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Title: Economic Damage to US Economy from Offshoring Jobs May Be Exaggerated
Source:
Science Daily
URL Source: http://www.sciencedaily.com/releases/2012/04/120416150121.htm
Published: Apr 19, 2012
Author: Science Daily
Post Date: 2012-04-19 15:24:02 by jwpegler
Keywords: None
Views: 4418
Comments: 15
Sending jobs overseas may not be as damaging to the U.S. economy as commonly believed, according to a study by a University at Buffalo economist. Offshoring, the practice of moving specific operational tasks originally performed in one country to a new location abroad, is just another form of trade in goods and services, says UB economics professor Winston Chang, an expert in international economics. U.S. firms, in fact, become more efficient and competitive when offshoring savings are redirected to new areas of operation, new products and services, or invested in further research and development, Chang noted. Chang's paper, which appears online in the Social Science Research Network (SSRN), collects research from numerous studies supporting a conclusion long held by economists but not similarly embraced by the general public: that services offshoring has had a negligible impact on net employment and median earnings in the U.S. Although offshoring is blamed for a staggering quantity of job losses and has created heated debate in the media, Chang cites research that indicates the projected number of 3.4 million jobs offshored between 2002 and 2015 in nine occupational categories prone to offshoring is a miniscule 0.53 percent of the nearly 60 million jobs within those categories. "The potential job loss, though different among industries, is not as large as feared," said Chang. An annual loss of 100,000 service jobs is about 0.1 percent of total employment, according to studies. The possibility of that trend continuing, however, raises fears that most or all service jobs, which account for 70 percent of U.S. employment, could be eventually offshored. Chang says those concerns are both empirically and theoretically flawed. "Services such as catering, retail, hotels, restaurants, tourism and personal care, which require the buyer and seller to be present in the same place, cannot be outsourced," said Chang, referring to the argument's empirical mistake. "Furthermore, offshoring occurs mostly to mundane and standardized types of work. Complex jobs that require higher skills are more difficult to offshore. High-skilled workers benefit from the vast increase of low-skilled workers in the world. Offshoring promotes growth in developing countries, raising income and creating more demand for high-skill products." In addition, Chang noted that "a lot of transactions are not suited to the arms' length approach. Instead, they require the establishment of long and familiar business relations." The world is not flat in this respect, he said. By offshoring some stage(s) of production abroad, U.S. firms can create more domestic employment in other stages of production, Chang said. "The upstream blueprint designs and the vast downstream distribution and retail operations in the U.S. benefit from the possibility of offshoring some intermediate stages of such production as manufacturing and assembly operations." Cost-saving offshoring is the result of a foreign country's ability to produce a good or provide a service at a lower cost than a domestic firm, Chang said. But that level of foreign production superiority, although initially present, does not remain constant. It changes over time. Offshoring, Chang said, tends to narrow the wage gap of the same skill level between the advanced and developing countries. Consequently, offshoring's appeal diminishes as the gap continues to contract. "Offshoring has undoubtedly contributed to the economic growth of many developing countries, which has led to currency appreciation and higher standards of living," he said. "It is possible that we are about to see the tides turn as manufacturing activities are being 'reshored' back to the U.S. due to rising costs in these developing countries." GE is one of the firms to have pulled jobs back to the U.S. Sharp wage increases in India's IT sector, along with the U.S. recession and the decline of the U.S. dollar, in fact, led the company to dispose of back office operations that had been offshored to India, Chang said. One important point in the offshoring debate arises from suggestions of limiting or prohibiting the practice. Chang said U.S. companies would be placed at a strategic disadvantage in this competitive world. "One scenario envisions the eventual shut down of the U.S. firms due to its high costs or their migration to foreign countries to become foreign firms. The U.S. then may have more layoffs as a result of losing U.S. firms," said Chang. "To survive in the competitive international market, `strategic offshoring' is an important determinant in a firm's offshoring decision." The statistics and percentages, however, do little to ease the hardships of displaced workers and their families. Yet Chang says a review of the research literature reveals that about two-thirds of displaced workers are reemployed within two years. One study showed about half of those reemployed ended up with jobs that paid roughly as much or more than their previous positions, while the other half experienced wage cuts of 15 percent or more. Another study found that more than 75 percent of service workers who lost their jobs due to offshoring found new jobs within six months. The median wage of those reemployed, however, was 11 percent below their previous wage. Chang said despite those figures, displaced workers remain the most pressing concern about offshoring. Aside from unemployment insurance, there are programs currently in place to address the issue, including Trade Adjustment Assistance (TAA) which offers an additional 52 weeks of income support once displaced workers have exhausted their unemployment benefits. Other proposals on how to address and lessen offshoring's impact on social welfare include a wage insurance program that pays a 30 to 70 percent income subsidy to all involuntarily displaced full-time workers for lost wages over a two-year period. It is believed the cost, estimated as high a $7 billion, would speed reemployment. A private wage insurance program has also been suggested, Chang noted. It would require businesses to purchase insurance for displaced workers to cover lost wages during the median period of unemployment. Other proposals include granting R&D tax credits and removing foreign trade barriers against American exports.
