# effect of outsourcing on america's economy **URL:** \ **Category:** Great Debates\ **Created:** [February 24, 2006, 6:52pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950 "2006-02-24T18:52:45Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [March 2, 2006, 3:06pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/41 "2006-03-02T15:06:05Z")
Well, we are now seeing the end results of outsourcing; our ports will be run aby an arab owned firm. We don’t build ships any more, and we have no merchant marine. We import most of our memory chips, and our defense contractors are dependent upon imports form China. We are even importing food now. I’d saywe are about 20-30 years away from complete economic collapse. ---
**Author:** ![LonesomePolecat](https://avatars.discourse-cdn.com/v4/letter/l/a88e57/32.png) [@LonesomePolecat](https://boards.straightdope.com/u/LonesomePolecat)\ **Post date:** [March 2, 2006, 3:14pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/42 "2006-03-02T15:14:22Z")
> [@msmith537](#): > > “Our economy” is now a global one. Which means that, in effect, the entire planet is being turned into one great big God damned plantation. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [March 2, 2006, 3:14pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/43 "2006-03-02T15:14:45Z")
You know, debate-by-anecdote is virtually worthless. There has been no major change in the economy that didn’t leave hundreds of thousands or millions of people temporarily displaced. And from the standpoint of those people, every one of those changes looked like a horrible mistake. In the meantime, the ‘gutted’ U.S. economy is outperforming the world economy by a wide margin. Per capita income and standard of living in the U.S. is much higher today as compared to most of the developed world than it was 20 years ago. U.S. economic growth is about a percentage point higher than the world average. The U.S. unemployment rate is about half of the European average, and two points lower than Canada’s. Yes, there will be a new equilibrium. No, we don’t know what it will look like yet. Just as we didn’t know what the ‘new’ economy would look like as the rise of factory automation began killing off all those factory jobs, or the rise of the automobile began the wholesale destruction of the blacksmithing and Livery industries. When automation came to the telephone industry, it put tens of thousands of switchboard operators out of work. There were plenty of protests over that, but no one could foresee that the automation of telephone switching led to a drop in communication prices which helped kick off an entirely new economy. The fact is, globalization makes the world more efficient by employing labor in places where there is a strong advantage in doing so. And we should not lose sight of the fact that this is a huge benefit to the third world. And why shouldn’t they count? Are we so isolationist that we’re willing to let the rest of the world starve simply out of fear of a changing economy? Why don’t people in India have a fair shot at my investment money if they’re willing to work for it? And let’s not forget that when those other countries improve their economies and infrastructures through globalization, they increase their wealth and begin to spend it on their own research and science, which also improves the world, including in North America. A South Korea that is the world’s biggest shipbuilder and which has a thriving R&D aspect is a much better asset for the world than a South Korea full of peasant farmers. Globalization is a win-win situation. This is not a zero-sum game. Americans benefit from cheaper goods and from being freed up to seek new jobs in areas in which they maintain a competitive advantage, thus making them more productive. The rest of the world benefits from American goods and investment. The aggregate size of the world economy grows faster than it would if we all hid behing protectionist borders for fear that the ‘other people’ might actually be better than us at some things. ---
**Author:** ![LonesomePolecat](https://avatars.discourse-cdn.com/v4/letter/l/a88e57/32.png) [@LonesomePolecat](https://boards.straightdope.com/u/LonesomePolecat)\ **Post date:** [March 2, 2006, 3:41pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/44 "2006-03-02T15:41:23Z")
We’re drowning in red ink, real wages have been declining for decades, defined benefit pensions are disappearing from the private sector, more and more people lack medical insurance, our manufacturing sector shrinks every year, practically every month, the trade deficit seems to hit record highs every year–but according to Sam Stone, everything is just ducky dandy. They’re giving away the store, Sam. They’re giving away the God damned store. Don’t you understand that? ---
**Author:** ![mazinger\_z](https://avatars.discourse-cdn.com/v4/letter/m/5f9b8f/32.png) [@mazinger\_z](https://boards.straightdope.com/u/mazinger_z)\ **Post date:** [March 2, 2006, 4:25pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/45 "2006-03-02T16:25:12Z")
My company is on the third wave of sending more data call centers to India. I’m supposed to take my team over there to ensure that they are meeting their contract requirements and do an internal check of the audit, and finalize a merger with another data center. I’ve been to Bangalore once (2 years ago), and I thought it was a third world country. My boss just got back and she said that the change is marvelling. Oh, and my team that I’m going with – it didn’t exist two years ago. It would’ve been me, maybe one engineer, and my boss. Now, I have three engineers, three people from finance/accounting, my procurement director, and I’m trying to get my paralegal to go, too. Now, she can stay here and focus her attentions on company growth and acquisition, and her other CPO duties. Two years ago, I didn’t have dedicated resources to help me with my projects. I didn’t have a procurement director. If I sent an issue for resolution to finance or accouting, it would’ve taken 2 weeks to hear from them. If I sent it to the engineering, I probably would’ve never heard back from it (at least not without significant prodding from me.) My company has seen not only spectacular growth in profits, but also in employment, both permanent employees and contractors. Anyway, I hate posting anecdotes, but it seems that this is what the argument has boiled down to despite **Sam Stone’s** traditional anaylsis. Regardless, here are some more [facts](http://www.msnbc.msn.com/id/11571580/site/newsweek/) to shore up the arguments: > [@Newsweek](#): > > There are 17 percent more tech workers in the United States today than back in the bubble days of 1999, says a new study by the Association for Computing Machinery. And the Bureau of Labor Statistics predicts that the U.S. economy will add 1 million tech jobs over the next decade, a 30 percent increase. Imo, if America is ever going to have a problem, it is going to be in education. My banker friends say that if the world continues to honor strong IP and property laws, then the US has nothing to fear as long as they can keep producing ideas. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [March 2, 2006, 5:15pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/46 "2006-03-02T17:15:24Z")
