March 21, 2004

Lindsey on Employment and Trade

Brink Lindsey, Director of the Cato Institute's Center for Trade Policy Studies, has an informative essay out on the relationship between trade and employment in the U.S. economy, including the effects of "offshoring". From the Executive Summary, a link is provided to the full .pdf document.

Lindsey's message is essentially that there has been an overreaction to the job losses associated with the recent recession, and that such events are cyclical, that we have been there before and recovered nicely, and that we are in the process of doing so again.

He asserts that international trade in general, and imports in specific are only minor factors in the U.S. job losses, and that protectionist trade policies are misguided and damaging. Here are some samples of his key statements, which he then goes on to support with facts, tables, and footnotes:

Challenging, High-Paying Jobs Are Becoming More Plentiful, Not Less:

The ongoing growth in total employment is frequently dismissed on the ground that most of the new positions being created are low-paying, deadend “McJobs.” The facts, however, show otherwise. Management and professional specialty jobs have grown rapidly during the recent era of globalization. Between 1983 and 2002, the total number of such positions climbed from 23.6 million to 42.5 million—an 80 percent increase. In other words, these challenging, high-paying positions have jumped from 23.4 percent of total employment to 31.1 percent. These high-quality jobs will continue growing in the years to come. According to projections for 2002–12 prepared by the Bureau of Labor Statistics, management, business, financial, and professional positions will grow from 43.2 million to 52.0 million—a 20 percent increase that will lift these jobs from 30.0 percent of total employment to 31.5 percent.

"Deindustrialization" Is a Myth:

....Opponents of open markets frequently claim that unshielded exposure to foreign competition is destroying the U.S. manufacturing base. That charge is flatly untrue...Between 1980 and 2003, U.S. manufacturing outputclimbed a dizzying 93 percent. Yes, production fell during the recent recession, but it is now recovering: the industrial production index for manufacturing rose 2.2 percent between January and December 2003. It is true that manufacturing’s share of gross domestic product has been gradually declining over time—from 27.0 percent in 1960 to 13.9 percent in 2002. The percentage of U.S. workers employed in manufacturing has likewise been falling—from 28.4 percent to 11.7 percent over the same period. The primary cause of these trends is the superior productivity of U.S. manufacturers....output per hour in the overall U.S. nonfarm business sector rose 50 percent between 1980 and 2002; by contrast, manufacturing output per hour shot up 103 percent. In other words, goods are getting cheaper and cheaper relative to services. Since this faster productivity growth has not been matched by a corresponding increase in demand for manufactured goods, the result is that Americans are spending relatively less on manufactures. Accordingly, manufacturing’s shrinking share of the overall U.S. economy is actually a sign of American manufacturing prowess.

“Offshoring” Is Not a Threat to High-Tech Employment:

...Employment in IT-related occupations has experienced a significant decline recently. In 2002, the total number of IT-related jobs stood at 5.95 million—down from the 2000 peak of 6.47 million. Although some of those jobs were lost because of offshoring, the major culprits were the slowdown in demand for IT services after the Y2K buildup, followed by the dot-com collapse and the broader recession. Moreover, it should be remembered that the recent drop in employment has occurred after a dramatic buildup. In 1994, 1.19 million people were employed as mathematical and computer scientists; by 2000, that figure had jumped to 2.07 million—a 74 percent increase. As of 2002, the figure stood at 2.03 million—still 71 percent higher than in 1994.

Despite the trend toward offshoring, IT-related employment is expected to see healthy increases in the years to come. According to Department of Labor projections, the total number of computer and mathematical occupations will jump from 3.02 million in 2002 to 4.07 million in 2012—a 35 percent increase over the decade. Of the 30 specific occupations projected to grow fastest during the decade, 7 are computer related....Thus, the recent downturn in IT-related employment is likely only a temporary break in a larger trend of robust job growth.

The wild claims that offshoring will gut employment in the IT sector are totally at odds with reality. The IT job losses projected by Forrester amount to fewer than 32,000 per year— relatively modest attrition in the context of total IT-related employment of nearly six million. These job losses, meanwhile, will be offset by new IT-related jobs as computer and mathematical occupations continue to boom. The doomsayers are thus confusing a cyclical downturn with a permanent trend.

(via Dan Drezner)

UPDATE 3/21: Speaking of Dan Drezner, here's his new article for Foreign Affairs called "The Outsourcing Bogeyman". Here's one important paragraph on "offshoring"...

Should Americans be concerned about the economic effects of outsourcing? Not particularly. Most of the numbers thrown around are vague, overhyped estimates. What hard data exist suggest that gross job losses due to offshore outsourcing have been minimal when compared to the size of the entire U.S. economy. The outsourcing phenomenon has shown that globalization can affect white-collar professions, heretofore immune to foreign competition, in the same way that it has affected manufacturing jobs for years. But Mankiw's statements on outsourcing are absolutely correct; the law of comparative advantage does not stop working just because 401(k) plans are involved. The creation of new jobs overseas will eventually lead to more jobs and higher incomes in the United States. Because the economy -- and especially job growth -- is sluggish at the moment, commentators are attempting to draw a connection between offshore outsourcing and high unemployment. But believing that offshore outsourcing causes unemployment is the economic equivalent of believing that the sun revolves around the earth: intuitively compelling but clearly wrong.

Posted by dan at March 21, 2004 9:40 PM