Economic study touts virtues of offshoring
by Ted Carter
Published: July 22,2012
Here’s a little something that might not go down easy for workers in Mississippi and elsewhere in the United States: Offshoring of jobs and the influx of immigrant labor into the country do not — on the whole — damage the U.S. labor force, says a new paper from the London School of Economics Center for Economic Performance.
In fact, for every job sent overseas, a 1.72 percent increase in employment occurs in the United States, say the three economists who examined 58 U.S. manufacturing industries from 2000 to 2007.
The economists say they are more inclined to see the numbers as a wash, noting the 0.72 percent increase is too small to be statistically significant.
They did note an extra upside, however: Offshoring tends to push native U.S. workers toward more complex jobs, while offshore workers tend to specialize in less-skilled employment.
Here’s something from the study you aren’t likely to hear from either of the presidential candidates as they accuse each other of being world-class exporters of U.S. jobs: Increased productivity and reduced costs from off-shoring lead companies to expand domestic hiring enough to more than offset the jobs lost to workers overseas.
“Offshoring has no effect on native employment in the aggregate,” the authors said. “While offshore workers compete directly with natives, their employment generates productivity gains that ‘increase the size of the pie,’ leading to an overall neutral impact on native employment.”
The study’s authors emphasized a distinction between “horizontal” and “vertical” offshoring. With “horizontal” offshsoring, production moves abroad and the products manufactured are consumed aboard. By contrast, “vertical” offshoring through which some intermediate stages of production are moved abroad and the intermediates are re-imported to the United States for further processing is found to be beneficial to domestic manufacturing employment, the authors say.
In a finding that could draw surprise (and skepticism) from immigration opponents, the study concluded that every 1 percent increase in immigrant jobs boosted aggregate employment for American-born workers by 3.9 percent.
In fact, say the economists, immigrant labor tends to keep jobs from going overseas. “If the share of immigrants were to decrease due to an increase in the cost of immigration — for instance, due to more restrictive immigration laws — our results imply that immigrants are more likely to be substituted by offshore workers than by native workers.”
As noted by Washington Post staffer Ezra Klein in a report on the study, offshoring is not unambiguously good for all workers in all industries: The paper explained that, in certain manufacturing industries, the native share of employment has “ambiguously” gone down, forcing workers who have lost their jobs to offshoring to look for work in another sector altogether.
Klein further notes that the study doesn’t examine the state of U.S. manufacturing since 2007, when recession-strapped companies increased productivity while reducing employment to squeeze as much out of as few workers as possible. So the link between the “productivity effect” from overseas hiring and new jobs in the United States may have weakened in the last five years.
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