Less to the Offshoring Jobs Scare than Meets the Eye

ALAN BLINDER dropped a bomb of a soundbite a few years ago when he began warning that the offshoring of American service jobs, made possible by technological advancements, could rob the economy of somewhere between 30 and 40 million jobs. Newspapers seized on the report, as did lefty economists, who warned of dire consequences for growth and incomes.

If it seemed to you, as it did to me, that there was less to Mr Blinder's finding than met the eye, then feel comforted. As Richard Baldwin explains, Mr Blinder's findings can only make sense in a model that excludes some of the significant advances in trade theory which have taken place in recent decades—most notably the New Trade Theory that earned Paul Krugman a Nobel prize. Mr Baldwin writes:

([T]he critical, unstated assumption, if not by Blinder, at least by the media reporting his results) is that the new trade in services will obey the pre-Krugman trade paradigm – it will largely be a one-way trade. Nations with relatively low labour costs (read: India) will export relatively labour-intensive goods (read: tradable services) to nations where labour is relatively expensive (read: the US).

This... is factually incorrect, as recent work by Mary Amiti and Shang-Jin Wei (2005) has shown. They note: “Like trade in goods, trade in services is a two-way street. Most countries receive outsourcing of services from other countries as well as outsource to other countries.”

The New Trade Theory helped, in part, to explain the curious fact that most trade in goods took place not between rich and poor countries, as Heckscher-Ohlin might have indicated, but between rich countries and rich countries. It would seem to me that Mr Blinder should explain why the dynamics of Heckscher-Ohlin would better fit trade in services than New Trade Theory, given that that doesn't appear to be the case for trade in goods.

This article originally appeared on The Economist.com

Comments

[303820:]

OUTSOURCING IS OUTSOURCING...It translate in shipping of our jobs to slave labor countries like china,India and mexico...countries that we can not compete with even if we work for free...Economist like MARY AMITI and SHANG-JIN IS THE REASON WHY WE'RE IN THIS MESS.
DOES ANYONE UNDERSTAND THE MEANING OF "TRADE DEFICIT"?

Jun 17 08:14 AM

[slowdown:]

If I outsource a job to India and they outsource it to China...that's a whole lot of people that are getting paid to do nothing. We can't hae an economy based on people passing a buck till it's worth a dime.

Jun 17 09:24 AM

[Trane250:]

"New trade theory," "old trade theory:" Just shows that ANYTHING is provable in economics. A science it ain't.

Jun 17 10:44 AM

[Bill40:]

303821 is right.

You can't have prosperity in this country if you don't have production and savings. These continual theories showing that we are benefiting in this way and that by off-shoring, while factories here sit idled and the people that worked there unemployed.

THIS IS ABOUT JOBS - WE GOT AWAY WITH SHIPPING THEM ALL OVERSEAS WHILE WE HAD CREDIT-BUBBLE HOUSING CONSTRUCTION BUT NOW WITH 6 MILLION MORE UNEMPLOYED IN 18 MONTHS WE NEED TO REALIZE YOU NEED TO ACTUALLY MAKE STUFF AND EMPLOY PEOPLE.

Then you need to do things which encourage production here like tariffs to offset the disparity in workers' wages between here and other countries. It's $15/hr (including benefits) to pay someone $9-10/hr here and $1/hr in China. We also need to quit taxing production here so that lots of people can be given "free lunches".

Jun 17 11:02 AM

[Master of t...:]

You carefully avoided mention of H-1B. H-1B is a federal regulation of the US labor market that helps multi-national corporations import labor into the US. This is great for them because they can move the relatively lower cost work into the US taking advantange of the US infrustructure. This avoids the risk and costs of offshoring which is great for these corporations.

There are now more unemployed engineers and programmers in the US than there are H-1B visa holders. And at Microsoft, in my group, its really impossible for an American to get a job. We only are allowed to see two types of resumes, one from companies that are really H-1B visa houses (so every resume is H-1B), and secondly we get a handful of interns. So if you are already out of college and American I will never see your resume.

So how is that good?

Jun 17 12:29 PM

[Master of t...:]

You carefully avoided mention of H-1B. H-1B is a federal regulation of the US labor market that helps multi-national corporations import labor into the US. This is great for them because they can move the relatively lower cost work into the US taking advantange of the US infrustructure. This avoids the risk and costs of offshoring which is great for these corporations.

There are now more unemployed engineers and programmers in the US than there are H-1B visa holders. And at Microsoft, in my group, its really impossible for an American to get a job. We only are allowed to see two types of resumes, one from companies that are really H-1B visa houses (so every resume is H-1B), and secondly we get a handful of interns. So if you are already out of college and American I will never see your resume.

So how is that good?

Jun 17 12:31 PM

[pigdog67:]

This article is total silliness. Offshoring is accelerating. My employer recently laid off 20% of their workforce and added another 20% in China. So they say the company stayed the same size and the costs went down. And the Chinese government is subsidizing those Chinese workers. And we are training them until we too are laid off. What a deal. And my company is a midsized company. Watch when this starts happening in small companies.
America is finished unless tariffs are imposed.

Jul 08 09:58 PM