> [@Sam Stone](#): > > You know, debate-by-anecdote is virtually worthless. Debate by grandiose pie-in-the-sky-by-and-by rhetoric doesn’t accomplish much either. Useful debates certainly can’t be based on anecdote, but they do have to honestly confront the factual realities that the anecdotes illustrate. > [@Sam Stone](#): > > In the meantime, the ‘gutted’ U.S. economy is outperforming the world economy by a wide margin. Per capita income and standard of living in the U.S. is much higher today as compared to most of the developed world than it was 20 years ago. U.S. economic growth is about a percentage point higher than the world average. The U.S. unemployment rate is about half of the European average, and two points lower than Canada’s. This is all very “macro” (as well as being cite-free). I think it’s generally recognized that globalization has boosted US economic growth **as a whole** , and increased profits for many of the US companies that take advantage of it. But that doesn’t tell us anything about its impacts on the average US worker. > [@Sam Stone](#): > > Yes, there will be a new equilibrium. No, we don’t know what it will look like yet. Again, I ask: When? When **will** we know what the new, better jobs will be for ordinary US workers? How long will it take before the new equilibrium has restored wage growth, job security, and decent benefits? If you want to persuade people that globalization is a good thing, you need to offer them something more specific than management-speak glurge and buggy-whip homilies about “embracing change” and “looking to the future”. Displaced workers have rent to pay and mouths to feed here and now. You have to get down to brass tacks and talk the details of what this future is expected to produce. When will the new globalization-fueled industries start churning out those good jobs for US workers? Five years from now? Ten years from now? In the meantime, how low will wages go, and how insecure will jobs become, as US workers compete with low-wage third-world ones? What are the specific short- and medium-term trends that we can expect? If you can’t answer any of those questions, then your vague rosy rhetoric is pretty much useless. > [@Sam Stone](#): > > The fact is, globalization makes the world more efficient by employing labor in places where there is a strong advantage in doing so. And we should not lose sight of the fact that this is a huge benefit to the third world. And why shouldn’t they count? Sure they count, but it’s not rational to expect US workers to spontaneously support benefiting the workers of the third world at a severe cost to themselves. If you really mean that US workers ought to be prepared to take serious hits in pay, benefits, and job security for the sake of improving the prosperity of third world workers, you should say so candidly. > [@Sam Stone](#): > > Globalization is a win-win situation. This is not a zero-sum game. In the long term—as in, over the next century or so, barring major global catastrophe or some such—I think you’re probably quite right. That “virtuous cycle” is very likely going to show up **some** day. In the short term, however, it’s not true. An Indian worker gets a job and an American worker loses one. That’s zero-sum. The question is, how long does it take for the **substantial** benefits of globalization to shake down to the worker who lost the job, so that the situation **becomes** win-win? Most workers do not consider that cheaper prices for mass-produced consumer goods make up for the loss of a good-paying job with benefits and job security. > [@Sam Stone](#): > > The aggregate size of the world economy grows faster than it would if we all hid behing protectionist borders for fear that the ‘other people’ might actually be better than us at some things. Unless you can provide some specific and convincing evidence that this faster rate of growth of the aggregate size of the world economy actually matters a rat’s ass for the near-term prosperity of average workers, you’re going to keep hearing a lot of demand for those “protectionist borders”. And eventually you’re going to have enough pissed-off new members of the working poor to result in legislation that actually enacts them. This is what annoys me most about these pie-in-the-sky pro-globalization arguments that don’t actually address any of the current downsides of globalization. By refusing to concede that the near-term negative impacts of globalization are serious and need to be addressed (as when you indifferently lump today’s displaced workers together with blacksmiths and switchboard operators on the trash heap of history), pro-globs simply fuel anti-glob resentment and despair. And finally, when the anti-globs get numerous enough and mad enough actually to take the situation into their own hands, they’ll overreact and retreat into an excessive protectionism that will be bad for all of us. And **mazinger** , the facts in your short and puffy _Newsweek_ article largely seem to boil down to the discovery that outsourcing to India has lost its stigma, because the outsourcing “gush slowed to a steady stream”. (Mostly because of problems with India’s inadequate infrastructure.) However, the article’s chief point is that now that the stigma is diminished, outsourcing is picking up steam again. And the mere fact that US tech jobs are still growing in number doesn’t tell us anything about what kind of jobs they are. According to the article, this is the other side of the “equilibrium”: > [@](#): > > The average annual income in India is just $737, versus $42,027 in the United States. Even a college-educated Indian worker earns one fifth what his American counterpart does. And he’s willing to put in 12-hour days, six days a week. > [@mazinger\_z](#): > > My company is on the third wave of sending more data call centers to India. […] My company has seen not only spectacular growth in profits, but also in employment, both permanent employees and contractors. Employment where? As far as US employees go, how do the jobs you’ve added compare in numbers and quality to the ones you’ve exported? ---
**Author:** ![LonesomePolecat](https://avatars.discourse-cdn.com/v4/letter/l/a88e57/32.png) [@LonesomePolecat](https://boards.straightdope.com/u/LonesomePolecat)\ **Post date:** [March 2, 2006, 5:39pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/47 "2006-03-02T17:39:00Z")
Whew! Thanks, **Kimstu** , you’ve done wonders for my blood pressure. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [March 2, 2006, 5:42pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/48 "2006-03-02T17:42:42Z")
No prob, **LP**. (Alas, I’ve probably raised **Sam** ’s, though. Debate satisfaction is another thing that often turns out win-win in the end, when everybody’s chewed the competing perspectives over and learned something from their opponents, but tends to be somewhat zero-sum in the short term. ;)) ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [March 2, 2006, 5:52pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/49 "2006-03-02T17:52:30Z")
