Ten Myths about Jobs and Outsourcing

Heritage Foundation ^ | April 1, 2004 | Tim Kane, et. al.

[Choose Ye This Day]

Ten Myths about Jobs and Outsourcing by Tim Kane, Brett Schaefer, and Alison Fraser WebMemo #467

April 1, 2004

The American economy never rests—at this moment, in fact, economic growth is vigorous. Yet every time there is a slight dip in the acceleration of output, jobs, or incomes, the undying myths of a sputtering, backfiring economy rise again. Today, many of those myths concern the ills of outsourcing.

The plain facts, however, lay all of today’s myths about outsourcing to rest. But there is still a real danger that politicians working with incomplete or incorrect information will hobble American competitiveness. Scapegoating poor Third World countries, “Benedict Arnold CEOs,” and free trade will not improve the U.S. economy or labor market, but would likely cause great harm. Robert McTeer of the Federal Reserve Bank of Dallas summed up the promise of government action on outsourcing well: “If we are lucky, we can get through the year without doing something really, really stupid.”[1]

Myth #1: America is losing jobs.

Fact: More Americans are employed than ever before.

The household employment survey of Americans indicates that there are 1.9 million more Americans employed since the recession ended in November 2001. There are 138.3 million workers in the U.S. economy today—more than ever before.[2]

Myth #2: The low unemployment rate excludes many discouraged workers.

Fact: Unemployment is dropping, despite a surging labor force.

Not only is the unemployment rate low in historical terms at 5.6 percent, but the workforce has been growing—there are now 2.03 million more people in the labor force than in late 2001. Without a higher rate of unemployment or a shrinking workforce, there is no evidence of growing discouragement.[3]

Myth #3: Outsourcing will cause a net loss of 3.3 million jobs.

Fact: Outsourcing has little net impact, and represents less than 1 percent of gross job turnover.

Over the past decade, America has lost an average of 7.71 million jobs every quarter.[4] The most alarmist prediction of jobs lost to outsourcing, by Forrester Research, estimates that 3.3 million service jobs will be outsourced between 2000 and 2015—an average of 55,000 jobs outsourced per quarter, or only 0.71 percent of all jobs lost per quarter.

Myth #4: Free trade, free labor, and free capital harm the U.S. economy.

Fact: Economic freedom is necessary for economic growth, new jobs, and higher living standards.

A study conducted for the 2004 Index of Economic Freedom confirms a strong, positive relationship between economic freedom and per capita GDP. Countries that adopt policies antithetical to economic freedom, including trying to protect jobs of a few from outsourcing, tend to retard economic growth, which leads to fewer jobs.

Myth #5: A job outsourced is a job lost.

Fact: Outsourcing means efficiency.

Outsourcing is a means of getting more final output with lower cost inputs, which leads to lower prices for all U.S. firms and families. Lower prices lead directly to higher standards of living and more jobs in a growing economy.

Myth #6: Outsourcing is a one-way street.

Fact: Outsourcing works both ways.

The number of jobs coming from other countries to the U.S. (jobs “insourced”) is growing at a faster rate than jobs lost overseas. According to the Organization for International Investment, the numbers of manufacturing jobs insourced to the United States grew by 82 percent, while the number outsourced overseas grew by only 23 percent.[5] Moreover, these insourced jobs are often higher-paying than those outsourced.[6]

Myth #7: American manufacturing jobs are moving to poor nations, especially China.

Fact: Nations are losing manufacturing jobs worldwide, even China.

America is not alone in experiencing declines in manufacturing jobs. U.S. manufacturing employment declined 11 percent between 1995 and 2002, which is identical to the average world decline.[7] China has seen a sharper decline, losing 15 percent of its industrial jobs over the same period.

Myth #8: Only greedy corporations benefit from outsourcing.

Fact: Everyone benefits from outsourcing.

Outsourcing is about efficiency. As costs decline, every consumer benefits, including those who lose their jobs to outsourcing. A 2003 study by Michael W. Klein, Scott Schuh, and Robert K. Triest, which includes dislocation costs in its calculations, shows the benefits of trade outweighing its costs by 100 percent.[8]

Myth #9: The government can protect American workers from outsourcing.

Fact: Protectionism is isolationism and has a history of failure.

Proposals to punish businesses that outsource jobs, institute tariffs, or change tax rules will carry unintended consequences if enacted. Such measures would injure U.S. firms that export goods and services and erode U.S. competitiveness, often in unexpected ways. Recent steel tariffs, for example, cost jobs in dozens of industries while raising prices for consumers.[9]

Myth #10: Unemployment benefits should be extended beyond 26 weeks.

Fact: Jobless benefits are already working

The median duration of unemployment is now 10.9 weeks; most workers are covered by existing benefits, which last for 26 weeks. Extending today’s coverage to 39 weeks would cost billions of dollars and have little impact.

