11: On Our Jobless Recovery
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 economy.com, 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.
1. See Krehm, William, Price in a Mixed Economy – Our Record of Disaster, Chapter 13.
- from Economic Reform, November 2004