I’m not picking on Kimstu but I wanted to dip a toe into this discussion and he seems to be making the best (or most rational) replies on the ‘other’ side…so I’m just going respond to his latest post, though it was directed at Sam (who is much better at this debate than I). My own position on outsourcing is pretty much on record at this point, but for those of you who don’t know me I’d put myself in Sam and the others camp (though they may be displeased to have me there 😉 ). > [@Kimstu](#): > > This is all very “macro” (as well as being cite-free). I think it’s generally recognized that globalization has boosted US economic growth as a whole, and increased profits for many of the US companies that take advantage of it. But that doesn’t tell us anything about its impacts on the average US worker. So tell us…what impact HAS globalization had on the average US worker. Has the average standard of living dropped, remained the same, gone up? Has the number of jobs increased, decreased, remained the same? Has the proportion of ‘burger flipper’, ‘Walmart worker’ and ‘other shuluffy’ type jobs increased or decreased with reguard to other lines of work? So far no one has backed up any of their assertion with actual facts…including you (and now including me :)). > [@Kimstu](#): > > Again, I ask: When? When will we know what the new, better jobs will be for ordinary US workers? How long will it take before the new equilibrium has restored wage growth, job security, and decent benefits? Its a good question but one I doubt there is a hard and fast answer too (as you probably knew when you wrote it). Predicting the future is always a chancy business. In addition I’m not sure you’ve yet proved that, despite the fact that the US has been and continues to outsource jobs every year that there HAS been a huge disruption that requires a ‘new equilibrium’ to ‘restore wage growth, job security, and decent benifits’. You would need to show that in fact this disruption has taken place and that over all (i.e. on average) those things have all dropped substantially due to globalization. Do you HAVE such indications? > [@Kimstu](#): > > If you want to persuade people that globalization is a good thing, you need to offer them something more specific than management-speak glurge and buggy-whip homilies about “embracing change” and “looking to the future”. Why? Are you saying that historic examples are worthless? How else to predict what the future MAY hold (that doesn’t require a 20 page white paper and an MBA to understand it)? If you can’t extrapolate from past examples then how WOULD you predict what may happen? Crystal ball? 🙂 Myself, I prefer to use what happened to mining and mine workers in the UK in the 70’s and 80’s instead of the tried and true ‘buggy whips’ example. Or perhaps the old hat ‘agriculture in America’. It all boils down to the same thing…this isn’t the first time that due to automation, outsourcing, industries or work become obsolete, etc, there have been major labor disruption where entire fields of work have been eliminated (and those folks working on them forced to find something else)…so pointing to those historic examples is at least a valid indication of what MAY happen this time. Do you have counter examples of how when past industries became obsolete or were highly automated that it was a labor hit we never recoved from? > [@Kimstu](#): > > Sure they count, but it’s not rational to expect US workers to spontaneously support benefiting the workers of the third world at a severe cost to themselves. If you really mean that US workers ought to be prepared to take serious hits in pay, benefits, and job security for the sake of improving the prosperity of third world workers, you should say so candidly. SOME US workers certainly need to prepare to take hits. This has been ongoeing since the country was founded and will continue pretty much forever. Lines of work are constantly shifting (to the detriment of those folks who are unfortunate to be Pullman car attendants, buggy whip manufacturers, help desk bubble boys/girls, etc etc). And certainly those folk most effected are going to be those who have the strongest feeling about it…and are going to generally be pissed off by losing THEIR job and security. > [@Kimstu](#): > > In the long term—as in, over the next century or so, barring major global catastrophe or some such—I think you’re probably quite right. That “virtuous cycle” is very likely going to show up some day. First someone would have to show that there has been a major disruption…which no one has to this point. Has there been a net loss of jobs to outsourcing? Has there been a net loss of TECHNICAL (or a poster above claimed Engineering) jobs to outsourcing? If so, does the net decrease continue to accelerate, has it stabalized, or is it moving back to parity? This would show if the ‘virtuous cycle’ you keep mentioning is either not happening already or has begun (assuming for a moment that there HAS been a major disruption and a net loss of jobs, and net loss of technical/engineer jobs as well). > [@Kimstu](#): > > Employment where? As far as US employees go, how do the jobs you’ve added compare in numbers and quality to the ones you’ve exported? Excellent point! This cuts right to the heart of the debate and would clear things up instantly…assuming someone can wade through the various PDF’s by our friendly government that are out there detailing jobs lost/gained in the US for the past few years. -XT ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [March 2, 2006, 6:29pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/50 "2006-03-02T18:29:06Z")
> [@xtisme](#): > > I’m not picking on Kimstu but I wanted to dip a toe into this discussion and he seems to be making the best (or most rational) replies on the ‘other’ side. Thanks **xt** , but have we really been Doping together all these years without you noticing I’m a “she”? (Never mind, I often forget who uses what pronouns too. :)) > [@xt](#): > > So tell us…what impact HAS globalization had on the average US worker. Good question. As **Polecat** said, we’ve definitely seen stagnation in median wages, as well as other effects like decreased job security and benefits, and decreased wages especially for entry-level and younger workers, as well as the whole “jobless recovery” thing. However, sorting out the comparative impact of outsourcing jobs overseas for white-collar workers, as compared to other factors like automation/IT and weakened labor regulation, is hard to do accurately. There’s a major discussion of white-collar overseas outsourcing [here](http://www.epi.org/content.cfm/issueguide_offshoring): > [@](#): > > First, a point of clarification: white-collar offshoring alone cannot explain the current jobless recovery. In fact, it probably cannot account for more than 10% of the job gap of more than five million that has developed since the last recession began in March 2001. […] > > The anxieties felt by American workers over offshoring are rational. This has been a particularly tough recession and recovery for college-educated workers, especially for those in occupations and industries newly considered vulnerable to offshoring. Furthermore, corporate threats of offshoring have probably played a role in the rapid deceleration