Outsourcing Myths -- Debunked! The stats say simply, clearly, that this whole issue is overblown.

National Review Online ^ | October 13, 2004 | Bruce Bartlett

[xsysmgr]

The outsourcing of U.S. jobs to foreign countries has been a major theme of the Kerry-Edwards campaign. During his debate with Vice President Cheney, John Edwards repeated the standard Democratic line: “The administration says over and over that the outsourcing of millions of American jobs is good. We’re against it.” A search of John Kerry’s campaign website turned up 176 separate statements on the evils of outsourcing.

What you won’t find on the Kerry website are any references to serious studies of outsourcing. The reason is that they all find the issue to be seriously overblown: Outsourcing is responsible for a trivial amount of job loss at most, and is generally a positive for the U.S. economy. Serious studies of outsourcing include ones by former Democratic administration officials.

In July, economist Martin N. Baily, chairman of the Council of Economic Advisers under President Clinton, looked at who benefits from outsourcing. He found that for every $1 spent by a U.S. corporation on outsourcing to India, only 33 cents stayed in India. The other 67 cents came back to the U.S. in the form of cost savings, new exports, and repatriated profits. However, productivity gains add another 45 to 47 cents of value to the U.S. economy. Thus, on balance, the U.S. economy gains $1.12 to $1.14 for every $1 invested in outsourcing.

In August, economist Charles Schultze, chairman of the CEA under President Carter, looked at the number of jobs lost to outsourcing. He found that between the end of 2000 and the end of 2003, at most 215,000 service-sector jobs were lost. This is a minuscule amount in a working population of close to 150 million. Moreover, Schultze says, the productivity gains produced by outsourcing raised real incomes and living standards in the U.S. He concluded that outsourcing cannot be blamed for the “jobless recovery.”

Also in August, the nonpartisan Public Policy Institute of California looked at the costs and benefits of restricting outsourcing. It found that the cost of restricting outsourcing would greatly exceed any gains. Policies targeted toward those affected by outsourcing are far preferable to a ban on outsourcing. For this reason, California Gov. Arnold Schwarzenegger recently vetoed several bills that would have restricted outsourcing in that state.

In September, International Monetary Fund economists Mary Amiti and Shang-Jin Wei did the most thorough study of outsourcing to date for the prestigious National Bureau of Economic Research. These are their findings:

U.S. imports of computing services — the most controversial area of outsourcing — came to just four-tenths of 1 percent of the gross domestic product in 2003.

In 2002, the U.S. was the world’s largest exporter of computer services, which added almost $60 billion to our exports. By contrast, India’s total exports in this area came to less than $20 billion and China’s were just over $10 billion.

China and India, the two countries most blamed for outsourcing, actually outsource more than we do — six-tenths of 1 percent of GDP for the former and 2.4 percent of GDP for the latter.

Contrary to popular belief, the U.S. is a large recipient of outsourcing from other countries — i.e., insourcing. In 2002, the U.S. ran a healthy trade surplus in this area — receiving $22 billion more in outsourcing from other countries than it paid in outsourcing to other countries.

The number of jobs gained from outsourcing approximately equals the number of jobs lost.

The Federal Reserve Bank of Kansas City did the most recent study of outsourcing. It concluded that outsourcing has no permanent employment effects, although there can be temporary displacements.

Finally, press reports indicate that the outsourcing boom may have already peaked. A Sept. 22 report in the Wall Street Journal said that Chinese workers are now demanding better pay and more time off, which has sharply raised the number of labor disputes. This is quickly eroding the cost advantage of outsourcing to China.

An Oct. 7 report in the Financial Times said that General Electric, which pioneered outsourcing to India, has decided to sell its international outsourcing business. It found that the savings from outsourcing were mostly one-time gains that tended to dissipate over time. One reason is high employee turnover. Call centers operated by GE in India lost 40 to 50 percent of their workers every year.

Perhaps for these reasons, in his debate with President Bush on Oct. 8, John Kerry backed away from some of the more extreme statements he and John Edwards have previously made about outsourcing. Said Kerry, “You can’t stop all outsourcing. … You can’t.” He added that anyone who says he will stop outsourcing “would be pandering.”

Kerry is right. I hope Edwards and other Democrats were listening.

— Bruce Bartlett is senior fellow for the National Center for Policy Analysis. Write to him here.

[Milligan]

Our school district had to insource teachers! We live in a heavily Hispanic community and we have a shortage of bi-lingual teachers. We insource from Spain and PI.

[MTOrlando]

Why don't you fill me in? I'm interested in learning how insurers' reserves are relevant to the topic at hand.

And Bruce Bartlett is too an idiot.

[AndyMeyers]

Here are the latest employment statistics from the Bureau of Labor Statistics dated October 8, 2004

Employee Statistics (Workers employed by others)
From Peak Employment 03/01 to 09/04 -940,000
From Lowest Employemnt 11/01 to 9/04 +696,000

Household Statistics (Workers self employed and employed by others)
From Peak Employment 03/01 to 09/04 +2,254,000
From Lowest Employment 11/01 to 09/04 +3,464,000

The Democrats claim 1.6 million jobs lost, since Bush took office, and that is simply not true.