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#1. To: All, Capitalist Eric, hondo68, A K A Stone, calcon, CZ82, sneakypete, buckeroo, (#0)
(Edited)
Excellent article. The real challenge that America faces is that the "public" (government monopoly) school system is doing a really lousy job of providing the core math, science, and language skills that one needs to become a high-skilled worker. To the extent that Americans become part of the long-term unemployed because of the offshoring of mundane jobs points to yet another failure of government -- the failed "public" school system.
Chang said despite those figures, displaced workers remain the most pressing concern about offshoring. Aside from unemployment insurance, there are programs currently in place to address the issue, including Trade Adjustment Assistance (TAA) which offers an additional 52 weeks of income support once displaced workers have exhausted their unemployment benefits. Other proposals on how to address and lessen offshoring's impact on social welfare include a wage insurance program that pays a 30 to 70 percent income subsidy to all involuntarily displaced full-time workers for lost wages over a two-year period. It is believed the cost, estimated as high a $7 billion, would speed reemployment. A private wage insurance program has also been suggested, Chang noted. It would require businesses to purchase insurance for displaced workers to cover lost wages during the median period of unemployment. Other proposals include granting R&D tax credits offshoring occurs mostly to mundane and standardized types of work Cherry picking the data, aka cooking the books. Chang's solution... Corporate Welfare The economy is crashing just fine without any more help, thank you. What's need is less government interference and micromanaging, not more boondoggles. How about eliminating the EPA, OSHA, and a few dozen other anti-capitalist, job killing, agencies? Not everyone is suited to, or wants, an exciting and fun filled job in the high tech field. Someone's got to produce the bean and bullets.
Obama's watch stopped on 24 May 2008, but he's been too busy smoking crack to notice.
We have lost millions and millions of factory jobs since the 1990's and that has NOTHING to do with education and EVERYTHING to do with trade policies.
You are 100% correct. (Part of that "trade policy" is the feral gooberment's purposeful destruction of the US Dollar.)
Spoiled, stupid and ignorant, brain dead phuckwads, libTURD fools, tools, and idiots, are the real sickness; the messiah "king" obammy and his regime are only the symptoms.
I know that if *I* were looking to get the straight scoop on the damage exporting all our manufacturing capabilities and jobs to China,the first person *I* would consult would be an Economics professor from Buffalo,NEW YORK named "Chang". They're not even pretending anymore,are they?
"It is impossible to talk reason with those who can only parrot Party Slogans." sneakypete Sept 2011 Stay Hungry...Stay Foolish --Steve Jobs Steve Jobs,life-long Dim,and major Barry Soetoro supporter.
You don't really think they would do that,do you? If we can't trust professors,CEO's,and elected officials to tell us the truth,who CAN we trust? Chang's solution... Corporate Welfare AKA: "Fascism".
"It is impossible to talk reason with those who can only parrot Party Slogans." sneakypete Sept 2011 Stay Hungry...Stay Foolish --Steve Jobs Steve Jobs,life-long Dim,and major Barry Soetoro supporter.
Jim is a collectivist. It's an emotional thing,and no amount of evidence will ever convince him otherwise.
"It is impossible to talk reason with those who can only parrot Party Slogans." sneakypete Sept 2011 Stay Hungry...Stay Foolish --Steve Jobs Steve Jobs,life-long Dim,and major Barry Soetoro supporter.
The article is mostly a puff piece of propaganda, but the meat of it is here: The long term program, worked out at the WTO and earlier GATT meetings is to reduce trade barriers. To do that they needed to take the US economy down a few pegs so the rest of the world could catch up. Wages are increasing in China, India, and so forth, while they are decreasing here, due to high unemployment. The decline in US wages was expected, offset partially by cheap imported goods. The international managers are bringing jobs back here, slowly, so the economy won't completely tank and highly skilled workers have something to do to maintain their skills. They did it before -- in postwar Japan, where there were trade barriers between prefectures. The study of that experience was published in a Fed. Res. document back in the '80s (the St. Louis Fed's brown papers, IIRC). One big difference is that Japan is a fairly homogeneous society. There are no issues of food or economic security between the prefectures. The globalists imagine that their world government will eliminate the need for food and economic security between countries; that's the working theory of most of those bureaucrats, anyway.