of wage growth and the quick acceleration in measured productivity over the course of this recession and recovery. […] > > While offshoring’s contribution to current cyclical employment troubles has been modest to date, its impact on the U.S. economy will become more pronounced over time. Historically, the U.S. labor market has provided ample opportunities for highly educated workers to find gainful employment. Note, for example, that over the past 30 years, the share of college graduates in the U.S. workforce has doubled, yet their unemployment rates remain far below the national average. The globalization-fueled decline of manufacturing jobs and blue-collar wages, on the other hand, has been going on longer and has had a more noticeable impact, although again, it is certainly smaller than the simultaneous impact of other factors such as automation. A 2003 [analysis](http://www.epinet.org/content.cfm/briefingpapers_bp147) of the impact of NAFTA alone remarked: > [@](#): > > Since the North American Free Trade Agreement (NAFTA) was signed in 1993, the rise in the U.S. trade deficit with Canada and Mexico through 2002 has caused the displacement of production that supported 879,280 U.S. jobs. Most of those lost jobs were high-wage positions in manufacturing industries. […] > > Net job loss figures range from a low of 719 in Alaska to a high of 115,723 in California. […] > > NAFTA has also contributed to growing income inequality and to the declining relative wages of U.S. workers without college degree, who made up 72.1% of the workforce in 2001 (Mishel et al. 2003, 163). NAFTA, however, is but one contributor to a larger process of globalization and growing structural trade deficits that has shaped the U.S. economy and society over the last few decades […] > > Globalization has put downward pressure on the wages of less-educated workers for three primary reasons. First, the steady growth in U.S. trade deficits over the past two decades has eliminated millions of manufacturing jobs and job opportunities in this country. Most displaced workers find jobs in other sectors where wages are much lower, which in turn leads to lower average wages for all U.S. workers. Recent surveys have shown that, even when displaced workers are able to find new jobs in the United States, they face a reduction in wages, with earnings declining by an average of over 13% (Mishel et al. 2001, 24). These displaced workers’ new jobs are likely to be in the service industry, the source of 98% of net new jobs created in the United States between 1989 and 2000, and a sector in which average compensation is only 81% of the manufacturing sector’s average (Mishel et al. 2003, 177). This competition also extends to export sectors, where pressures to cut product prices are often intense. > > Second, the effects of growing U.S. trade and trade deficits on wages goes beyond just those workers exposed directly to foreign competition. As the trade deficit limits jobs in the manufacturing sector, the new supply of workers to the service sector (from displaced workers plus young workers not able to find manufacturing jobs) depresses the wages of those already holding service jobs. The growth in import competition and capital mobility under NAFTA has also contributed to stagnant and falling wages in the United States (Bronfenbrenner 1997a). > > Finally, “threat effects” arise when firms threaten to close plants and move them abroad while bargaining with workers over wages and working conditions. Employers’ credible threats to relocate plants, outsource portions of their operations, and purchase intermediate goods and services directly from foreign producers can have a substantial impact on workers’ bargaining positions. The use of these kinds of threats is widespread. A Wall Street Journal survey in 1992 reported that one-fourth of almost 500 American corporate executives polled admitted that they were “very likely” or “somewhat likely” to use NAFTA as a bargaining chip to hold down wages (Tonelson 2000, 47). In a unique study of union organizing drives in 1993 though 1995, it was found that more than 50% of all employers made threats to close all or part of their plants during organizing drives (Bronfenbrenner 1997b). > [@xt](#): > > In addition I’m not sure you’ve yet proved that, despite the fact that the US has been and continues to outsource jobs every year that there HAS been a huge disruption that requires a ‘new equilibrium’ to ‘restore wage growth, job security, and decent benifits’. That one you’ll have to take up with **Sam Stone**. He’s the one who said that outsourcing is being driven by widespread “competitive pressure” on companies and is a “major change to the economy” that will result in a “new equilibrium”. I agree with him, but I don’t see why I should be the one who has to provide all the cites. 😉 > [@xt](#): > > Are you saying that historic examples are worthless? Not at all, but we need something more than general references to historical examples to give us a reliable idea of what we can expect from these current economic changes. > [@xt](#): > > SOME US workers certainly need to prepare to take hits. Well then, that’s important. How many workers, and how bad a hit? These are the facts we need, not just motivational “seek-new-cheese” exhortations. ---
**Author:** ![mack](https://avatars.discourse-cdn.com/v4/letter/m/b19c9b/32.png) [@mack](https://boards.straightdope.com/u/mack)\ **Post date:** [March 2, 2006, 6:36pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/51 "2006-03-02T18:36:22Z")
> [@Sam Stone](#): > > Outsourcing is not about greedy fatcats getting rich on the backs of the poor. By and large, you’re right. But it does happen. > [@Sam Stone](#): > > And if your company didn’t outsource, it might have found itself unable to compete, and ALL your jobs would be lost. Or perhaps outsourcing will lower the cost base enough that the company can afford to invest in new development, creating new jobs at home. I know. I was just responding to the assertion that fears of the off-shoring of white collar jobs was overblown by providing my personal experience. Anecdotal, yes. But there it is. > [@Sam Stone](#): > > Americans benefit from cheaper goods and from being freed up to seek new jobs in areas in which they maintain a competitive advantage, thus making them more productive. “Americans benefit…from being freed up to seek new jobs…”? Your creative juices are really flowing. I suppose it’s a benefit if one hates their job. Otherwise, I liked my job, I have a family to support, and this is a pain in the ass. And I have no doubt that I’ll find another job, and a job after that, and so on. But that doesn’t make the situation less stressful. But this is just my own little personal economy. Since the debate’s about “america’s economy”, there’s no need to go on about it. ---
