Outsourcing

Exploding the Myths of Offshoring

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That new jobs will be created as old ones disappear is not an article of faith; it is based on experience. Most recently, in the 1990s, trade expanded rapidly, and the offshoring of manufacturing and service jobs increased. At the same time, overall employment soared, unemployment fell to 4 percent, and real wages rose.

Even on conservative estimates, for every dollar offshored, an extra 45 to 47 cents of value will be created in the US economy as labor is redeployed. (Lori Kletzer, of the University of California-Santa Cruz (and formerly of the Bureau of Labor Statistics), reports that from 1979 to 1999, 69 percent of nonmanufacturing workers who lost their jobs because of free trade found new ones within a year, and on average they earned 96.2 percent of their previous wages. These figures, combined with the fact that 72 cents of every dollar offshored had previously been spent on US wages, mean that the additional value to the US economy from redeploying workers would be 45 to 47 cents.) White-collar employees who hold the types of jobs now being moved offshore are generally more highly educated and tend to find jobs faster than do workers in the service sector as a whole. Far from being bad for the United States, offshoring creates net value for its economy — to the tune of $1.12 to $1.14 for every dollar that goes abroad.

Putting Offshoring in Perspective
Offshoring's impact on employment calls for a rational assessment. Forrester Research predicts that, by 2015, roughly 3.3 million US business-processing jobs will be performed abroad. (John C. McCarthy, "3.3 Million US Services Jobs to Go Offshore," Forrester Brief, November 11, 2002.) Although this number might seem startlingly large, it is only a small piece of a much larger picture.

The United States today has more than 150 million employed workers. Technological change, economic recessions, shifts in consumer demand, and other changes make jobs turn over constantly, so that each month roughly two million people in the United States change them. Even the gloomiest predictions suggest that the number of jobs lost to offshoring will be far lower. It will also be small compared with the mass layoffs prompted by corporate mergers and restructuring when the economy grows. (The Bureau of Labor Statistics defines a mass layoff as 50 or more worker claims against an establishment's unemployment-insurance account during a five-week period.) In 1999 alone — at the peak of the economic bubble — 1.15 million workers lost their jobs through mass layoffs as companies restructured operations. Job churn is part of life, even in a growing economy.

Liberalized, competitive economies that have flexible labor markets can cope with the natural process of job creation and destruction, and the US economy, the world's most dynamic, is arguably in the best position to do so. According to the Organisation for Economic Cooperation and Development, the United States has the highest rate of reemployment of any OECD country by a factor of almost two. Over the past ten years, 35 million new jobs have been created, and, according to the OECD, job growth was fastest in high-wage occupations.

A flexible job market and the mobility of US workers, along with the entrepreneurial and innovative spirit of US businesses, will enable the United States to generate new jobs faster than offshoring eliminates them. Consider the way the US semiconductor industry reinvented itself after losing out to Japanese competitors, in the late 1980s. The Japanese quickly dominated many segments, including memory chips, and spurred a public outcry over unfair competition and the loss of high-paying white-collar US jobs. The big US players — Intel, Motorola, and Texas Instruments — abandoned the dynamic-random-access-memory (DRAM) business. But this exit prompted them to invest more heavily in the production of microprocessors and logic products — the next growth wave in semiconductors. Intel and Texas Instruments became the significant global forces in microprocessors and digital-signal processors (the "brain" in mobile telephones), respectively. Motorola gained a strong position in microcontrollers and automotive semiconductors. Throughout this shift toward higher-value-added activities, the total number of US jobs in semiconductors and closely related electronics fields held constant, at around half a million. (Employment data from the Semiconductor Industry Association and the Bureau of Labor Statistics.)

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