http://news.yahoo.com/s/nm/20060825/us_ ... ctivity_dc

Outsourcing seen boosting wages at home: study

By Ros Krasny Fri Aug 25, 12:03 PM ET

JACKSON HOLE, Wyoming (Reuters) - Take that, Lou Dobbs. Despite much handwringing and political posturing, the surge of job outsourcing, by increasing productivity, has actually helped raise real wages for low-skilled U.S. workers, according to two Princeton University economists.

They countered critics of outsourcing, including high-profile CNN host Dobbs, who charge that transferring U.S. jobs abroad hurt American workers' well being.

Taking a swing at conventional wisdom, Princeton professors Gene Grossman and Esteban Rossi-Hansberg argued that wages for the least-skilled blue collar jobs had been rising since 1997 as outsourcing boosted productivity.

The professors presented their paper on Friday at the Kansas City
Federal Reserve conference in Jackson Hole, Wyoming. The meeting's theme, "The New Economic Geography," comes at a time when some fear that the United States is becoming trapped in a wages-prices spiral to the bottom by cheap labor in India and China.

The Princeton economists contend that many observers tended to gloss over the productivity benefits involved in the offshoring of labor.

They presented evidence that the productivity effect had helped raise real wages for the least skilled among U.S. blue collar workers -- those who do jobs most likely to be shipped overseas -- by about a quarter of a percent per year between 1997 and 2004.

Grossman and Rossi-Hansberg said critics of outsourcing had latched onto "incomplete" evidence that the low-wage labor abroad reduces low-skill wages or increases unemployment in the United States.

Rising productivity associated with U.S. firms' moving some tasks offshore "have served to bolster U.S. wages ... contrary to the fears of Lou Dobbs and others," they said in reference to the high-profile CNN anchorman who has waged a campaign against outsourcing of U.S. jobs. Outsourcing has also been a political hot-button issue in the United States during recent election cycles.

Those wage gains are "far from exceptional" but not as bad as might be expected based on the improvement in U.S. terms of trade with non-industrialized countries, they said.

TIME FOR A NEW PARADIGM

Grossman and Rossi-Hansberg argued that the core of international trade theory needs updating because of changes in the nature of production made possible by the Internet and cheaper transportation, among other factors.

"We need to move away from the traditional approaches to trade in which only goods can be exchanged internationally, and move toward a new paradigm," they said.

Increasingly, the economists said, global trade involves not only complete goods but individual tasks or relatively small numbers of tasks, which for the first time allows for specialization without geographic concentration.

"This has allowed firms to take advantage of differences in factor costs and expertise across countries, thereby enhancing the benefits of specialization," they said.

Did the number of those jobs remain constant? It seems if jobs are being outsourced, you've still got less people employed.

300 people make $5 an hour. You outsource 200 of those jobs, and give those remaining people a $1 raise. Your rate for those jobs went up a dollar, but your average rate for those 300 people just plummetted to $2 per hour.

I remain unconvinced that the discovery of this study means anything to American workers. All this proves is that the people who don't get fucked by Ford actually make out pretty good, but the people who get fucked by Ford, still get fucked by Ford.

*shrugs*

Except that's not what's happening. People may be losing jobs, but they are then finding different jobs. The beauty of a dynamic economy. This is best reflected in the nations unemployment rate.

I'm certainly not an expert on outsourcing, but the unemployment rate is basically meaningless. When they start calculating how many people are actually out of work vs. the number of people currently on the unemployment rolls then I'll start to take those numbers seriously.

I missed that part of the study results as well.

Either way you slice it, unemployment rolls and people currently out of work is looking pretty good these days despite out sourcing. We've had this debate before.

Given an honest examination, outsourcing is a good thing.

no, you don't.

you have less people employed in industry A in locale A. you have more people employed in industry A in locale B. the overall gains in productivity yield increased real wages for all employees in all locales, including those who find themselves temporarily displaced in industry A in locale A.

this whole issue stems from the mistaken belief that there is a fixed number of jobs in the economy, and that employment on the whole is a zero-sum game where one man's lost job is another's gain. it's just not that simple.



again, you're failing to consider the positive effects that such creative destruction facilitates.

the study is less concerned with nominal wages and incomes and more concerned with real wages. real wages (which take into account the cost of living) are a superior method of gauging whether or not the standard of living is increasing. such outsourcing, and the competitive pressure that gives rise to such phenomena, requires that costs are consistently minimized. the falling costs are reflected in falling prices and increasing living standards.



it's unfortunate that neither theory, logic, nor empirical evidence (let alone all three working in conjunction) are enough to mollify those anti-capitalist hairs that manage to defiantly stand up on the back of your neck.

because curiosity killed the cat...just what would be enough to silence, or at least reason with, such sentiments?

Is locale B Mexico?

I'm sceptical of such a direct causal link between the two. Outsourcing will help reduce business costs, but what happens with the savings is surely much more complex than a direct increase in wages across the board. What about R&D, new business lines, more marketing?

It really is up to us to create new markets for ourselves. If there is someone in India willing to do your job for us at 1/5th the price, and they can do it as well as us.... are we really worth it? It hurts, it sucks, but if we are goign to keep up we have to work twice as hard. I do have to say that Dell is eliminating the vast majority of its tech support outsourcing because they are getting a really bad rep from it.

My grandfather worked really fucking hard so I could be lazy. No mutha fuckin' Indian should be allowed to take that from me!

Those ignorant Indians got nothing on me..


I think what C4Lukin said is pretty true. In the modern world (maybe with the exception of the EU) you have to continually learn and progress or get runover by those who do. the problem I have with outsourcing is not job loss, it's about capability loss. We need to be able manufacture integrated circuits, cars, clothes, etc, in this country. Outsourcing these things to places like China creates a critical dependacy on nations that are not our allies.

if money is so important , why do they make it out of paper?

I don't remember it, which isn't saying much, but if you could direct me to that link I'd appreciate it.

I still say that just looking at the number of people on the unemployment rolls is a very inaccurate and misleading way of measuring the number of people who are actually out of work. In WV, our unemployment rate is about the same as the rest of the country, yet we have 1/3 of all our males currently out of work or not working. I wouldn't try to connect the dots on that to outsourcing in any way, but it still makes me mad to read in the paper that our unemployment numbers are somehow acceptable.

Why count people that don't want to work or are retired or too young to work?

Aren't there others who either can't find work and were on the unemployment rolls long enough to lose their eligibilty, and those who chose to retire involuntarily because they were 50 and got laid off and were never going to get a good job again? These are people who'd prefer to be working but aren't, and don't count towards unemployment figures.

I really don't know. I guess so long as they always calculate it the same way it would still have some value when comparing one period to another.

But in the late 90's, they reduced the amount of time you could stay on the welfare rolls, so it is only a good comparison during that period.

Great points, kthodos.



Also an excellent point, and one I can personally attest to. I will probably never buy another Dell after having dealt with their tech support. One of the great things about the free market, is that though companies can opt to outsource jobs (and should, its not a bad thing), there are certain jobs in which it may be better to have domestic labor. I believe that Dell is beginning to think domestic tech support may be a better idea, but only if the bottom line demands it. If sales fall as a result of customer disatisfaction, such as in my case, hopefully they will decide that even though it may cost more to employ tech support here, in the long run they will profit from more computer sales to repeat customers. Either that, or they will improve their design, so that less overseas tech support is necessary. The consumer wins on all accounts, and that is what matters most to me.

Modern EU didnt scape from this at all. German loses jobs for eastern-european countries everyday. France loses jobs even for England. Both France and German have very protective laws for their workers that end up spoiling them so no companies, even the national ones, want to stay there.