**Author:** ![mack](https://avatars.discourse-cdn.com/v4/letter/m/b19c9b/32.png) [@mack](https://boards.straightdope.com/u/mack)\ **Post date:** [March 2, 2006, 7:04pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/52 "2006-03-02T19:04:22Z")
> [@mack](#): > > “Americans benefit…from being freed up to seek new jobs…”? Your creative juices are really flowing. I suppose it’s a benefit if one hates their job. Otherwise, I liked my job, I have a family to support, and this is a pain in the ass. And I have no doubt that I’ll find another job, and a job after that, and so on. But that doesn’t make the situation less stressful. Eh, I think I misinterpreted & overreacted here. Apologies. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [March 2, 2006, 8:21pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/53 "2006-03-02T20:21:01Z")
> [@Kimstu](#): > > Thanks xt, but have we really been Doping together all these years without you noticing I’m a “she”? (Never mind, I often forget who uses what pronouns too. ) Actually I DID know you were a ‘she’. Sorry about that. :smack: > [@Kimstu](#): > > Good question. As Polecat said, we’ve definitely seen stagnation in median wages, as well as other effects like decreased job security and benefits, and decreased wages especially for entry-level and younger workers, as well as the whole “jobless recovery” thing. However, sorting out the comparative impact of outsourcing jobs overseas for white-collar workers, as compared to other factors like automation/IT and weakened labor regulation, is hard to do accurately. There’s a major discussion of white-collar overseas outsourcing here: Of course, the whole ‘jobless recovery’ thing is a debate in itself. That said, didn’t we have a similar ‘jobless recovery’ in '92? I do agree that there has been a certain stagnation in the median wage, at least as far as 2004 (from memory). I don’t recall seeing the statistics from 2005 as yet, though at a guess they are probably similar as wage growth definitely seems to be lagging behind economic growth…at least with respect to the previous ramp up, boom and bust cycle. I also agree that its difficult sorting all this out…and that economist themselves are divided on what it all means. And I’m certainly no economist. 🙂 > [@Kimstu](#): > > The globalization-fueled decline of manufacturing jobs and blue-collar wages, on the other hand, has been going on longer and has had a more noticeable impact, although again, it is certainly smaller than the simultaneous impact of other factors such as automation. A 2003 analysis of the impact of NAFTA alone remarked: Certainly, and we are still feeling the ripples from this dislocation in our economy…and probably will for some time to come. And yet we have moved forward into a post-manufacturing economy, and did so strongly (perhaps TOO strongly) in the 90’s. > [@Kimstu](#): > > That one you’ll have to take up with Sam Stone. He’s the one who said that outsourcing is being driven by widespread “competitive pressure” on companies and is a “major change to the economy” that will result in a “new equilibrium”. I agree with him, but I don’t see why I should be the one who has to provide all the cites. I took a shot at this on google myself but I get contridictory conclusions. My own take is that outsourcing is over emphasized as a major disruption to the economy (and more importantly to what I take is your point, that of folks losing wages, jobs and security), lagging far behind such things as automation. Its just easier for folks to get worked up about jobs going to India or where ever than to be pissed off that machines are taking their jobs away…well, at least since the luddites came and went. -XT ---
**Author:** ![wevets](https://avatars.discourse-cdn.com/v4/letter/w/e9a140/32.png) [@wevets](https://boards.straightdope.com/u/wevets)\ **Post date:** [March 2, 2006, 10:08pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/54 "2006-03-02T22:08:11Z")
I’m curious: do you think the cost of American labor (and therefore the American cost of living) has been artificially propped up by trade barriers? If so, what do we do about it? Do we attempt to prevent the cost from dropping or do we accept a drop? What are the implications of attempting either course of action? ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [March 3, 2006, 12:18am UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/55 "2006-03-03T00:18:23Z")
One curious consequence of the outsourcing of the American economy is that the substitute product we import (from China, India,etc.) are cheap…and made so that they fall apart. Which means that they are actually MORE expensive than the goods they replaced. We will DEFINATELY have a severe drop in living standards, as we go from leather to plastic shoes, tile floors to plastic, quality fabrics to cheap cottons. Which explains the rise in service jobs…places like WALMART sell more and more as the goods quality declines. So buck up Americans…your minimum wage job at WALMART entitles you to a cheap set of clothes every month! And, if you want something good (like made in Germany or Italy) be prepared to pay a months salary. Yep, the future looks bright! ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [March 3, 2006, 2:22am UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/56 "2006-03-03T02:22:32Z")
> [@Kimstu](#): > > Debate by grandiose pie-in-the-sky-by-and-by rhetoric doesn’t accomplish much either. Useful debates certainly can’t be based on anecdote, but they do have to honestly confront the factual realities that the anecdotes illustrate. Since when is mainstream economic thought ‘pie-in-the-sky’ rhetoric? You’ve been engaging in this form of ad-hominem all through this debate and the Libertarian one. When someone offers the position of free-market advocacy, you throw out the ‘airy fairy pie in the sky’ handwaving criticism. You should stop doing that, and come up with substantive rebuttals. Oh, and if you’re going to link to ‘analysis’ by the Economic Policy Institute, which is a protectionist mouthpiece for trade unions and other workers, be prepared for some cites from Cato and the Heritage Foundation. And you don’t get to dismiss them out of hand for being partisan unless you abandon your own partisan cites. > [@](#): > > This is all very “macro” (as well as being cite-free). I think it’s generally recognized that globalization has boosted US economic growth **as a whole** , and increased profits for many of the US companies that take advantage of it. But that doesn’t tell us anything about its impacts on the average US worker. This debate has been going on forever, and I have provided a zillion cites. Which are usually ignored in favor of more personal anecdotes about someone’s cousin losing a job to some foreigner. I even had fun one night quoting some other posters on another message board making the exact same arguments - except the boards were on Usenet and the issue they were debating was 20 years old. They were wrong on all counts. Anyway, from [This article by two economists from the Institute of Internation Economics](http://www.washingtonpost.com/wp-dyn/content/article/2005/06/06/AR2005060601508.html) > [@](#): > > Congress has slashed the simple average tariff rate from 40 percent in 1946 to 4 percent today, and other industrial nations have done much the same. After a half-century of steady liberalization it is fair to ask, what do Americans have to show? > > As it turns out, quite a lot. Using four different methods, we estimate that the combination of shrinking distances – thanks to container ships, telecommunications and other new technologies – and lower political barriers to international trade and investment have generated an increase in U.S. income of roughly $1 trillion a year (measured in 2003 dollars), or about 10 percent of gross domestic product. **This translates to a gain in annual income of about $10,000 per household.