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Offshoring is Bad, Right?

Listening to the current attacks that the left and right are throwing at their presidential candidates recently would make one assume that offshoring jobs to other countries is a terrible thing for the US. But when the facts are examined, that may not actually be the case.

In a recent examination of 58 US manufacturing industries from 2000 to 2007, three economists at the London School of Economics Center for Economic Performance found out some very interesting facts.

  • For every job sent overseas, a 1.72 percent increase in employment occurs in the United States.
  • Offshoring tends to push native U.S. workers toward more complex jobs, while offshore workers tend to specialize in less-skilled employment.
  • Increased productivity and reduced costs from off-shoring lead companies to expand domestic hiring enough to more than offset the jobs lost to workers overseas.
  • Every 1 percent increase in immigrant jobs boosted aggregate employment for American-born workers by 3.9 percent.
Further
"Offshoring has no effect on native employment in the aggregate," the authors said. "While offshore workers compete directly with natives, their employment generates productivity gains that 'increase the size of the pie,' leading to an overall neutral impact on native employment."

So, contrary to the popular belief that offshoring cuts the U.S. workforce, "manufacturing industries with a larger increase in global exposure (through offshoring and immigration) fared better than those with lagging exposure in terms of native employment growth," the researchers concluded.

Now, this isn't all industries and it does make a distinction between horizontal and vertical offshoring, but these things do bear out investigating further. Instead, politics in America is much more like Chicken Little than to allow that. Maybe that is why a London UK based group had to do the work? What we see here is McCarthy-like xenophobia against things that once deemed to be bad (for whatever valid or emotional reason) is never questioned again and used as an attack club on anyone who might be a political opponent.

I'm reminded of the trailer for the new Will Farrel/Zack Galifianakis movie "Campaign" where Will's character points out that his opponenet's pugs are 'chinese' and then later Zack's character is accousted by a man yelling 'Get an American Dog!'

Posted by Rhinehold at July 18, 2012 4:43 PM
Comments
Comment #348768

Rhinehold do you have a link to this study?

Posted by: j2t2 at July 18, 2012 6:53 PM
Comment #348778

Sorry, thought I had included that in the link, my editor must have eaten it…

http://cep.lse.ac.uk/pubs/download/dp1147.pdf

I’ll add it back into the article where it was supposed to be as well.

Posted by: rhinehold at July 18, 2012 8:54 PM
Comment #348846

rhinehold, Before throwing some figures around re offshoring let’s consider the broader implications of globalization. Today I noted a congressperson asking a TSA rep if the US was safe from another incident similar to 911 where planes were used as a weapon. Answer was – No.

After 911 some folks have been found to be in the US illegally and taking flight school training.

http://www.nytimes.com/2010/11/06/us/06flight.html

http://www.freep.com/usatoday/article/56304098?odyssey=mod%7Cnewswell%7Ctext%7CFRONTPAGE%7Cp

After 911 the gov’t was to certify universities involvement with student visas. Today, 19% have been certified.

http://www.thedailybeast.com/articles/2012/07/13/chicago-mayor-rahm-emanuel-is-latest-to-reject-secure-communities-immigration-law.html

http://www.chicagomag.com/Chicago-Magazine/January-2012/Gangs-and-Politicians-An-Unholy-Alliance/

We’ve got people of all stripes entering the US by walking in from Mexico. Thousands of tons of drugs have found their way to destinations across the country.

Then, we have the gov’t leasing the Interstates to foreign enties, trying to sell/rent port authority to foreigners, etc.

And, there are incidents like the Fort Hood Shooter.
Recently we’ve had Barclay’s bank involved with $5B fraud and HSBC who laundered billions for the drug cartels and terrorist organizations. Both are British companies, and one would assume, home to the ‘London School of Economics’ that you cite in your article.

The risk in globalization falls squarely on the US citizen/taxpayer. Whether it’s fiscal security, physical security or job security.

My thrust is that we can’t trust this Corpocracy/oligarchy to manage anything IN THE INTEREST OF THE CITIZEN/TAXPAYER. Yes, they COULD manage oversight of the student visa program but that is NOT IN THE INTEREST OF THE CORPOCRACY to do so, etc.

