.14).

But outsourcing isn't even as pervasive as many in the media insinuate:

Out-of-country relocations, whether within a company or to a different company account for only 1.6 percent of job separations in mass layoffs over the six quarters for which data are available (First Quarter 2004 to 2nd Quarter 2005).

Not a huge trend, really.

But it still dominated the news, especially near election day 2004. How convenient.


But wait, there's more (underlining mine):

Media reports in 2003 and 2004 paid a good deal of attention to private sector estimates that a large number of jobs had already been transferred overseas and that many more would be leaving in the years ahead. Probably the most widely-cited such figure was from Forrester Research, which estimated that a cumulative total of 830,000 U.S. jobs would be moved offshore by the end of 2005, and that a total of 3.4 million additional U.S. jobs would move overseas in the decade through the end of 2015 (these numbers are from Forrester’s May 2004 update of a November 2002 report). Other forecasts of the number of jobs lost to date to other countries were of roughly the same magnitude as Forrester’s estimate of nearly 30,000 jobs per month to be offshored in the future. Goldman Sachs, for example, calculated that about 10,000 jobs per month had been moved overseas in the three years before 2004, and that between 15,000 and 30,000 jobs would be offshored going forward....

These estimates of jobs lost to outsourcing were blown far out of proportion to their economic magnitude, which is actually quite small compared to the size of the U.S. labor market and its normal ebb and flow. As Baily and Farrell (2004) note, losses of even 30,000 jobs per month are tiny compared to the two million or more job changes that occur routinely in a single month in the United States: even at the height of the economic cycle of the late 1990’s, nearly 100,000 workers per month lost their jobs in mass layoffs. The forecast of 3.4 million jobs to be sent overseas by 2015 likewise seems modest compared to the more than 160 million jobs projected by the BLS to exist by 2015, and small even compared to the 35 million net new jobs gained over the past decade. And these 35 million new jobs were themselves the net result of much larger gross numbers of jobs gained and jobs lost.

AEI Online.


Previous Trivia Tidbit: Title IX & Collegiate Athletics.

Posted by Will Franklin · 15 January 2006 03:57 PM


Yay!...A WILLism! Hi Will...

Posted by: Zsa Zsa at January 15, 2006 06:24 PM

Well, when we talk about outsourcing at work, we mean outsourcing... not offshore outsourcing. That's because outsourcing tasks that aren't part of your core business (cafeteria, payroll processing, database management, etc.) usually does make good business sense. Those who get outsourced - in that they lose their jobs at the original company and now work for the contractor company - usually end up with less rich package of benefits and often get laid off because the contractors don't need those employees.

But then the talk of offshore outsourcing in the news get people to conflate the two. The two aren't actually that different conceptually, but it's emotionally easier to complain about the foreigners stealing your jobs versus other Americans with higher productivity taking over your jobs.

Posted by: meep at January 16, 2006 06:16 AM