Conclusion

America's workers deserve a more informative, less partisan debate on outsourcing. The negative impact of outsourcing on the economy and American employment has been greatly exaggerated, and the benefits of outsourcing almost entirely ignored.

Tim Kane, Ph.D., is Research Fellow in Macroeconomics in the Center for Data Analysis, Brett Schaefer is Jay Kingham Fellow in the Center for International Trade and Economics (CITE), and Alison Fraser is Director of the Thomas A. Roe Institute for Economic Policy Studies, at The Heritage Foundation.

--------------------------------------------------------------------------------

[1] As quoted in Daniel Drezner, “The Outsourcing Bogeyman,” Foreign Affairs, May/June 2004. http://foreignaffairs.org/20040501faessay83301- /daniel-w-drezner/the-outsourcing-bogeyman.html.

[2] Bureau of Labor Statistics, smoothed Household Survey. The 4-month moving average of CPS employment totals reached a peak in February 2004, the latest data available.

[3] Bureau of Labor Statistics, smoothed Household Survey.

[4] Labor Department, BED data series, 1992 to 2003.

[5] Organization for International Investment (OFII)website at http://www.ofii.org/insourcing/.

[6] Ibid.

[7] Jon E. Hilsenrath and Rebecca Buckman, “Factory Employment is Falling World-Wide,” Wall Street Journal, October 20, 2003, p. A2.

[8] Jeff Madrick, “Questioning Free Trade Mathematics,” Economic Scene, New York Times, March 18, 2004, available at http://www.nytimes.com/2004/03/18/business/18scene.html. Michael W. Klein, Scott Schuh, and Robert K. Triest, Job Creation, Job Destruction,and International Competition, Upjohn Institute, 2003, Introductory chapter available at http://www.upjohninst.org/jobs.html.

[9] Editorial, “Steeling Our Wealth,” The Wall Street Journal, September 23, 2003, p. A24; and Editorial, “Steel Trapped Minds,” The Wall Street Journal, February 19, 2002, p. A26.

[Choose Ye This Day]

The media has done a good job on outsourcing, doing what they normally do--scaremongering and overhyping, making Americans feel emotional about it. Many Americans have taken the bait and are being reeled in, and are reacting emotionally--fear, anxiety, anger--about something that is not nearly the boogeyman that Kerry and the media want us to believe.

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[Willie Green]

But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.

~Karl Marx, "On the Question of Free Trade" - January 9, 1848

[Sam the Sham]

People remember the assurances handed out when free trade destroyed the blue collar middle class 25 years ago. Now, white collar workers see it happenning to them.

This time, they are listening to what they see happenning in their lives and the lives of the people they know instead of these rent-an-academic shills.

[OneTimeLurker]

Just close your eyes, say it's not happening and not a bad thing and everything will be just fine.

[Choose Ye This Day]

No nation was ever ruined by trade. – Benjamin Franklin

[Choose Ye This Day]

Free Trade DESTROYED the blue collar middle class 25 years ago?

That will come as such a shock to my blue collar middle class neighbors! I'll have to tell them this afternoon when they get back from work.

That will come as a huge shock to all the middle-class blue-collar 401(k) plan participants I speak with every day. Next week, I'll have to tell them: "You don't exist. Your job was destroyed back in 1979, apparently. Wewould have told you earlier, but I just found out last week when some guy on the Internet told me. Sorry."

[Sam the Sham]

25 years ago a blue collar worker without a college education, or maybe not even with a high school diploma could get a job that would allow him to buy a house, a car every three years, go away on vacation, have health insurance, send a kid to college, and retire on a pension. How many non-college educated people who do not have those manufacturing jobs that were plentiful 25 years ago can do that ? Does today's WalMart employee have the kind of socioeconomic security and benefits that a steelworker had then ?

[Sam the Sham]

Free trade is just pictures in a book. It can't really hurt me. Never mind the woman in the bathtub in Room 207.

[lelio]

According to the Organization for International Investment, the numbers of manufacturing jobs insourced to the United States grew by 82 percent, while the number outsourced overseas grew by only 23 percent.

If you go to OFII's stats for Indiana you'll see that they include foreign companies that bought up American ones, like DaimlerChrysler (Chrysler), Thomson (RCA), and Allison / Rolls Royce (GM) in those numbers. So its a little disingenious of them to say that these numbers "grew" when they just purchased themselves into the state.

That's not to say that this isn't good -- for example a German company could of bought a soon to be bankrupt one in Illinois, or that a French company is hiring more people. But just to throw out this number without looking into it isn't very convincing.