The Republicans claim that 1.3 million jobs have been created over the last 13 months and, based on BLS statistics, that is accurate, if we use the "Employee" statistic.

If "Household" measure, which includes workers who start their own businesses and work for themselves as well as employees who work for others, is used then more than 2 million jobs have been created since Bush took office.

I am not sure what justification the BLS has for not including the employed who work for themselves in determining "employment" in the US.

[MTOrlando]

I guess that you feel that capital mobility and the freedom to exchange it how you wish (providing laws aren't broken) is somehow a bad thing.

Capital mobility is fine. It's mobility of the factors of production that is a problem, and the two are not the same thing.

Would you support handing over control of our political system to the UN? If not, how can you justify handing over control of the this country's economy to foreign nations who most certainly cannot be trusted to act in our best interest?

[RightOnTheLeftCoast]

I'll do ya one better.

Take a look at the actual employment numbers including a graph in Excel format: http://www.speakeasy.org/~dervish/Employment.xls

[MTOrlando]

The Republicans claim that 1.3 million jobs have been created over the last 13 months and, based on BLS statistics, that is accurate, if we use the "Employee" statistic.

.In 2002, there were 4,019,280 births in the United States, down slightly from 2001 (4,025,933). source

Assuming a constant birthrate (it's actually been declining for several years) and no immigration, we can safely assume there are about 4 million new entrants into the "job market" each year. Think of this year's batch of new entrants being those who were born in 1986 and are just now turning 18.

If we assume half of those are female and will be instant housewives, that's still 2 million new potential employees entering the workforce.

Even if the government labor statistics were reliable - and they're not - job creation during the last 13 months is not even close to sufficient.

[AndyMeyers]

Great graph, thanks.

There is no data on "Household" employment, which shows that employment did increase under Bush.

If we stick to "Employee" data, I think we make the Democrats' point for them. I believe we should emphasize employment data that reflects both self employed as well as those who work for others. It is a more accurate reflection of those actually employed.

[Willie Green]

The Democrats claim 1.6 million jobs lost, since Bush took office, and that is simply not true.
The Republicans claim that 1.3 million jobs have been created over the last 13 months and, based on BLS statistics, that is accurate, if we use the "Employee" statistic.

In a totally nauseating role reversal, the 'Rats are pointing at PRIVATE SECTOR employment while the pseudo-conservative Administration is dependent on hyping the growth of Big Government employment to minimize the criticism.

[Rakkasan1]

a recovery is when Daschle loses his job.

[valkyrieanne]

The consequences of outsourcing technical jobs are wide-ranging.

First off, many laid-off engineers and other technical people have *not* been able to replace their income. Some see that as an opportunity for sneering - go ahead. But financially, when families have one or two laid-off workers who get new jobs at substantially *less* income, the effect ripples throughout the economy.

How? People forclose on their mortgages. Women who weren't working go back to work (count in social costs of latchkey children; unsupervised teenagers getting into trouble, etc.) Family income and thus spending drop, or consumer debt goes up (adding to foreclosures & bankruptcies.) Medical insurance is lost - resulting in more debt, and long-term consequences to health for the whole family (i.e. greater costs down the road.)

Then consider other consequences. Enrollment in engineering & computer science programs has dropped over the past 2 years by half in many major engineering programs. Less US engineering students means several things: more foreign engineering students (i.e. more security risks.) Less enrollment in these programs means eventually some will be closed.

Less technically educated people means that our society will *lack* a critical mass of math/science literate people. IMO this is a critical *national defense* issue. You simply cannot ramp up "production" of math/science literate people the way you do a cheap Chinese manufacturing company.

So those who poo-poo outsourcing consequences can fiddle while Rome burns - for awhile, at least, until the barbarians show up at the gate with other ideas.

[LowCountryJoe]

That statement was a terrible blunder on my part. I know what I was thinking but I'm incorrect about that one. I suppose I could attempt to argue my point by showing how those assets (insurers reserves) indirectly come from the balance of payments from trade through the wealth effect but it is twice removed and a very argument.

I can however, with full confidence this time, state that because of our trade deficit, foreign banks have purchased American assets. When the buy our debt, we use those loanable funds to finance things such as business expansion and homeownership. Because they continue to buy, it keeps interest rates on loans low for American consumers and businesses. When the buy our equity securities, the take a stake in America and become partial owners of our businesses. This makes them interdependent on the health of our economy and less apt to try and ruin it. Their stock transaction provide more market liquidity. When they buy our property many times they will use it to run one of their multi national corporations from, in-sourcing jobs that require higher skilled labor, running their corporations from our soil.

Does this at all seem bad to you? Perhaps you'd like it the other way around and for us to be financing them, increasing their investment activities and expansions. The truth is, it really doesn't matter because it's two different sides of the same coin and all the countries involved will benefit in their unique way. Are their tradeoffs? Yes, there are in everything; which way do you want it?

[AndyMeyers]

No body dies or retires in the US?