Three Stories on Outsourcing

Three Stories on Outsourcing

Jacob Sullum: Work Ethics

In any case, a job lost because of foreign competition is no more of a misfortune than a job lost because of productivity-boosting technology. Neither is it a stronger justification for crying foul and demanding the sort of government intervention that John Kerry seems to be contemplating when he promises to review all free trade agreements and faults President Bush's "secret plan to send more American jobs overseas."

That "secret plan" is neither secret nor a plan. As N. Gregory Mankiw, Bush's chief economic adviser, noted in February, it is simply "the latest manifestation of the gains from trade that economists have talked about" since Adam Smith: "When a good or service is produced more cheaply abroad, it makes more sense to import it than to make or provide it domestically."

In this light, Mankiw said, "Outsourcing is just a new way of doing international trade. More things are tradable than were tradable in the past, and that's a good thing."

Bruce Bartlett: Fighting back on outsourcing

A new study from the respected economic forecasting firm, Global Insight, found that the total number of jobs lost to IT outsourcing last year was only 104,000. This amounts to just 2.8 percent of IT jobs in the U.S. A much larger number were lost due to unrelated factors, including the collapse of the dot-com boom in 2000, the recession, and rising productivity.

The most important finding of the Global Insight study is that the cost savings from outsourcing don't just flow into higher corporate profits. They contribute significantly to higher output in the U.S., which leads to job increases elsewhere in the economy. The study estimates that the gross domestic product was $34 billion higher last year because of outsourcing and that this created over 90,000 net new jobs. These figures will continue to rise in future years. By 2008, GDP will be $124 billion higher and the number of new jobs created by outsourcing will rise to 317,000.

It's important to recognize that these new jobs are almost entirely outside IT. According to Global Insight, the largest beneficiary is construction, which will gain 75,757 net new jobs due to outsourcing. Other industrial gainers are transportation and utilities (63,513), education and health services (47,260), and wholesale trade (43,359).

Additional benefits of outsourcing are lower inflation, lower interest rates and higher real wages, which flow to all Americans. Global Insight gets these results because it looks at the ripple effects of outsourcing throughout the entire U.S. economy and not just on IT, as other studies often do.

Federal Reserve Governor Ben Bernanke also emphasizes the broader economic benefits of trade and outsourcing. The narrow focus on jobs tends to be misleading, he says, because much of the payoff accrues to consumers in the form of lower prices. Moreover, careful economic analysis has shown no relationship between jobs and trade in the aggregate. "There is little basis for blaming the recent poor employment performance on import competition," Bernanke concludes.

Faced with the reality that there was nothing they could do about outsourcing even if they wanted to, Republicans are slowly going on the offensive. Greg Mankiw was once again allowed to speak publicly. His colleague on the CEA, Kristin Forbes, made a forceful defense of free trade. And Treasury Secretary John Snow even spoke out in defense of outsourcing. It may not be enough to reverse the tide of public opinion, but it's a start.

The Heritage Foundation: Ten Myths about Jobs and Outsourcing

Myth #1: America is losing jobs.
Fact: More Americans are employed than ever before.

Myth #2: The low unemployment rate excludes many discouraged workers.
Fact: Unemployment is dropping, despite a surging labor force.

Myth #3: Outsourcing will cause a net loss of 3.3 million jobs.
Fact: Outsourcing has little net impact, and represents less than 1 percent of gross job turnover.

Myth #4: Free trade, free labor, and free capital harm the U.S. economy.
Fact: Economic freedom is necessary for economic growth, new jobs, and higher living standards.

Myth #5: A job outsourced is a job lost.
Fact: Outsourcing means efficiency.

Myth #6: Outsourcing is a one-way street.
Fact: Outsourcing works both ways.

Myth #7: American manufacturing jobs are moving to poor nations, especially China.
Fact: Nations are losing manufacturing jobs worldwide, even China.

Myth #8: Only greedy corporations benefit from outsourcing.
Fact: Everyone benefits from outsourcing.

Myth #9: The government can protect American workers from outsourcing.
Fact: Protectionism is isolationism and has a history of failure.

Myth #10: Unemployment benefits should be extended beyond 26 weeks.
Fact: Jobless benefits are already working

Conclusion

America's workers deserve a more informative, less partisan debate on outsourcing. The negative impact of outsourcing on the economy and American employment has been greatly exaggerated, and the benefits of outsourcing almost entirely ignored.