[Choose Ye This Day]

How many people no longer have manufacturing jobs and are now working at Wal-Mart? I know the overhyped media want us to believe that there are so many they can't even be counted, but it's just not true.

Most blue collar workers can get what you mention--the house, a car, a vacation. A pension is a fantasy these days. The problem comes when so many want to live far beyond their means--like a guy earning $40K, yet living in a $300K house with a HUGE mortgage.

[Alberta's Child]

It's also worth noting that 25 years ago the U.S. was in the middle of the biggest economic con job this country has ever seen -- when the exorbitant cost of the Vietnam war, coupled with the massive government expenditures for Lyndon Johnson's "Great Society" programs, deluded this country into believing that we could "have it all."

The stagflation of the 1970s was the price we paid for that folly. I don't think anyone wants to go through that crap again.

[lucysmom]

Myth #2: The low unemployment rate excludes many discouraged workers.

Fact: Unemployment is dropping, despite a surging labor force.

Not only is the unemployment rate low in historical terms at 5.6 percent, but the workforce has been growing—there are now 2.03 million more people in the labor force than in late 2001. Without a higher rate of unemployment or a shrinking workforce, there is no evidence of growing discouragement.[3]

In that case why has the unemployment rate increased while job creation has also increased?

"April 2, 2004  |  WASHINGTON (AP) -- The nation's unemployment rate bumped up to 5.7 percent in March while companies added 308,000 new jobs -- the most in four years, providing long-awaited evidence that the weak jobs market may be gaining steam...

The civilian unemployment rate, however, ticked up 0.1 percentage point from 5.6 percent in February. That occurred because more job seekers renewed their searches last month, but were unsuccessful."

[Willie Green]

No nation was ever ruined by trade. – Benjamin Franklin

"Remember that credit is money."

"Think what you do when you run into debt;
you give another power over your liberty."

-- Benjamin Franklin (1706 - 1790)

Would you care to speculate what Franklin would say about our Trade Deficit?

[antiRepublicrat]

Add to that a CATO article a while back about which states are the most business-friendly. Turns out -- surprise! -- that the most busines-friendly states are doing fine and even growing jobs, while the ones with a hostile business environment, such as California, are losing jobs left and right.

[lilylangtree]

Rec'd this a.m. Posted earlier but still makes sense.

This is the most important problem facing our nation to-day. Where is it
addressed in the current Presidential Race?

Eight methods of destruction of The United States

I urge you to read this slowly then read it again...slowly....maybe this
identifies some real bottom line issues.
- by Frosty Wooldridge

Last week I attended an immigration-overpopulation conference in Washington
DC, filled to capacity by many of American's finest minds and leaders.

A brilliant college professor named Victor Hansen Davis talked about his
latest book, "Mexifornia," explaining how immigration - both legal and
illegal - was destroying the entire state of California. He said it would
march across the country until it destroyed all vestiges of The American
Dream.

Moments later, former Colorado Governor Richard D Lamm stood up and gave a
stunning speech on how to destroy America. This writer sat in the audience
spellbound by the eight methods of destruction of the United States.

He said, "If you believe that America is too smug, too self-satisfied, too
rich, then let's destroy America. It is not that hard to do. No nation in
history has survived the ravages of time. Arnold Toynbee observed that all
great civilizations rise and fall and that 'An autopsy of history would
show that all great nations commit suicide.'"

"Here is how they do it," Lamm said:

"Turn America into a bilingual or multi-lingual and bicultural country.
History shows that no nation can survive the tension, conflict, and
antagonism of two or more competing languages and cultures. It is a
blessing for an individual to be bilingual; however, it is a curse for a
society to be bilingual.

"The historical scholar Seymour Lipset put it this way: 'The histories of
bilingual and bi-cultural societies that do not assimilate are histories of
turmoil, tension, and tragedy.' Canada, Belgium, Malyasia, Lebanon all
face crises of national existence in which minorities press for autonomy,
if not independence. Pakistan and Cyprus have divided. Nigeria suppressed
an ethnic rebellion. France faces difficulties with Basques, Bretons, and
Corsicans."

Lamm went on: "Invent 'multiculturalism' and encourage immigrants to
maintain their culture. I would make it an article of belief that all
cultures are equal. That there are no cultural differences. I would make it
an article of faith that the Black and Hispanic dropout rates are due to
prejudice and discrimination by the majority. Every other explanation is
out of bounds.

"We could make the United States an 'Hispanic Quebec' without much effort.
The key is to celebrate diversity rather than unity. As Benjamin Schwarz
said in the Atlantic Monthly recently: 'The apparent success of our own
multiethnic and multicultural experiment might have been achieved not by
tolerance but by hegemony. Without the dominance that once dictated
ethnocentrically and what it meant to be an America, we are left with only
tolerance and pluralism to hold us together.'"

