Wednesday, June 11, 2008

Hype About Outsourcing: Much Ado About Nothing

WSJ Blog -- A pair of economists have challenged the notion that outsourcing threatens U.S. service-sector jobs, arguing that headline-grabbing estimates of tens of millions of at-risk jobs ignore the positive effects of new services exports.

In fact, the “hype” concerning labor markets and outsourcing is “much ado about nothing,” economists Runjuan Liu of the University of Alberta and Daniel Trefler of the University of Toronto wrote in a NBER paper posted this week.

The economists looked at China and India because their low-wage, high-skilled workforces make them attractive places to outsource services jobs.

Number-crunching data from the Current Population Survey between 1996 to 2006, they found a small positive net effect on U.S. labor markets from outsourcing and what they called “inshoring” — the sale of U.S.-produced services — with China and India.

From the NBER paper "Much Ado About Nothing: American Jobs and the Rise of Service Outsourcing to China and India:"

Turning to our results, we precisely estimate either small negative effects or zero effects of offshore outsourcing. We also precisely estimate small positive effects or zero effects of inshoring. The positive inshoring effects are either as large as or larger than the negative offshore outsourcing effects so that the net effect is either slightly positive or zero.

Since the small effects are precisely estimated we can say with confidence that even if service trade with China and India grows at its current clip, the labor market implications will be small. In short, there can thus be only one way of describing the hype surrounding the labor-market impacts of inshoring and offshore outsourcing services to China and India: Much Ado About Nothing.

9 Comments:

At 6/11/2008 9:21 AM, Anonymous Anonymous said...

If all the jobs were going to China in the last 20 years, wouldn't we have a higher unemployment rate?

Just another bug-a-boo from the Senator Dodd's and other populists in Washington.

It is often said that people never get along better than when they have a common enemy. This fear of the Other is very useful in changing the subject. You wouldn't want the electorate to actually look at the financial performance in Washington very closely.

 
At 6/11/2008 10:59 AM, Anonymous Dr. Steven J. Balassi said...

The United States has a comparative advantage in new technologies/ideas and financing them. Because of these two factors, our economy is able to create jobs in new fields as fast as we lose them. Some examples are biotech, computers, and green technologies. The underling issue is that to continue this trend, we need world class college graduates. Our education system has been on the decline and this hurts our future innovation prospects. We also need to encourage highly educated immigration. Otherwise, they will go work in other countries and we will lose their expertise.

 
At 6/11/2008 11:03 AM, Anonymous Anonymous said...

Isn't NBER the same organization that is telling us we aren't in a recession right now?

If outsourcing has no effect on jobs in the U.S. then what has caused the abrupt increase in gasoline prices?

Some people say increased gasoline prices are due to demand caused by people in countries that we've outsourced to wanting to live like we do.

The increase in energy costs has led to cutbacks and layoffs in various industries as well as heretofore unknown and unexpected hardship for lower income workers needing to commute. When one lives paycheck to paycheck and has little discretionary income there comes a point when staying home and collecting welfare provides a higher after tax take home income than working.

I'm all for business and believe that higher gasoline costs are good for us in the long run but to say that outsourcing has no effect on employment is completely wrong.

 
At 6/11/2008 12:35 PM, OpenID sethstorm said...

anon 9:21:
Their words make not even a dent beyond the economists and the business world. For what it's worth, it only sings to the converted. Globalization is not inevitable and it can be reversed.

Offshoring has been used largely without honesty. The intelligence of the people whom are offshored is highly underestimated. They can see a bad deal coming. Businesses will use coercion and deception in response. As a result, you're only going to empower Dodd, Dobbs, and others. That is a much larger problem than beating up another easy mark.

Explain why they have to use coercive force and deception to maintain offshoring. Then you can have a chance of making a dent in the proverbial Tin Man.

 
At 6/11/2008 1:30 PM, Anonymous E. Harokopos said...

Ooutsourcing in itself in no evil. It is its SIDE EFFECTS that can cause problems. Like when a friend called a US bank to check an account and he got this person in India she could hardly understand and who had no authority to check records and transactionsother than say: "Yi Si, Yi Si", "All is goo Si", "Tank you for coling ar Bunk Si",

After spending a considerable amount in overseas calling and not being able to understand the other side, he decided to pull out his money from what he thought was an American Bank but people sounded on the phone like something else.

I other words, outsourcing can kill your reputation, can steal your edge, and can drive you out of business in the long run for the benefit of short term gain.

 
At 6/11/2008 3:32 PM, Blogger bobble said...

well first of all, prof. perry, it actually pertains *only* to service job outsourcing, not all outsourcing. you might want to update the subject line to correct that little oversight.

i'd like to read the details of this study, as sometimes the headlines twist the actual findings. however, it's not free and i think their asking price of $5 is probably more than it's worth.

 
At 6/11/2008 3:42 PM, Anonymous Anonymous said...

You must be the focus of a broad neocon conspiracy, bobble, since I just downloaded the study by the extraordinarily-arcane method of clicking the hyperlink in Prof. Perry's post. You always have the most delicious inanities to offer.

skh.pcola

 
At 6/11/2008 5:29 PM, Blogger bobble said...

"I just downloaded the study by the extraordinarily-arcane method of clicking the hyperlink in Prof. Perry's post.'

LOL, i guess i'm just a dud. all i got by clicking on the post hyperlink is the *abstract* of the study and a hyperlink that would get me the actual study for $5.

"You always have the most delicious inanities to offer."

thank you

 
At 6/13/2008 1:48 AM, Blogger OBloodyHell said...

> Isn't NBER the same organization that is telling us we aren't in a recession right now?

Well, since we aren't by the true definition of it, what's the question? Having to drink "regular coffie" instead of spending $4 at Starbucks for a latte is not "in a recession".

> If outsourcing has no effect on jobs in the U.S. then what has caused the abrupt increase in gasoline prices?

What possible mental aberration would have you connect these two utterly unrelated events? That absurd argument that followed the statement above? Those areas were going to develop. Both India and China have relaxed idiotic social and economic policies in the last 30 years which had retarded their own growth to this point. They have their own internal markets which are each potentially close to four times our own. They didn't need US to get their industries going. We just make it easier.

> I'm all for business and believe that higher gasoline costs are good for us in the long run

Also demonstrating a marked lack of rational capacity.

> When one lives paycheck to paycheck

...one gets the kind of life one deserves. If you can't do without, then you're going to get screwed every time. And yes, there isn't a single person making minimum wage in this country who could not
a) move somewhere where minimum wage is less "borderline"
b) save money while making it, if they did without in order to succeed in the long run.

And the sort of income mobility which is displayed in the USA shows exactly that -- as some people who make notably less than one might desire still manage to Make It despite that fact, by using brains and determination to succeed.

 

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