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Outsourcing seen boosting wages at home: study
By Ros KrasnyFri Aug 25, 12:03 PM ET
Take that, Lou Dobbs. Despite much handwringing and political posturing, the surge of job outsourcing, by increasing productivity, has actually helped raise real wages for low-skilled U.S. workers, according to two Princeton University economists.
They countered critics of outsourcing, including high-profile CNN host Dobbs, who charge that transferring U.S. jobs abroad hurt American workers' well being.
Taking a swing at conventional wisdom, Princeton professors Gene Grossman and Esteban Rossi-Hansberg argued that wages for the least-skilled blue collar jobs had been rising since 1997 as outsourcing boosted productivity.
The professors presented their paper on Friday at the Kansas City Federal Reserve conference in Jackson Hole, Wyoming. The meeting's theme, "The New Economic Geography," comes at a time when some fear that the United States is becoming trapped in a wages-prices spiral to the bottom by cheap labor in India and China.
The Princeton economists contend that many observers tended to gloss over the productivity benefits involved in the offshoring of labor.
They presented evidence that the productivity effect had helped raise real wages for the least skilled among U.S. blue collar workers -- those who do jobs most likely to be shipped overseas -- by about a quarter of a percent per year between 1997 and 2004.
Grossman and Rossi-Hansberg said critics of outsourcing had latched onto "incomplete" evidence that the low-wage labor abroad reduces low-skill wages or increases unemployment in the United States.
Rising productivity associated with U.S. firms' moving some tasks offshore "have served to bolster U.S. wages ... contrary to the fears of Lou Dobbs and others," they said in reference to the high-profile CNN anchorman who has waged a campaign against outsourcing of U.S. jobs. Outsourcing has also been a political hot-button issue in the United States during recent election cycles.
Those wage gains are "far from exceptional" but not as bad as might be expected based on the improvement in U.S. terms of trade with non-industrialized countries, they said.
TIME FOR A NEW PARADIGM
Grossman and Rossi-Hansberg argued that the core of international trade theory needs updating because of changes in the nature of production made possible by the Internet and cheaper transportation, among other factors.
"We need to move away from the traditional approaches to trade in which only goods can be exchanged internationally, and move toward a new paradigm," they said.
Increasingly, the economists said, global trade involves not only complete goods but individual tasks or relatively small numbers of tasks, which for the first time allows for specialization without geographic concentration.
"This has allowed firms to take advantage of differences in factor costs and expertise across countries, thereby enhancing the benefits of specialization," they said.
great thread
i remember in 2004 i saw a stat that said outsourcing is @ 1%
I read Thomas L. Friedman's "The World is Flat: Updated and Expanded" a few months ago. The book's central theme is how outsourcing is difficult, but ultimately beneficial for America and American citizens. This study falls in line with his predictions. It's a very interesting read, and he's added a lot of new interesting content that makes the book apply to individuals as well as corporations and nations. I believe the book has been on the bestsellers list now for over a year. It was in the top five a few weeks ago. I highly recommend reading it. It makes sense of the important economic changes currently taking place and describes them in laymen's terms.
Over 150 years ago, more than 80% of our economy was devoted to farming and our population was barely 100 million people. In other words, 150 years ago, 4 people were required to feed 5.Thomas Jefferson was warning about the loss of farmers, nearly 100 years before there were more people in the city than on the farm.
Over 150 years ago, more than 80% of our economy was devoted to farming and our population was barely 100 million people. In other words, 150 years ago, 4 people were required to feed 5.
Today, our population is at 300 million and barely 5% of our population is involved in farming (about 15 million people). This means that it now takes 1 person to feed 20.
Not coincidentally, the life expectancy of Americans also increased. Because of more efficient means of producing food, we eat better, which helps us live longer.
The price per performance ratio of computers has declined by a factor of over 1,000 in the past twenty years. The result is that more jobs have been created.
Finding examples that could benefit from increased efficiency is not hard, especially if one thinks of government spending. Those who propose more efficient means of educating our youth, for instance, are often accused of cheating children out of an education. Nothing can be further from the truth. The fact is, that inefficient government spending on programs that are shown to be ineffective, or in need of overhaul "crowds out" dollars that could be used in private investment. Many times, those that cry that "more money is needed" for this government program or that, have a vested interest in preserving the status quo, rather than serving the public good.
