11:  On Our Jobless Recovery

William Krehm

I n The New York Times (5/10, “A  Missing Statistic: US Jobs that have  Moved Overseas”) Louis Uchitelle  boldly attacks a many-storeyed  problem without a ladder.

“The job market finally showed some  life in September, but not enough to  sidetrack a growing debate over why  employment has failed to rebound  nearly two years after the last recession ended. The debate intrudes  increasingly on election politics, but in  all the heated back and forth, an  essential statistic is missing: the  number of jobs that would exist in the  US today if so many had not escaped  abroad.

“The Labor Department, in its  numerous surveys of employers and  employees, has never tried to calculate  this trade-off. But the ‘offshoring’ of  work has become so noticeable lately  that experts in the private sector are  trying to qualify it.

“By these initial estimates, at least  15% of the 2.81 million jobs lost in  America since the decline began have  reappeared overseas. Productivity  improvements at home – sustaining  output with fewer workers – account  for the great bulk of the job loss. But  the estimates made suggest that the  work sent overseas has been enough  to raise the unemployment rate by  four-tenths of a percentage point or  more, to the present 6.1%.”

That however is just the ground floor  of our leaning edifice. But there is too  a vast educational and training structure developed in the early postwar  decades to educate and train the  skilled workers and engineers in the  developed countries. If we are out- sourcing more and more of our  semi-skilled and even skilled work, is  it not inevitable that we should have  less use for much of this infrastructure? And is this not a neglected  factor in its notorious deterioration –  from sheer crowded classes, ever  higher fees, increasing inroads of the  influence of corporations who are  expected to provide more of its  funding? Surely there is an important  interrelationship there. But economic  theory has been castrated to the point  that it does not even recognize the  role of human capital, though four  decades ago it was recognized as the  most productive of all investments.1  That leaves statisticians blind without  the assistance of seeing-eye dogs.

The relationship becomes still more  complicated when we recognize that  we depend for ever more of our  engineers, medical staff on the  emerging world. This represents a  depletion of their scarce human capital  while we are ever more niggardly in  developing our own. The flow is thus  a two-way affair, and should have a  place in the world’s capital flow  statistics.

But back to the Uchitelle article. “That  [job-] leakage fuels the political debate.  The Bush administration is pushing  the Chinese to allow their currency to  rise in value, thus increasing the dollar  value of wages in that country, a  deterrent to [the US] locating jobs  abroad. The Democrats agree, but  some also call for trade restrictions,  and they attack the Republicans for  cutting from the budget funds to  retrain and support laid-off workers in  the US.” That in fact should be  considered as demanding a recognition  of the capital loss suffered by the very  outsourcing process. It thus represents  a shift in capital losses to the public  sector and to society to increase the  bottom line of private corporations.

“While most of the lost jobs are in  manufacturing or in telephone call  centers, lately the work sent abroad  has climbed way up the skills ladder to  include workers like aeronautical  engineers, software designers and  stock analysts in China, Russia and  India.”

When the outsourcing was of low- skilled manufacturing jobs to overpopulated, emerging or Third World lands  like Mexico, Central America and the  Caribbean, one country was played off  against the other – for tax exemptions  that ruled out the physical and human  infrastructures required to support the  new urbanization arising from the  outsourcing. The result can be seen in  the maquiladora slums on Mexico’s  northern border. Today, however, the  outsourcing is to countries better able  to defend themselves, by independent  currency policies, and by utilizing the  levers of international policy – above  all in the case of China. It is visibly  becoming an ever-more complicated  game. And as such, it requires a far  more complicated accountancy to  keep track of its real net significance.  Above all the distinction between  current spending and capital invest- ment must be made.

Outsourcing then comes in a variety  of forms and with a whole gamut of  consequences.

“‘All of a sudden you have a huge  influx of skilled people; that is a very  disruptive process,’ said Craig R.  Barrett, CEO of Intel, the computer  chip manufacturer.

“Intel itself has maintained a fairly  steady 60% of its employees in the  US. But in the past year or so, it has  added 1,000 software engineers in  China and India, doing work that  might have been done by people hired  in the US. To be competitive, we have  to move up the skill chain overseas.”  Or otherwise expressed, move down  the chain of environmental and living  standards.

“The trade-off in jobs is not one for  one. The work done here by one  person often requires two or three less  efficient workers overseas. Even so,  the total saving for an American  company can be as much as 50%,  even allowing for the extra cost of  transportation, communication.”

What is not included in this estimate  is the cost to the general public in  taxation, inconvenience, and security  risk from congested airways, roads,  and seaports.

The Job Costs of Outsourcing

“The estimates of job loss from  offshoring are all over the lot. Among  professional economists the high-end  estimate comes from Mark Zandl,  chief economist at, who  calculates that 905,000 jobs have been  lost overseas since the last recession  began in March 2001. That is 35% of  the total decline in employment since  then. While most of the loss is in  manufacturing about 15% is among  college-trained professionals.

“Morgan Stanley, the investment firm,  is adding jobs in Mumbai, India, but  not in New York – employing Indian  engineers as well as analysts who  collect corporate data and scrutinize  balance sheets for stock market  specialists in New York. Lehman  Brothers, Citigroup and J.P. Morgan  are also setting up shop in India.

“Near the low end of the job-loss  estimates sit John McCarthy, research  analyst at Forrester Research Inc., and  Nariman Behravesh, chief economist  at Global Insights. For them the loss  is 5,000,000 to 800,000 jobs over the  past 30 months, again almost wholly  in manufacturing. Starting in January  2000 and running through 2015,  globalization of American production  will have eliminated 3.3 million jobs at  home, he estimates.

“Some are trying what amounts to  niche estimates. Roshi Sood, a government analyst at the Gartner Group,  for example, estimates very roughly  that state government cutbacks have  pushed overseas the work of 3,400  people once employed in the US,  either on public payrolls or on the  payrolls of companies that contract  with state government.

“In Indiana, for example, the Department of Workforce Development  recently chose an Indian company,  TCS America, to maintain and update  its computer programs, utilizing  high-speed telecommunications to  carry out the contract. The TCS bid  was $8 million below those submitted  by two American competitors.”

Trying to balance state budgets does  little for bringing down the US’s  worrisome international trade deficit.  At every level there is a simple- minded approach to problems of ever  more tangled complexity.

William Krehm

1. See Krehm, William, Price in a Mixed  Economy – Our Record of Disaster, Chapter  13.

- from Economic Reform, November 2004