And the 10 000 Indians brought into Amerika by Infosys? Working at 1/5 the cost and not having a clue what their job was when their arrived? The Bottom 99% are being crushed and the truth replaced by silence is evil.
I absolutely agree. I'm just trying to point out that one needs to be skilled to make good money, and that the government monopoly schools are failing to create skilled people. The entire education system needs to be privatized.
The article is about service work, not manufacturing. Let's talk about manufacturing. Some manufacturing (like textiles) requires few skills and can be done anywhere. Americans can no longer expect to make middle class incomes doing mundane, low skilled repetitive work. The loss of high tech manufacturing jobs is more disturbing. The government is clearly to blame. It cost Intel $4 billion to open a new tab in America. 25% of that cost is regulatory and tax burdens. Those burdens are much less in China and Taiwan. One cannot be an illiterate, ghetto-talking dumb ass and get a job in a fab. So education is very important here as well.
The article is about service jobs, not manufacturing. Thank you and News Junky for illustrating my point about illiteracy.
He specifically mentions manufacturing in the article.
Americans NEVER earned even lower-middle class incomes working in textile mills. Shift supervisors maybe earned 2 dollars above minimum wage,and regular workers earned right at minimum wage to start and maybe a dollar above that after they gained experience. Still,it was a living in many rural areas with no other jobs. Especially when a man and his wife both worked there and combined their incomes.
"It is impossible to talk reason with those who can only parrot Party Slogans." sneakypete Sept 2011 Stay Hungry...Stay Foolish --Steve Jobs Steve Jobs,life-long Dim,and major Barry Soetoro supporter.
Shhhhh! You will have him crying first thing you know.
"It is impossible to talk reason with those who can only parrot Party Slogans." sneakypete Sept 2011 Stay Hungry...Stay Foolish --Steve Jobs Steve Jobs,life-long Dim,and major Barry Soetoro supporter.
offshoring occurs mostly to mundane and standardized types of work. Complex jobs that require higher skills are more difficult to offshore. High-skilled workers benefit from the vast increase of low-skilled workers in the world
Iran’s main drive for acquiring atomic weapons is not for use against Israel but as a deterrent against U.S. intervention -- Major General Zeevi Farkash, head of the Israeli Military Intelligence Directorate
#2. To: jwpegler (#0)
in nine occupational categories prone to offshoring
"We (government) need to do a lot less, a lot sooner" ~Ron Paul
#3. To: jwpegler (#1)
#4. To: NewsJunky (#3)
We have lost millions and millions of factory jobs since the 1990's and that has NOTHING to do with education and EVERYTHING to do with trade policies.
#5. To: jwpegler (#0)
#6. To: hondo68 (#2)
Cherry picking the data, aka cooking the books.
#7. To: NewsJunky, jwpegler (#3)
We have lost millions and millions of factory jobs since the 1990's and that has NOTHING to do with education and EVERYTHING to do with trade policies.
#8. To: jwpegler (#0)
(Edited)
One study showed about half of those reemployed ended up with jobs that paid roughly as much or more than their previous positions, while the other half experienced wage cuts of 15 percent or more. Another study found that more than 75 percent of service workers who lost their jobs due to offshoring found new jobs within six months. The median wage of those reemployed, however, was 11 percent below their previous wage.
#9. To: jwpegler (#0)
#10. To: hondo68 (#2)
What's need is less government interference and micromanaging, not more boondoggles. How about eliminating the EPA, OSHA, and a few dozen other anti-capitalist, job killing, agencies?
Iran’s main drive for acquiring atomic weapons is not for use against Israel but as a deterrent against U.S. intervention -- Major General Zeevi Farkash, head of the Israeli Military Intelligence Directorate
#11. To: NewsJunky (#3)
We have lost millions and millions of factory jobs since the 1990's and that has NOTHING to do with education and EVERYTHING to do with trade policies.
Iran’s main drive for acquiring atomic weapons is not for use against Israel but as a deterrent against U.S. intervention -- Major General Zeevi Farkash, head of the Israeli Military Intelligence Directorate
#12. To: sneakypete (#5)
exporting all our manufacturing capabilities and jobs
Iran’s main drive for acquiring atomic weapons is not for use against Israel but as a deterrent against U.S. intervention -- Major General Zeevi Farkash, head of the Israeli Military Intelligence Directorate
#13. To: jwpegler, SneakyPete (#11)
(Edited)
Cost-saving offshoring is the result of a foreign country's ability to manufacturing activities are being 'reshored' back to the U.S. due to rising costs in these developing countries."
#14. To: jwpegler (#11)
Americans can no longer expect to make middle class incomes doing mundane, low skilled repetitive work.
#15. To: NewsJunky, jwpegler (#13)
He specifically mentions manufacturing in the article.
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