Thinking About Offshoring
Offshoring is becoming a very hot issue indeed. As I discussed in a recent post, the offshoring issue is at the top of voters' economic concerns (along with health care costs). And, as I mentioned in another recent post, Bush's job rating on handling jobs and foreign competition is a bottom-scraping 28 percent, with 60 percent disapproval.
So: how to handle this? Obviously, Kerry and the Democrats are going to go after Bush for allowing the outsourcing trend to gather steam and link that to his overall lousy record on jobs.
That's the easy part and they should do it. Beyond that, however, to gain maximum political advantage from this issue, the Democrats will need a plausible program and compelling message around the issue.
To think this through, let's examine some of the basics around offshoring. Specifically, how big is the problem now and where is it going?
Since the peak in employment in March 2001, the US economy has lost 2.4 million jobs. But that actually understates the jobs deficit. Historical averages for normal postrecession job growth indicate that employment should be some 8 million higher than it was in January. But estimates of outsourcing, while imprecise, are in the low- to mid-six figures, suggesting that it can explain no more than a twentieth of our jobs problem. And in a more "normal" economy, the US economy would generate half a million jobs every two months. Something else is clearly awry.
The most widely cited projections for offshoring come from Forrester Research, which estimated in a November 2002 report that 3.3 million service-industry jobs would go offshore by 2015. That looks like a big number, but it needs to be put in perspective. In January the United States had 108 million service jobs. According to the Bureau of Labor Statistics, the economy should add 22 million jobs between 2000 and 2010 (almost all of them in services); if we stretch that projection to account for the additional years in the Forrester study, that's 33 million. So the best estimates we have are that the outsourcing total equals about one in thirty of today's jobs, or one in ten of the next decade's new jobs.
So offshoring, especially of service jobs, where much of the intensity of current concern comes from, is only a relatively minor contributor to our overall job problems and, projecting forward, seems unlikely to cripple US job growth in the future.
Why are people so worried then? I think the answer has to do with the type of jobs--service jobs, including highly-skilled ones--that are increasingly being lost. The numbers may not (yet) be large in absolute terms, but, as far as many Americans are concerned, the handwriting is on the wall: no jobs, including well-paid, highly-skilled, white collar ones, are truly "safe". That's quite anxiety-provoking for Americans who are used to thinking of manufacturing jobs disappearing and/or going abroad, but have assumed good white collar jobs, which could be accessed through obtaining more education, would, in the end, replace them.
Now people are thinking: "Maybe not!" And that's scary. As Lee Price and Josh Bivens of the Economic Policy Institute put it:
The offshoring of white-collar jobs could pressure labor markets for skilled professionals in much the same way that manufacturing trade pressured blue-collar labor markets for the past 20 years - by placing steady downward pressure on wages....The full impact of [this] phenomenon will be felt in the years to come as (1) a very large proportion of the jobs in America today could be done outside the country and (2) those jobs can be done much more cheaply abroad. In little more than a decade, governments of nations constituting more than half the world’s population (China, India, Eastern Europe) have decided to join the world market system. Those countries have large and rapidly growing pools of talented and educated people with much lower incomes than people with similar skills in the U.S.
(Gulp) Professional jobs getting into the same pickle (or even close to it) as blue collar jobs? Whodda thunk it?
In this context, let's consider what the Kerry campaign has put on offer. The centerpiece (so far) of their program in this area is a proposal to end tax benefits for companies investing abroad, coupled with a reduction in the domestic corporate income tax. Most economists sympathetic to the proposal see it as being somewhat effective at the margin in keeping some jobs in the United States, but unlikely to have a large effect on the long-run offshoring trend or (as with Kerry's proposed tax credit for manufacturers) on the current US jobs situation.
This suggests two things to me.
1. This approach can't substitute for an overall job creation strategy. Such a strategy should have a central role for direct government spending--on infrastructure, on schools, on an energy independence plan, all of which are in Kerry's policy platform on his website--which is likely to be much more effective and sound much more effective than tax incentives.
2. This approach will not even have a substantial effect on the offshoring trend, its ostensible target. The problem is too fundamental to respond much to changes in tax incentives.
Therefore Democrats need to think bigger if they are to put something on the table that actually sounds like it might make a real impact on this problem.
Here are two sets of recommendations, from Gene Sperling and Bob Kuttner, that provide useful raw material for such bigger thinking. Note particularly the emphasis both put on socializing benefits costs to US employers and investing in technology, infrastruture and education.
Gene Sperling's recommendations: (from his March 1 op-ed in The Washington Post)
Take job creation seriously....[call] for new jobs tax credits, temporary tax cuts for families who would spend the money, and state assistance that would reduce education cuts, tax increases and tuition hikes that only fuel downturns....we should address the degree that tax policy as well as high health and energy costs make job creation less attractive here. Furthermore, we need to invest in a modern infrastructure in remote and poor areas. While lower wages in India and China may be a fact of life, why should we ever be outpaced because there is better broadband in Bangalore than Buffalo?
A "preemption strategy."....Why not employ "reverse industrial policy" ideas such as creating "globalization adjustment zones" and investment incentives for communities and retraining options for workers before, not after, jobs are lost? We could even consider buy-out strategies for small-business owners, workers and small farmers in select cases where a few stakeholders block clear and broad-based interests of the U.S. economy or global poverty reduction.
Real dislocation insurance, not token retraining....[merge] our unemployment insurance and our retraining and reemployment services into a seamless system available at a single location where we also provide temporary health care, mortgage assistance and wage insurance for older workers willing to work but unable to find jobs at comparable wages. Access should be universal, not dependent on whether a job was lost to trade, technological changes or a weak economy.
Education -- really. For less than the cost of the recent tax cuts for only the top 1 percent of earners, our nation could have afforded a universal preschool and after-school initiative and a dramatic effort to encourage more young, disadvantaged Americans to seek and afford a college degree.
Break the deadlock on trade and global poverty reduction....[seek] a broader and more creative globalization agenda that supports universal basic education, fights abusive child labor and sweatshops, strengthens civil society watchdogs and independent monitors, and funds transition assistance to workers and small farmers hurt by market opening, while insisting on codes of corporate conduct that support core labor rights.
Bob Kuttner's recommendations (from his March 5 American Prospect column):
Raise purchasing power in the Third World (and at home.) Democrats have pledged support for global labor standards, including the right to join a union. But right now the United States would not pass that test, because our own labor laws are not enforced.
Raise wages, especially in service-sector jobs. Some jobs will never move overseas, because they have to be close to their customers-teachers, health care workers, retailing and hospitality workers. This "new-collar" service sector is the successor to the blue-collar middle class. It needs higher minimum wages, benefits, and unions to fight for them.
Demand fair trade. China and India have a right to compete for jobs, but not to steal our technology and intellectual property. Japan needs to be as open as the United States. The administration needs to demand a level playing field.
Socialize costs that put US firms at a competitive disadvantage. American companies pay health care and pension costs that are paid socially overseas.
Use public funds to invest in new technologies that create good jobs and serve other national goals such energy independence. John Kerry has already led on this one.
So: lots of good ideas about dealing with offshoring and the general effects of trade. Let's hope we start hearing some of them on the campaign trail