Overseas shift of jobs may help U.S.
By Ken Moritsugu
Knight Ridder News Service
WASHINGTON — In the politically charged debate over jobs moving overseas, most economists stand with their embattled colleague, White House chief economist Gregory Mankiw.
But with an important reservation.
They agree with Mankiw that the movement of jobs overseas, or offshoring, will provide a net gain for the U.S. economy over time. But when the economy is trying to get back on track, as it is now, the practice hinders the economy's ability to create work for Americans who need it.
"I think net-net, it's positive for the economy, but it's a real problem today because the entire job market is so soft," said Mark Zandi, the chief economist at Economy.com, an analysis firm in West Chester, Pa. "You could argue at this point in time, the costs are outweighing the benefits."
Mankiw created a political firestorm last week when he said the increasing shift of service jobs overseas would help the U.S. economy.
"More things are tradable than were tradable in the past," Mankiw said, "and that's a good thing."
He was defending the administration's annual economic report, which stated: "When a good or service is produced at lower cost in another country, it makes sense to import it rather than to produce it domestically."
Factory jobs have been moving offshore for decades, as companies are drawn by lower labor costs in developing countries. More nonproduction jobs have followed suit, including those in software design, accounting and customer service. The trend is expected to continue.
Democrats and some Republicans castigated the Bush administration for being out of touch with the unemployed in an economy that has lost 2.2 million jobs since President Bush took office three years ago.
However, economists generally side with Mankiw. For instance, a clothing company that hires accountants in a lower-wage country cuts its costs. That drives up company profits, which go to shareholders and to pay employees, and to customers in the form of lower prices. Those gains, in theory, collectively outweigh the loss of accounting jobs in the United States.
That's true in the long run, economists say, but it doesn't hold up as well when it's tough to find a job.
"If we lose our jobs and we can't walk across the street and get another job, maybe we can buy those shirts cheaper, but maybe we can't buy them at all because we don't have a job," said Clyde Prestowitz, a Reagan administration trade official and president of the Economic Strategy Institute, which studies trade issues.
The growth in offshoring comes at a time when job creation has been particularly disappointing.
The economy has entered a new era with little or no historical precedent, in which the economy can grow rapidly, at least for a time, without creating many jobs.
"I don't recall a period even remotely like this," Federal Reserve Board Chairman Alan Greenspan, an economist for half a century, told a congressional committee this week. "What we are seeing is something new."
Companies have become more efficient in the use of labor, squeezing out more production per worker. That means economic growth doesn't automatically translate into more jobs, as it has in the past.
And when companies do hire, more of those jobs are being filled overseas.
Whatever the long-term benefits of offshoring and trade generally, economists agree that the practice creates painful job losses, which Mankiw acknowledged.
"Trade always means there's dislocations," Mankiw said. "And we need to help workers find jobs and make sure to create jobs here. But we shouldn't sort of retreat from the basic principles of free trade. Outsourcing is sort of the latest manifestation of the gains from trade that economists have talked about at least since Adam Smith."
Economists argue that protectionism isn't the answer. They advocate spending more money on education to help workers succeed in a more competitive economy.
They also dismiss concerns that as more high-skilled jobs move overseas, there won't be jobs even for well-educated, well-trained Americans. The U.S. economy has always adapted to change, they say, though they can't identify what tomorrow's jobs will be.
"I know there will be jobs of the future, because I know this is a vibrant economy," Mankiw said. "I know this is an entrepreneurial economy. Do I know precisely what those jobs are? No, I don't know what those jobs are any more than people living 50 years ago knew that the future of the U.S. economy was going to be high tech, biotechnology and all of the jobs that are routine today that were unimaginable a generation ago."
But Stephen Roach, the chief economist at the Morgan Stanley investment bank in New York, wonders if the loss of skilled jobs isn't eroding that theory.
With America's once-shielded white-collar workers facing intense competition from equally capable foreign workers, he said, "the quick and seamless regeneration of hiring ... starts to seem like an increasingly unrealistic assumption."