So, the Corpocracy herds them up and runs them overseas using taxpayer dollars to cement them in place, picking up the tab for their foreign advertising and right on down, write it off at taxpayer expense. Then, on the flip side you get GE paying no 2011 taxes and holding their profits offshore to preclude paying US taxes.

But, listen to the talking heads and all the corporations are all paying their 36%, etc. And, listen to the President as he will forego taxes on their US profits if they will ‘come back’ to the US. As usual, risk conveys to the taxpayer/citizen.

Over a couple of decades, and prior to the recession/depression, we built up a huge wealth inequality in the country
.
Here is a link from 2010 that tends to counter your position on outsourcing.

http://www.voxeu.org/article/new-evidence-international-trade-offshoring-and-us-wages

This link seems to refute that a near 2 for 1 gain in employment for each job sent overseas. Shows a rise in unemp yearly from 2001-08.

http://www.nidataplus.com/lfeus1.htm

I wouldn’t argue with you second bullet, pushing natives into more complex jobs. Even as the talking heads make out that we can’t survive without the ‘genius immigrants’.

Your third bullet seems to give reason to your first bullet. Again, BLS stats seems to be contrary to this bullet.

Bullet four: I can’t hang with the complexity of the presentation to make a statement as to their data. But, in just taking a common sense approach – if an increase of immigrant employment by 1% drives native unemployment up 3.9% then why are those figures not reflected in BLS data ? Unemp keeps going up from 01-08 while we were taking on some millions of immigrants.

I suppose that if we are told, year over year, that offshoring is good then we will come to believe it at some point. But, I suspect I will be among the last to ‘see the light’, IMO.

Otherwise - - -

Posted by: Roy Ellis at July 18, 2012 10:57 PM
Comment #348850

drives native unemployment up 3.9% to drives native employment up 3.9%

Posted by: Roy Ellis at July 18, 2012 11:35 PM
Comment #348881

Congratulations. You have one study of 58 companies. I guess that’s conclusive, beyond a shadow of a doubt.

I’m snarking. While I don’t begrudge all outsourcing, I think it’s highly overrated, and unnecessary if you’re already making a profit. Sometimes its a matter of whether you can really train people do to do the job as well. Sometimes its a matter that you’re splitting up jobs that might be better done in country. And sometimes, quite plainly, you’re losing money to transport goods longer distances.

I think its worth discussing things also in terms of whether everybody can aspire to the more sophisticated jobs, and whether we’ve got the kind of educational attitudes in general for encouraging kids to become brainier.

Posted by: Stephen Daugherty at July 19, 2012 5:24 PM
Comment #348882

Well, it wasn’t 58 companies, it was 58 industries that made up the entire US industrial sector. But I agree this doesn’t mean that all Offshoring is good, but it does point out that it isn’t necessarily bad either. It depends. My point is that we can’t just make blanket attacks on people based on whether they offshored or not. And in the end, it’s really the businesses’ decision to make, not ours.

Posted by: Rhinehold at July 19, 2012 7:12 PM
Comment #348906

Export shipping is relatively cheap via ships returning to China. That’s why it cost less to ship a bale of hay to Asia than it is to ship it a hundred miles down the road.
http://www.bloomberg.com/news/2011-08-09/hay-cheaper-to-ship-to-china-than-california-hits-dairies-freight-markets.html

And, monopolies/conglomerates are not healthy for a democratic republic. We used to realize that as we can recall the anti-trust breakup of big oil and others. That was before corporations became ‘too big to fail’. Then came Regan, era of greed and so on …

Anti-trust was put in the closet so US corps could go overseas and duke it out with the biggest of them, leading to more monopoly/conglomeration. Allows US multinationals to play off their foreign hosts against US interest where it suits them.

Fair/Free Trade is such a misnomer as to be fallacious. If your little town doesn’t want a Walmart then Walmart, along with a WTO lawyer will show up to sue your mayor. If Pepsi wants to set up in Mexico powers to be will burn you out. http://www.industryweek.com/global-economy/us-contact-mexico-over-pepsi-subsidiary-attacks

Or, just manipulate the system and bleed you to death - http://articles.latimes.com/2011/jun/21/opinion/la-oe-navarro-trade-china-20110621

China, with a GDP about 3X the US is still receiving US foreign aid -

http://news.investors.com/article/560621/201101211919/editorial-why-does-the-us-still-give-china-aid-.htm
-
Just postulating the situation - the recent storms put the power out for millions and angry voices rose up against, almost always, a lone provider of electricity for a given area. Little monopolies, all across the US. Much like the cable TV industry. ComCast is one of the larger monopolies as I am aware.