** The article rightly points out the political problem with free trade - jobs that are lost from globalization are concentrated and visible, and easily counted. A factory closes and moves overseas, and you can count every worker who lost a job. But job gains are diffuse and hard to quantify. A company makes a little more profit and invests it new hires, on or two here and there over 20 offices. People find the cost of food and clothing is a little lower so they spend a little more on hobbies and recreation, creating new jobs. The same issue existed when everyone believed in the myth of government ‘job creation’. The government would spend money on a factory or an industry, and that money would be earmarked for new hires. Each one went on a tally sheet, and the government would claim that it ‘created X new jobs’. In the meantime, the increased taxation necessary to pay for it would kill a job here, and another over there. Impossible to quantify, but real nonetheless. Now most of us except the die-hard lefties understand that governments don’t create jobs. In fact, the inefficiency inherent in forcibly redistributing capital from where it ‘wants’ to go to where some politician promised a constituent destroys efficiency and costs jobs. > [@](#): > > Again, I ask: When? When **will** we know what the new, better jobs will be for ordinary US workers? How long will it take before the new equilibrium has restored wage growth, job security, and decent benefits? What makes you think it hasn’t already happened? Oh, I know you can scrounge up all kinds of papers that say worker’s wages are stagnating, but A) How do you know this is actually happening, when you factor out the recession, and factor in changes in the nature of work, such as different forms of benefits, flex hours, etc? > [@](#): > > If you want to persuade people that globalization is a good thing, you need to offer them something more specific than management-speak glurge and buggy-whip homilies about “embracing change” and “looking to the future”. Displaced workers have rent to pay and mouths to feed here and now. You have to get down to brass tacks and talk the details of what this future is expected to produce. When will the new globalization-fueled industries start churning out those good jobs for US workers? Five years from now? Ten years from now? In the meantime, how low will wages go, and how insecure will jobs become, as US workers compete with low-wage third-world ones? What are the specific short- and medium-term trends that we can expect? > > If you can’t answer any of those questions, then your vague rosy rhetoric is pretty much useless. Ah, no. You’re thinking like a central planner. A free market doesn’t work that way. I can’t tell you which industries will win, and which will lose, any more than you could predict the rise of eBay from the creation of electronic switching. Believing that you must be able to exactly predict and control the direction of an economy is the fundamental fallacy of statists everywhere, and every time those of us who believe in letting the market work say things like, “Whatever happens, if the market is free it will result in optimal outcomes”, we get accused of making stuff up or waving our hands, because we refuse to play the, “I’m smart enough to control or predict how everything must be” game. The best stock pickers in the world can’t average much more than a 10-15% investment on their money. If I could really tell you which industries will succeed and which jobs will be created and lost, I’d be a gazillionaire. That doesn’t change the fact that the history of trade liberalization is that every time a country opens its markets, it experiences more economic growth and higher increases in standards of living than those who don’t. And there are plenty of well understood economic reasons why this is the case, despite what tendentious organizations supported by trade unionists want you to think. > [@](#): > > Sure they count, but it’s not rational to expect US workers to spontaneously support benefiting the workers of the third world at a severe cost to themselves. If you really mean that US workers ought to be prepared to take serious hits in pay, benefits, and job security for the sake of improving the prosperity of third world workers, you should say so candidly. But I thought the same people who oppose globalization are the ones that are always going on about how we don’t do enough for the third world? Would a good response to them be that it’s not ‘rational’ for me to give my money to some stranger in a far-away land with a different skin color? Certainly the benefit that globalization offers to the people who are most desperate and needy on this planet should have some bearing on whether or not we should support it, no? > [@](#): > > In the long term—as in, over the next century or so, barring major global catastrophe or some such—I think you’re probably quite right. That “virtuous cycle” is very likely going to show up **some** day. A ‘virtuous’ cycle is one of the benefits of globalization, but it’s not necessary for globalization to work. If we replaced that factory in Vietnam with a robot in Podunk, we would still benefit if it drove the cost of production down, even though that robot will not be buying our goods. > [@](#): > > In the short term, however, it’s not true. An Indian worker gets a job and an American worker loses one. That’s zero-sum. The question is, how long does it take for the **substantial** benefits of globalization to shake down to the worker who lost the job, so that the situation **becomes** win-win? Most workers do not consider that cheaper prices for mass-produced consumer goods make up for the loss of a good-paying job with benefits and job security. My company has been expanding like crazy, hiring developers in the United States and Canada so fast that we no longer have floor space for them and have to re-organize our offices. The products we are making are largely destined to be exported to China and Europe. Do we count? The growth of the Chinese economy, due in large part to the opening of world markets to Chinese products and Chinese labor, has caused a boom in demand for everything from concrete to steel to factory equipment and automation products. Do the jobs created in those industries count? The low cost of clothing and other staple goods has helped create companies like Wal Mart, which is the largest employer in the U.S. Do those jobs count? > [@](#): > > Unless you can provide some specific and convincing evidence that this faster rate of growth of the aggregate size of the world economy actually matters a rat’s ass for the near-term prosperity of average workers, you’re going to keep hearing a lot of demand for those “protectionist borders”. And eventually you’re going to have enough pissed-off new members of the working poor to result in