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In My Room » 2004 »

Archive for February 21st, 2004

Thoughts on offshoring and the economy

Feb 21, 2004 in Current Events


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IANAE (I am not an economist), but…

The Economist has a lead article this month about the outsourcing of jobs to countries like India and China. Predictably, most people’s reaction to this has been quite negative, and politicians on both ends of the political spectrum seem to agree.

My reaction was the same at first, the sense of dread derived from the thought of America’s economic race to the bottom. But considering that economists across the board seem to agree that offshoring can be a good thing, I’m not so sure anymore.

According to the article, outsourcing (or offshoring) has been going on for a long time, and up until now, it has mostly been industrial and manufacturing jobs. The disappearance of manufacturing jobs hasn’t killed our economy, so it seems unlikely that exporting white-collar jobs will either.

From an economic standpoint, offshoring will ultimately lower prices here in America, and as a result, some of the new jobs that will be created will be high paying ones, primarily in the tech sector.

But the thing that concerns me (and many other people) is the fact that many of the manufacturing jobs here that went to other countries were replaced by lower-paying service-sector jobs. In other words, when one’s manufacturing, accounting, or coding job goes overseas, the jobs that replace them can and have included Walmart (which benefits greatly from lower prices) and McDonalds.

Another point the article makes is that of job churning. The numbers indicate that far more jobs are created than destroyed in the American economy, and on average, the number of jobs going overseas are a drop in the bucket compared to the number that are destroyed each and every quarter. This is convincing evidence indeed.

The author points to the rising percentage of Americans in the workforce as a positive sign, proof that America does create enough jobs. But what’s overlooked is that since the 1980’s, the number of Americans in the workforce has expanded because it became necessary to have two-earner familes, and older workers are continuing to work well past retirement age.

Ultimately it’s an issue of living standards for the middle classes, and this is the feeling, i think, that’s driving the opposition against the offshoring trend. It’s encouraging to know that many high paying jobs are created as a result of the competitiveness of offshoring, but not everyone is qualified or even interested in becoming an IT specialist or database admin. Even today, only 25% of the American population has a college degree. The 55% that are high school graduates are gradually seeing their employment choices limited to relatively low-paying service-sector work.

It seems though, that the trend towards offshoring is inevitable, and the changes that negatively affect individuals are likely to continue. The author leaves a final bit of wisdom, which would be prudent for our future president to heed (emphasis mine):

“Yes, individuals will be hurt in the process, and the focus of public policy should be directed towards providing a safety net for them, as well as ensuring that Americans have education to match the new jobs being created.”

As a final note, education is often touted as the panacea for American job growth in the face of offshoring. While more Americans are going to college, many are finding themselves swamped with student loan debt. Since it’s becoming necessary to get a college education to compete in a global economy, government would be well advised to make it more affordable for Americans to go to college.

This goes along with my thought that the money from Bush’s record deficit-causing tax cuts would have been put to better use by extending unemployment benefits and alleviating the fiscal crunch that all states are suffering from right now. The resulting budget cuts are the main reason why my (and your) college tuition has been increasing.