Samuelson On Offshoring: How Not to Find It
Washington Post columnist Robert Samuelson tells us that he can't find evidence of large-scale job loss due to offshoring, therefore it must not be there. He cites a study from the Institute for International Economics (IIE) that examined the 1 million jobs reportedly lost in large-scale layoffs in 2004-05. According to Samuelson, the study found that in just 4 percent of the cases was offshoring listed as the reason for the layoffs.
This is truly bizarre. The other reasons given for layoffs were factors like "contract completed," "downsizing," and "financial difficulty." I'm not sure how Samuelson or the author of this study thinks the economy works, but this analysis hardly counts as evidence that offshoring is not causing job loss.
Suppose the company that laid off workers because its contract was completed didn't get a second contract because it lost business to a company that depended on imported goods. Isn't this job loss due to offshoring? Suppose a company is downsizing because it is losing business to imports. Isn't this job loss due to offshoring? Suppose a company is in financial difficulty because it is being outcompeted by foreign producers. Isn't this job loss due to offshoring?
There is a reasonable debate about the plusses and minuses of increased trade over the last quarter century, but to argue that many people have not lost jobs and suffered pay cuts due to trade seems ridiculous on its face. I realize that there are powerful interest groups that don't want to have a serious public debate on trade and they can pay for lots of studies to obscure the issue. (If these folks had been around in Medieval Europe, they would have paid the economist equivalents of the day to write studies showing that the Bubonic Plague was rare and harmless.) But when imports account for 16 percent of GDP, it's ridiculous to argue that trade doesn't have a substantial impact on the domestic labor market.
--Dean Baker
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COMMENTS (18)
The task is daunting but it is good to see Mr. Baker smile.
Posted by: Mark | May 16, 2007 8:36 AM
I would class economists who study the cause of job loss based on the factor listed as the reason in some database as akin to international and development economists who do their work by feeding econometric models with numbers from official sources ...
... given garbage in, garbage out, they are garbagemen, except they like to deliver their refuse as if it was a valuable product in its own right.
Posted by: BruceMcF | May 16, 2007 10:42 AM
Dean,
I agree, I think Robert Samuelson is one of those useful idiots, but rather than cite your bubonic plague analogy, I'd use a more recent example of tobacco industry.
In 60 years, persuasive proof could not be found between death, disease and smoking. Thanks to clueless sleuths like Robert J. Samuelson the industry was allowed to engage in manslaughter without rebuke or rebuttal. Every serious, let's say...5,000 or better, mass murderer in the 20th century has relied on useful idiots like Robert J. Samuelson. As the Post's record on Iraq makes clear, they have a full bullpen of writers ready to come in pitch another lie to comfort those who perpetrate misery on the common people of earth.
Posted by: S Brennan | May 16, 2007 12:36 PM
Say it brother! Samuelson's role seems to be to stifle economic debate on the subject of offshoring.
Posted by: Quiddity | May 16, 2007 12:53 PM
Mark,
I concur. The old photo was far too grim.
Posted by: mickslam | May 16, 2007 1:20 PM
Mark,
I concur. The old photo was far too grim.
Posted by: mickslam | May 16, 2007 1:20 PM
Suppose the company that laid off workers because its contract was completed didn't get a second contract because it lost business to a company that depended on imported goods. Isn't this job loss due to offshoring? Suppose a company is downsizing because it is losing business to imports. Isn't this job loss due to offshoring? Suppose a company is in financial difficulty because it is being outcompeted by foreign producers. Isn't this job loss due to offshoring?
The answers of course, are no, no & no. Neither of those scenarios constitute offshoring. The only way this could be construed as offshoring in the indirect sense is if the company supplying the import-dependent company in scenario A:, The exporting company in scenario B, and the more efficient foreign producers in scenario C, were themselves offshored business processes.
In fact I'm surprised such a scenario hasn't captured the imagination of the more nationalistic anti-globalization crowd, such situations are bound to exist in the real world. It would give a real rhetorical punch to their message "We're being out-compteted by our own Benedict Arnold companies! Double Job Loss!"
But back to the topic, Scenario A just isn't very concrete (what if the new business wasn't import-dependent? It's job loss for that group either way) but B,C are nothing more than import competition.
In which case we can either mount a tariff or some other protective barrier against the imports or we can adopt a policy specifically designed to insure the wages & standard of living of those people who lose their job because they happened to work in an out-competed business. Since the latter policy is not highly regarded among certain people prone to care about such things, it looks like our choices are narrow.
Posted by: DRR | May 16, 2007 3:10 PM
DRR: but B,C are nothing more than import competition
Ok, so perhaps many cases of offshoring are due to import competition. Congratulations, you get an A+ in taxonomy. So what? Your categorization changes nothing.
we can either mount a tariff or ...
A tariff? Oh no! Wouldn't that cause the end of the world?!
Personally, though, I prefer doing something about the currency manipulation that keeps the dollar much higher than it needs to be to balance our trade. Despite the fact that offshore workers generally earn a fraction of American wages, there is a lot of overhead and additional costs associated with offshoring. The cost savings are not as great as the wage ratios would suggest, and so the amount of offshoring is likely quite sensitive to exchange rates.
Lastly, letting other countries sell their products here is one thing, but blatant wage arbitrage by MNC's is quite another. Oddly, MNC's are missing from most trade models.
Posted by: alex | May 16, 2007 4:48 PM
Ok, so perhaps many cases of offshoring are due to import competition. Congratulations, you get an A+ in taxonomy.
Close to clever. But again, I reiterate.
"Offshoring" is when you take the business process (jobs jobs jobs) from one country & relocate them to another.
If my factory fires me, relocates to Canada & employs the natives, it could be correctly said that I lost my job due to offshoring.
If my factory shuts down, laying me off in the process because it can't compete with imports from Canada, then we are all victims of unsuccessful import competition.
Maybe certain cases of offshoring stem from import competition, hardly implausible. But under the terms we were originally using before I rudely put in my 2 cents, it would be the equivalant of saying that offshoring is a major cause of offshoring.
Posted by: DRR | May 16, 2007 8:31 PM
DRR - alex is pointing out that you are making a distinction without a difference.
Posted by: RP | May 17, 2007 1:40 AM
I understand that's what he was trying to say but he's mistaken and it's not even close. This isn't rocket science or obscure nomenclature.
Posted by: DRR | May 17, 2007 3:48 PM
An economist today is someone who can prove, mathematically, that you do not deserve your job and that it should be done in India.
We need to outsource more economists. If that happened, they might actually begin to think of economic laws that retained jobs in the US.
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