legislation that actually enacts them. I can point to data that shows that countries with the most liberal trade policies outperform those with protectionist policies by a wide margin. So wide that the most liberal countries are the fastest-growing countries on the planet, and the one with most closed borders are seeing major declines in GDP and standard of living. > [@](#): > > This is what annoys me most about these pie-in-the-sky pro-globalization arguments that don’t actually address any of the current downsides of globalization. By refusing to concede that the near-term negative impacts of globalization are serious and need to be addressed (as when you indifferently lump today’s displaced workers together with blacksmiths and switchboard operators on the trash heap of history), pro-globs simply fuel anti-glob resentment and despair. And finally, when the anti-globs get numerous enough and mad enough actually to take the situation into their own hands, they’ll overreact and retreat into an excessive protectionism that will be bad for all of us. I never, ever said there was no downside. Of course there is. There’s a downside for every worker who loses a job and has to find a new one. But that’s ALWAYS the case with innovations in an economy, and it’s no more an argument against globalization than it was against the automation of telephone switchboards. It seems to me that the spectacular success of free markets, and the dismal failure of every attempt to ‘protect’ a country by closing its borders means that the burden of proof is on YOU to show how globalization will permanently destroy the working class in America, and not just change it and cause it to adapt in new and better ways, as it has always done in the past. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [March 3, 2006, 3:30am UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/57 "2006-03-03T03:30:26Z")
At this point, it might be worthwhile to take a step back away from anecdotes and promises that the market fixes all, and consider the fundamentals: What makes an employee worth whatever he gets? First, let’s take the ‘perfect market’ scenario. A perfect market is characterized by a willing supply of workers, a large supply of employers, no hidden information about the cost of labor, and no artificial scarcity of either workers or employers. In such a system, workers will bargain for wages right up to the point where the marginal cost of hiring a worker makes no sense, and we’ll establish the ‘clearing’ price for a job. This price represents the productive capacity of the worker in that particular job - the amount of money he brings in minus the entire cost of employing him. This market is ideal from an efficiency standpoint. It’s impossible to do better. In a perfect market, which have accurately established the value of a laborer, and the wage he’s willing to accept for a job he fully understands, including all benefits and liabilities. In a perfect market, a laborer has nothing to lose, and everything to gain from globalization. No matter how many new workers or employers enter the market, he’s worth what he’s worth, and that’s what he’ll get. The difference is that the price of goods around him go down, and the productive work of other new workers may make the industry more efficient and drive the value of his labor up, increasing his wage. The second kind of labor market is one driven by market failures. For example, an artificial scarcity of workers caused by regulation, tariffs, labor monopolies (unions), minimum wage laws, or closed borders. Trade unions and trade tariffs increase the price workers can command by creating scarcity in labor. By preventing employers from considering pools of workers in other countries, trade protection allows workers to bid up prices. Closed borders create a form of ‘American Unions’ by prohibiting non-Americans from bidding for labor. This does in fact drive up the price of labor, and under a globalized economy those wages will fall or those jobs will be lost. But consider the negative effect of artificial labor scarcity - By preventing companies who can only afford labor in country B from hiring employees there, you force that company out of business (or prevent it from starting in the first place). That’s economically inefficient. By preventing the worker in country B from bidding in country A, you create an artificial scarcity of employers for him, and force him to accept a wage at a lower price than that which would be set by his true productive capacity. So he loses out as well. In the meantime, the goods and services produced by the protected countries will be driven up in price to account for the additional cost of labor. This punishes the workers in non-protected industries, and moves capital away from efficient markets towards inefficient ones, also at the detriment of economic growth and overall standard of living. And products that people want, and that other people are willing to make, are prevented from being created by preventing the producers from hiring the willing workers needed to make it. So aggregate production goes down and people do without things they want and know how to make. And closed borders prevent countries that desperately need economic investment in their infrastructures from connecting with capitalists will to provide it, to the detriment of both and to the world at large. So yes, workers in some industries will take a permanent hit to their wages. But other workers will see their wages and standards of living increase. And those workers are the ones who are already existing in a competitive, efficient market. Ultimately, globalization makes labor markets more efficient, and the economy as a whole more efficient at creating goods and services. This is a good thing. However, purely efficient markets is an optimum economic outcome, and not necessarily an optimium social outcome, which has nothing to do with economics. If you want to use the power of government to alter social outcomes, don’t do it by mucking with the markets that create the wealth in the first place. Find an alternate way. So what to do with the workers in the protected industries who can no longer compete? Well, the answer certainly isn’t to close the border, since that just rewards inefficiency and drives capital in the wrong direction and distorts the informational value of prices. From an economic standpoint, if you want to achieve a certain outcome, you’re much better off leaving the market to do what it does best, and giving the displaced workers lump sum payments to encourage them to retrain or to cushion the blow of moving to a new job. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [March 3, 2006, 4:51am UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/58 "2006-03-03T04:51:19Z")
Good post Sam…I think you hit all the high points with that one. -XT ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [March 3, 2006, 7:25am UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/59 "2006-03-03T07:25:53Z")
But the grammar was atrocious. I wrote that too fast, and didn’t proofread it. Yuck. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [March 3, 2006, 12:36pm UTC](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950/60 "2006-03-03T12:36:01Z")