Amazingly, even today, many have no Internet or, are tied to dial up. We all appreciate a sensible working relationship between gov’t and industry. Think TVA. Would it have not made more sense to lay in an infrastructure for fiber cable where six or eight fibers were laid in parallel to every joint in the US? By so doing several cable companies could compete for your business.

And, instead of a business model based on good service with built in efficiency and quality, the monopoly sets up foreign call centers to ‘service their customers’. Today, I spent more than an hour on the phone with an Asian person whom I assumed to be in China. My cell phone cost and personal time trying to get across that COMSAT had sent me a cable modem instead of a wireless adapter and I wanted to exchange it. I was paying for Internet service for a wireless modem hookup. Yet, to make the exchange of equipment the call agent wanted me to pay a $10 shipping charge. After an hour of push this number or ‘hold please’ I was told to go to a local store 50 miles from my location and pick up a unit to avoid the shipping charge.

Just one of a zillion ways the globalised world is harmful to the US. Through globalization inequality has ramped up sharply. Through every means, many illegal under US and WTO rules, corps have manipulated, innovated, monopolized/conglomerated, streamlined production/mfctring and have gotten the last squeal out of the pig to the detriment of the taxpayer/consumer/citizen.
Monopoly/conglomerates don’t need to spend on R%D, can reduce the number of employees through highly efficient production/mfctring, spend way less for labor, and, AND, keep their products priced at the very high end as they have little competition. Therein lies the reason for such inequality.

IMO, this is not a measure of a ‘good’ or ‘bad’ business model. This is a disaster waiting to happen. These chickens will come home to roost pdq.

Allow me to digress – clear my craw for a minit – the ACLU is suing Michigan for ‘failing to give their school children the right to learn to read and write’. Drug cartels that are ‘too big to fail’. A gov’t that can’t handle the tracking of student visas or firearms sold to druggies, can’t tell who is in this country, how many are here or, why they are here. And, they will sue your state to keep it that way.

We need this 535 to move on. I would hope readers would eagerly work to remove incumbents from office in large numbers this November (voidnow.org). Also, consider supporting reform groups such as the Republic Sentry Party, Move To Amend, Reclaim Democracy, Friends of Article V Convention (foavc.org) and so on - - -

Otherwise, we have the Corpocracy we deserve.

Posted by: Roy Ellis at July 20, 2012 12:00 AM
Comment #348908


For every job sent overseas, a 1.72 percent increase in employment occurs in the United States.

Rhinehold discovered the solution to our employment problems. We ship 100 jobs overseas, and we will increase domestic employment by 172%.
Not a bad deal at all.

Of course the report actually doesn’t say that. But that brings me to a second point.

Offshoring tends to push native U.S. workers toward more complex jobs,

What happens to the population of the United States who are incapable of doing complex jobs, which are lacking in or will never obtain basic skills, let alone complex skills?

Posted by: Cube at July 20, 2012 3:18 AM
Comment #348938

Cube, good points. We sorely do need a centrist driven 3rd party to sort things out and get us back on the right track, IMO.

This fair/free trade thing is way ridiculous. Consider that in the US no matter how much oil we produce we pay a ‘global’ price for it. Yet, a gallon of gas in Saudi Arabia is 48 cents, etc. Gotta luv that offshoring/free trade/globalizing stuff.

http://www.csmonitor.com/World/2012/0229/World-s-cheapest-gas-Top-10-countries/Saudi-Arabia-0.48-per-gallon-0.13-per-liter

Otherwise - - -

Posted by: Roy Ellis at July 20, 2012 2:37 PM
Comment #369892

The so called champion of business Mr. Bloomberg is moving an additional 400 high-end analyst jobs to Wipro India- total NY jobs outsourced just to one off shoring agent exceeds 1000- what hypocrisy!

Posted by: Ginni at August 26, 2013 8:53 AM
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