The Rational Outsourcing Blog

Thursday, May 24, 2007

Offshoring ≠ illegal immigration

I have been closely following the current immigration debate and I was disturbed to see illegal immigration and offshore outsourcing discussed in the same breath by many commentators. Let us not confuse the two: the first is illegal, the second is not only legal but in fact any limitations on outsourcing would probably run afoul of international free-trade agreements and could ruin the US economy.

It is amazing how shortsighted these opponents of outsourcing are. The United States counts for 12.06% of total world exports while China counts for 5.33% and India a miniscule 1.14%! [Data from “The Economist Pocket World in Figures” 2007 Edition] If the US initiates a trade war and disrupts the global trade environment it stands to lose more than 10 times as much as India. As I have written before, the last time the US turned protectionist, it slid into the Great Depression. Let us not repeat the same mistake again.

All this vilification of outsourced may even be completely counterfactual. Take a look at Robert Samuelson’s “What Offshoring Wave?” article in The Washington Post. He explains that only 4% of mass layoffs stemmed from offshoring. I must admit that there is a flaw in his argument: he is only looking at layoffs of 50 or more and it would have been much more interesting to look at all layoffs. However, there is no reason to believe smaller layoffs would have significantly different causes. Here are a few select quotes from Samuelson’s article:
For the United States, Kirkegaard examined a survey on "mass layoffs" from the Bureau of Labor Statistics to see how many stemmed from offshoring. The answer: 4 percent. That included both manufacturing and service jobs.

In 2004 and 2005, the BLS counted almost 1 million workers fired in layoffs of 50 or more. That isn't a huge number in a labor force of about 150 million. Moreover, most causes were domestic. The largest reason (accounting for about 25 percent) was "contract completion" -- a public works job done, a movie finished. Other big categories included "downsizing" (16 percent) and the combination of bankruptcy and "financial difficulty" (10 percent). Only about 12 percent of layoffs stemmed from "movement of work" -- a category that would include offshoring. But two-thirds of those moves were domestic.
It's true that offshoring doesn't measure the full impact of globalization on U.S. labor markets. That effect would also include trade and investment by multinational firms. Still, with the unemployment rate at 4.5 percent, it's clear that globalization hasn't crippled the U.S. job machine.
Losing a job is a wrenching experience for anyone, but the lesson here is that most job loss has local causes. The offshoring obsession reflects its novelty and the potential threat to white-collar jobs that seemed inherently safe from foreign competition. In our mind's eye, globalization is so powerful that it's sweeping everything before it. The reality is that, though globalization is increasingly important, it's still a weakling compared with the domestic economy. The antidote to job loss is job creation, and that depends decisively on national economic policies and conditions.

It's easy to blame all our economic anxieties and problems on globalization, because that makes foreigners and multinational companies responsible. Though satisfying, it will also be self-defeating if it diverts attention from fostering a healthy economy at home.

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