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Ten Myths about Jobs and Outsourcing
Heritage Foundation ^ | April 1, 2004 | Tim Kane, et. al.

Posted on 04/02/2004 9:01:54 AM PST by 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.


TOPICS: Business/Economy; Culture/Society
KEYWORDS: employment; freetrade; jobs; myth; offshoring; outsourcing; thebusheconomy; trade; unemployment
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To: Willie Green
Are you claiming that the trade deficit is responsible for the budget deficit?
41 posted on 04/02/2004 4:10:03 PM PST by xlib
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To: xlib
Are you claiming that the trade deficit is responsible for the budget deficit?

Nope.
But it's not surprising that you'd try some kind of lame misinterpretation along those lines.
Would you care to try another spin?

42 posted on 04/02/2004 4:23:01 PM PST by Willie Green (Go Pat Go!!!)
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To: Willie Green
Seemed like a reasonable question to me. Your previous response suggested that dollars in the hands of foreigners is a bad thing because they spend it on US treasuries. If the Fed is going to incur the debt anyway, it doesn't matter who buys it. So the only remaining reason I could see for your claim that 'trade deficits = debt' would be a causal link between trade and federal deficits.
43 posted on 04/02/2004 4:37:14 PM PST by xlib
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To: xlib
If the Fed is going to incur the debt anyway

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

-- Benjamin Franklin (1706 - 1790)

"I am one of those who do not believe that a national debt is a national blessing, but rather a curse to a republic; inasmuch as it is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country."

-- President Andrew Jackson - (1824)

"I am not among those who fear the people. They, and not the rich, are our dependence for continued freedom. And to preserve their independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude."

--Thomas Jefferson to Samuel Kercheval, July 12, 1816


44 posted on 04/02/2004 4:50:46 PM PST by Willie Green (Go Pat Go!!!)
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To: Willie Green
Interesting quotes, but beside the point. You said the trade deficit is a debt we have to pay, and you justified it with the example of foreigners buying US treasuries. If, as you acknowledge, trade deficits don't cause budget deficits, then the debt I pay in my taxes is caused by the fed spending more than it takes in; it isn't related to the trade deficit.
45 posted on 04/02/2004 5:03:36 PM PST by xlib
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To: MNLDS
Bump for INsourcing!

Let's get the full picture! Find out how much your state INSources: OFII.ORG

46 posted on 04/02/2004 5:05:15 PM PST by Rate_Determining_Step (US Military - Draining the Swamp of Terrorism since 2001!)
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To: Willie Green
It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.

And you put credence in the writings of Karl Marx? I knew something was kinda lefty about your postings. I had no idea exactly how much.

Karl Marx was wrong then, and you're wrong now. But at least you're in notorious company. :-)
47 posted on 04/02/2004 5:09:50 PM PST by Texas2step (<><)
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To: Sam the Sham
People remember...free trade destroyed the blue collar middle class 25 years ago

Can stop reading right there. Blue collar workers are wealthier now than they ever have been. Wages are higher. Home ownership is higher. This statement is completely false.
48 posted on 04/02/2004 5:13:25 PM PST by Texas2step (<><)
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To: Willie Green
Go tell your neighbors in NV who work at: Where was your hard drive manufactured? I just bought one at Fry's for $109 (200 Gig). I used to buy these for $200 a pop for 212 Meg. Perhaps you're like me and have a high standard of living that just wouldn't be possible in Pre-Globalization (Think 70s or earlier). Only the rich had stuff I have now.

Should Japan impose penalties on home companies like anti-free-trade people here insist be levied on US companies?

49 posted on 04/02/2004 5:14:30 PM PST by Rate_Determining_Step (US Military - Draining the Swamp of Terrorism since 2001!)
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To: MNLDS
How many people no longer have manufacturing jobs and are now working at Wal-Mart?

Whether outsourcing is good or bad depends on the frame of reference. It's a good thing for the employer who is trying to cut costs and it can be a good thing for the customer who buys that employer's goods.

To the extent that politics becomes involved, why should someone who benefits from outsourcing support a candidate who opposes it? And, on the other hand, why should someone who is hurt by outsourcing vote for a candidate who encourages it?

50 posted on 04/02/2004 5:16:23 PM PST by Scenic Sounds (Sí, estamos libres sonreír otra vez - ahora y siempre.)
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To: MNLDS
Post #3, like clockwork, FR's resident Unionist Marxist posting Marx's words as if they are Gospel.