Lamm said, "I would encourage all immigrants to keep their own language and
culture. I would replace the melting pot metaphor with the salad bowl
metaphor. It is important to ensure that we have various cultural
subgroups living in America reinforcing their differences rather than as
Americans, emphasizing their similarities."

"Fourth, I would make our fastest growing demographic group the least
educated. I would add a second underclass, unassimilated, undereducated,
and antagonistic to our population. I would have this second underclass
have a 50% dropout rate from high school."

My fifth point for destroying America would be to get big foundations and
business to give these efforts lots of money. I would invest in ethnic
identity, and I would establish the cult of 'Victimology.' I would get all
minorities to think their lack of success was the fault of the majority. I
would start a grievance industry blaming all minority failure on the
majority population."

"My sixth plan for America's downfall would include dual citizenship and
promote divided loyalties. I would celebrate diversity over unity. I would
stress differences rather than similarities. Diverse people worldwide are
mostly engaged in hating each other - that is, when they are not killing
each other."

"A diverse, peaceful, or stable society is against most historical
precedent. People undervalue the unity it takes to keep a nation together.
Look at the ancient Greeks. The Greeks believed that they belonged to the
same race; they possessed a common language and literature; and they
worshipped the same gods. All Greece took part in the Olympic games. A
common enemy Persia threatened their liberty. Yet all these bonds were not
strong enough to over come two factors: local patriotism and geographical
conditions that nurtured political divisions. Greece fell. In that
historical reality, if we put the emphasis on the 'pluribus' instead of
the 'unum,' we can balkanize America as surely as Kosovo."

"Next to last, I would place all subjects off limits ~ make it taboo to talk
about anything against the cult of 'diversity.' I would find a word
similar to 'heretic' in the 16th century - that stopped discussion and
paralyzed thinking. Words like 'racist' or 'xenophobe' halt discussion and
debate" "Having made America a bilingual/bicultural country, having
established multi-culturism, having the large foundations fund the doctrine
of 'Victimology,' I would next make it impossible to enforce our
immigration laws. I would develop a mantra: That because immigration has
been good for America, it must always be good. I would make every
individual immigrant sympatric and ignore the cumulative impact of millions
of them."

In the last minute of his speech, Governor Lamm wiped his brow. The
profound silence allowed me to hear my heart beating. Finally he said,
"Lastly, I would censor Victor Hanson Davis's book Mexifornia. His book is
dangerous. It exposes the plan to destroy America. If you feel America
deserved to be destroyed, don't read that book."

There was no applause. A chilling fear quietly rose like an ominous cloud
above every attendee at the conference. Every American in that room knew
that everything Lamm enumerated was proceeding methodically, quietly,
darkly, yet pervasively across the United States today. Every discussion
is being suppressed. Over 100 languages are ripping the foundation of our
educational system and national cohesiveness. Barbaric cultures that
practice female genital mutilation are growing as we celebrate 'diversity.'

American jobs are vanishing into the Third World as greedy corporations
create a Third World in America - take note of California and other states -
to date, ten million illegal aliens and growing fast. It reminded me of
George Orwell's book "1984." In that story, three slogans are engraved in
the Ministry of Truth building: "War is peace," "Freedom is slavery," and
"Ignorance is strength."

[expat_panama]

just to throw out this number without looking into it isn't very convincing.

Is there any number that would be convincing to you?  There are lots of actual head counts that lead me to hate paying high import taxes, because when those taxes get cut, incomes rise and employment increases.  Just hearing out about say, how some mean old capitalist is not paying enough, isn't going to get anyone a raise, much less hired.  

What number would actually convince you?   How about BLS employment stats-- would that be good or would you call it "smoke and mirrors"?  How about census bureau income tables-- is there anything that we can look at together and agree on?  It's so easy demand proof from someone else and the sit back and snicker, but you'd convince me that that you weren't blinded by hatred if you said something like:  "I like high import taxes because they make [insert economic effect here] happen."

On the other hand, maybe you want government control of trade because you want your side to hurt say, non-English speakers, or whatever.  Well, that's different- you be saying that people working and earning money are just plain irrelevant, and that's your choice.

[Texas_Dawg]

Still agreeing with Marxist economic theory, Willie? Your undying love for Marxism is pretty impressive.

[lelio]

Is there any number that would be convincing to you?

Yes, just a simple breakdown of this "insourcing" argument into companies that buy their way into a market versus those that have organic growth. The three companies I listed all bought their way in and then are now laying off.

How about BLS employment stats -- would that be good or would you call it "smoke and mirrors"?

Which stats are we arguing about? I frequently check out the stats from the BLS and find it very interesting.

because you want your side to hurt say, non-English speakers

I was waiting for the Race Card to be dealt.