> [@Sam Stone](#): > > Since when is mainstream economic thought ‘pie-in-the-sky’ rhetoric? When it doesn’t provide any details or timeframes for specific consequences of specific policies. As I’ve said repeatedly, I’m not disagreeing with your **long-term** analysis of the cumulative advantages of free trade. I’m just pointing out that it doesn’t answer any questions about the **short-term** effects or what can be done to soften them. > [@Sam Stone](#): > > And you don’t get to dismiss them out of hand for being partisan unless you abandon your own partisan cites. I don’t dismiss anybody’s cites “out of hand” just for being sourced from an institution I disagree with: I look at the arguments and data they actually put forth. I expect you to do the same with cites from the EPI. > [@Sam's link](#): > > Congress has slashed the simple average tariff rate from 40 percent in 1946 to 4 percent today, and other industrial nations have done much the same. After a half-century of steady liberalization it is fair to ask, what do Americans have to show? Nobody’s disagreeing with these conclusions about cutting tariffs from their high levels of sixty years ago. But the advantages they describe are purely in terms of **aggregate** gains to the economy as a whole, which tells us nothing about the distribution of the effects. Here’s a more pertinent quote from that article: > [@Sam's link](#): > > Large gains are widely dispersed, and much smaller private losses are highly concentrated. Surveying several estimates, we arrive at a middle-of-the-road figure of roughly 225,000 trade-related job losses per year. Most dislocated workers find new jobs in six months, many far sooner; but some are unemployed for an extended period. Even workers who are re-employed may face significant pay cuts. Taking these features into account, we estimate that the lifetime costs of a year’s worth of trade-related job losses is roughly $54 billion, about $240,000 per affected worker. > [@Sam Stone](#): > > The article rightly points out the political problem with free trade - jobs that are lost from globalization are concentrated and visible, and easily counted. A factory closes and moves overseas, and you can count every worker who lost a job. But job gains are diffuse and hard to quantify. Then you have to confront this problem directly with better ways of quantifying and more widely distributing the gains from globalization, rather than just scolding those who aren’t convinced for not accepting your assertions about them at face value. > [@Sam Stone](#): > > What makes you think it hasn’t already happened? Oh, I know you can scrounge up all kinds of papers that say worker’s wages are stagnating, but A) How do you know this is actually happening, when you factor out the recession, and factor in changes in the nature of work, such as different forms of benefits, flex hours, etc? In other words, you have no cite, and the best you can manage is to suggest (without evidence) that my cites to the contrary are somehow flawed. Give me a break. > [@Sam Stone](#): > > Ah, no. You’re thinking like a central planner. A free market doesn’t work that way. I can’t tell you which industries will win, and which will lose, any more than you could predict the rise of eBay from the creation of electronic switching. In other words, you can’t answer any of the questions I asked, and your best defense is to accuse me of communist thought. Oh no! Well, I guess that settles me! It’s exactly this kind of failure by free-market fundamentalists to try to address consequences of their policies that sent people down the dead-end path of central planning in the first place. If all you can offer is the vague reassurance “Don’t worry, the market will fix it someday!”, you’ll always have problems with the people who are suffering **now**. And calling them statists or central planners won’t make them go away. By the way, I personally am **not** a central planner or protectionist or anti-outsourcing advocate. I just find it exasperating how free-market fundamentalists waffle so much on the hard questions about the negative consequences of their policies. > [@Sam Stone](#): > > Believing that you must be able to exactly predict and control the direction of an economy is the fundamental fallacy of statists everywhere Strawman. Nobody’s asking you to “exactly predict and control the direction of an economy”. All I asked for was some information with somewhat greater detail than the vague reassurance “Don’t worry, the market will fix it someday!” Obviously, you’ve got nothing of the sort to offer. > [@Sam Stone](#): > > But I thought the same people who oppose globalization are the ones that are always going on about how we don’t do enough for the third world? Yeah, but what they’re advocating is that first-worlders help the third world by contributing small amounts of their disposable income, not by giving up their jobs. > [@Sam Stone](#): > > Would a good response to them be that it’s not ‘rational’ for me to give my money to some stranger in a far-away land with a different skin color? What does skin color have to do with it? There are plenty of people with different skin color from you right there in your own land. Are you seriously arguing that the skin color of the recipients affects your willingness to contribute aid money to them? If I felt that way, I certainly wouldn’t advertise it. > [@Sam Stone](#): > > Do we count? […] Do the jobs created in those industries count? […] Do those jobs count? Count as what? Show me your cites that jobs for the average US worker are getting better. Just pointing out that there still **are** some jobs and some job creation doesn’t make your point. > [@Sam Stone](#): > > I can point to data that shows that countries with the most liberal trade policies outperform those with protectionist policies by a wide margin. Of course they do, in terms of general economic growth. But nobody’s disputing that trade liberalization is good for economic growth **overall**. If it wasn’t making money for **somebody** , businesses wouldn’t be pursuing it. What we’re looking for is evidence about how and when it will improve the overall status of the **average worker**. > [@Sam Stone](#): > > So yes, workers in some industries will take a permanent hit to their wages. > So what to do with the workers in the protected industries who can no longer compete? From an economic standpoint, if you want to achieve a certain outcome, you’re much better off leaving the market to do what it does best, and giving the displaced workers lump sum payments to encourage them to retrain or to cushion the blow of moving to a new job. Thank you for finally addressing the central question! This at last acknowledges that trade liberalization in itself is **not** going to solve many of the near-term problems that it creates for many workers, and we will have to turn to non-market remedies to tide us over the painful transition period. That’s what I was asking about. [Previous page](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950.md?page=2) [Next page](https://boards.straightdope.com/t/effect-of-outsourcing-on-americas-economy/345950.md?page=4)