http://www.boston.com/business/artic..._as_a_problem/
Economists: 'Offshoring' overblown as a problem
By Stephen J. Glain, Globe Staff, 3/13/2004
WASHINGTON -- Only in an election year could something statistically insignificant assume seismic proportions.
The phenomenon known as ''offshoring" -- the outsourcing abroad of white-collar work -- represents a tiny proportion of total US employment, say most economists. What's more, the downsizing of manufacturing jobs is taking a heavier toll on Asian workers -- the ones allegedly stealing so many American paychecks -- than their US counterparts.
''The popular explanation for the decline in US manufacturing payrolls is that American workers are being categorically replaced by workers in China and other parts of Asia," according to an October report by Alliance Capital Management L.P. ''In truth, factory jobs have been slashed not only in America and Europe, but in Asia as well."
Federal Reserve chairman Alan Greenspan has criticized trade barriers twice this week, once before Congress and again yesterday at an appearance at Boston College. The specter of jobs migrating overseas, intensified by a robust economic recovery that has failed to stimulate employment growth, also has emerged as a red-hot campaign issue.
With eight months to go before the election, the fortunes of several tight races -- including President Bush's reelection bid -- are shifting in part on the government's monthly jobs report. Since September, the economy has averaged only 60,000 new jobs each month, well below the 200,000 or so economists say should be created at this stage in an economic recovery.
That has put Republicans -- traditionally the party of ''the borderless economy" -- on the defensive. Despite Bush's defense of his economic policies this week in a speech in job-starved Ohio, some GOP candidates are backing away from the party's embrace of open markets and endorsing the kind of restrictions on trade and global outsourcing usually associated with Democrats.
''If NAFTA came up today, we might get 20 votes for it," said Stephen Moore, a director at the conservative Club for Growth, referring to the North American Free Trade Agreement.
Much has changed since the booming 1990s, when free trade was embraced by both Democrats and Republicans. Congress, with President Clinton's endorsement, approved NAFTA and the exodus of low-margin goods, such as textiles and circuit boards, was generally accepted as a fair price for sustained growth.
No longer. A survey conducted last month by the University of Maryland found support for free trade declined from 1990 to 2004, though most rapidly among high-income respondents. Among Americans making more than $100,000 a year, according to the survey, support for the continued promotion of free trade declined from 57 percent to 28 percent.
Though figures on how many jobs have flocked overseas are scarce, economists from across the political spectrum say it would be a mistake to blame global outsourcing for sluggish job growth in both the service and manufacturing sectors. Forrester Research, an independent technology firm based in Cambridge, estimated in a November 2002 report that 3.3 million service-industry jobs would be relocated abroad by 2015, compared with the 108 million service-related positions that existed as of January.
Despite the exodus of call centers and medical transcriptions to such low-wage countries as India, America's financial sector, architectural-engineering industries, and computer-science businesses actually posted employment gains between 1999 to 2003, according to the Institute for International Economics. Less than 5 percent of jobs associated with the nation's $200 billion-a-year information technology industry have migrated overseas, says Daniel Griswold, associate director at the conservative Cato Institute.
''The anxiety over outsourcing is based entirely on anecdotal evidence," said Griswold. ''There is little evidence the US economy is losing a large number of jobs from trade."
Not everyone agrees. Robert Scott, an economist at the prolabor Economic Policy Institute, says the Forrester conclusions are based on shallow research. He blames NAFTA for destroying some 1.7 million American jobs between 1993 to 2002. ''The standard theory that moving jobs offshore provides a net gain in the end is in fact killing jobs and driving wages down everywhere," Scott said.
In fact, jobs extinguished in America aren't likely to be resurrected elsewhere, according to an October report by Joseph Carson, an economist at Alliance Capital Management. Carson concludes that employment in global manufacturing is declining worldwide, including in China. Between 1995 and 2002, the Carson study finds, industrialized countries shed some 22 million factory jobs. The US lost 2 million of those jobs, in line with the global average of 11 percent, compared with China's 15 percent.
The cause of such downsizing, says Carson and other economists, is less outsourcing than a dramatic rise in productivity. Although factory employment worldwide fell by 11 percent, according to Carson's study, industrial output rose by 30 percent. In the United States, where industry is still cutting jobs in the wake of the roaring 1990s, productivity since 2000 has increased annually by 3.7 percent, as employers do more with less.
If jobs located overseas represent a fraction of total employment, according to Catherine Mann, a senior fellow at the Institute for International Economics, they have reaped impressive dividends. In a paper released Wednesday, Mann argues that the exodus of information-technology work overseas will actually fuel economic growth by making it cheaper for US companies to develop and integrate the software systems they need to do business. ''Globalization of software and IT services will yield even stronger job demand in the United States for IT-proficient workers," said Mann. ''And enhanced productivity growth will lead to better wages and rising living standards."
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