Marx stands outside a multinational conference on free trade, and warns that free trade will lead to Communism.

Intelligent people might ask: why would a man interested in spreading communism take the time to warn non-communist countries that free trade would bring about the destruction of their forms of government, and replace them with his?

Simple: Marx was lying...it's what communists do (Willie hasn't figured that out yet).

Well then, if Free Trade would bring about communism and not freedom, why is it then that the first thing that communists do is ban all private industry, and make trade even between two citizens, illegal?

Because free trade is communism's most deadly enemy.

Communists say that private ownership of property is bad, that free elections are bad, that freedom of the press is bad, that private gun ownership is bad, and that free trade will bring the world to communism.

Marx was wrong, and communism is dead.

Well, except in Willie's heart that is.
51 posted on 04/02/2004 5:22:15 PM PST by Luis Gonzalez (Sin Pátria, pero sin amo.)
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To: Texas2step
And you put credence in the writings of Karl Marx?

A Texas2step must be a mighty slow dance.
I addressed that over six hours ago in reply #22.

52 posted on 04/02/2004 5:22:40 PM PST by Willie Green (Go Pat Go!!!)
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To: Texas2step
Understand Willie, he's a Unionist, his Union fees are given to John Kerry as campaign donations.

Yet, he thinks that he is a conservative.

Go figure.
53 posted on 04/02/2004 5:24:48 PM PST by Luis Gonzalez (Sin Pátria, pero sin amo.)
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To: MNLDS
I'm a 37 year old Engineer, and my entire career has been In-sourced. I've worked here in the USA, as an American Citizen for a very large Japaneese company, and I'm not alone.

Will Lou Dobs @ CNN spend every night between now and the election doing:
" The In Sourcing of America " ?

I doubt his liberal paymasters would allow him to talk about this truth.

54 posted on 04/02/2004 5:32:35 PM PST by ChadGore (Mach 7 !)
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To: xlib
If, as you acknowledge, trade deficits don't cause budget deficits, then the debt I pay in my taxes is caused by the fed spending more than it takes in;

And a Trade Deficit is essentially the same principle: we import more than we exchange in return.
We pay with money (paper or electronic) that has no intrinsic value of its own.
Our money is actually promisory notes, IOUs, DEBT.
And we are obligated to redeem that debt that is being built up by the Trade Deficit.

55 posted on 04/02/2004 5:32:53 PM PST by Willie Green (Go Pat Go!!!)
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To: lilylangtree
American jobs are disappearing into the Third World....

Yup. I feel sorry for the young people of today and the work culture that they face. Me, I'm retired and drawing a pension, modest tho it is. Many kids today will never see a pension. Sad.

56 posted on 04/02/2004 5:33:34 PM PST by Ciexyz
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To: Willie Green
Sooo... the upshot of all this is that we need to keep all these low-skill low-wage jobs here in the U.S. but then insist on paying them more money than their skills are worth?

Lemme guess: you're a big fan of the minimum wage too? Here... we can fix all these problems by just raising the minimum wage to six figures.
57 posted on 04/02/2004 5:35:34 PM PST by Ramius (As it turns out... taxation *with* representation ain't all that great either.)
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To: Willie Green
Dang, Willie, you're right. My standard of living would be SO much higher if I had to pay $200 each for my shirts that were made in America.
58 posted on 04/02/2004 5:39:15 PM PST by Ramius (As it turns out... taxation *with* representation ain't all that great either.)
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To: xlib
Willie thinks that a nation that exports (sells) more than what it imports (buys) is in better economical shape than the reverse.

In Willie's world then, China is more prosperous than the US.

There comes a point when you can personally buy more than what you can personally produce, then there is a personal trade deficit.

When I was younger, my financial situation required that I bought things I needed on credit, because I lacked cash flow. I lacked cash flow because my income was low, and my net worth in the dirt.

I grew older, advanced, saved, invested, and grew economically.

Now, I continue to use credit, but as a convenience, and in some instances to gain financial advantage.

I can also purchase more goods than those that I can produce.

I have elevated my financial status to a point where I live in a constant trade deficit.

Is that a bad thing?

Of course not.

It isn't a bad thing for the US either.
59 posted on 04/02/2004 5:42:31 PM PST by Luis Gonzalez (Sin Pátria, pero sin amo.)
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To: Luis Gonzalez
Dang Luis... I think you got the ten-ring with that one. :-)
60 posted on 04/02/2004 6:16:14 PM PST by Ramius (As it turns out... taxation *with* representation ain't all that great either.)
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