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May 07, 2007
Blinder on Offshoring
Don Boudreaux
Here's a letter that I sent yesterday to the Washington Post, in response to this op-ed by Alan Blinder. (Be sure also to check out Greg Mankiw's remarks on Blinder's essay.)
Editor, Washington Post
Dear Editor:
Alan Blinder worries that as technology opens up pools of low-wage labor in poor countries, the gains to American workers from free trade will be slow in coming ("Free Trade's Great, but Offshoring Rattles Me," May 6). He forgets that the world's stock of capital expands quickly to take advantage of profit opportunities.
If American workers today produce enough output to justify their high pay, any transfer of capital from America to China or India opens up profit opportunities for new investments in America. Skilled, motivated workers in a commercial environment of secure property rights will not long remain unexploited by capitalists.
Want evidence? Foreign direct investment in the U.S. from Latin America was $87.3 billion in 2004 - 114 percent higher than 1999's figure of $40.8 billion
Sincerely,
Donald J. Boudreaux
Posted by Don Boudreaux in Trade | Permalink
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Comments
Dear Prof.Boudreaux: Thanks for the great response. I hope the Post publish it. I enjoy your blog very much. I also think that Mr. Blinder is not intellectually honest and responsible in his writing about trade/offshoring (I am not against free speech. But a person of his caliber should have a bigger picture about the world).
Thanks.
Posted by: Yun | May 7, 2007 3:41:44 PM
If American workers today produce enough output to justify their high pay, any transfer of capital from America to China or India opens up profit opportunities for new investments in America. Skilled, motivated workers in a commercial environment of secure property rights will not long remain unexploited by capitalists.
The interesting question is whether American wages will be depressed. If offshore investments are especially profitable, interest rates will rise and American workers will be less productive on the margin, i.e. they will earn lower wages.
But Blinder's point was about something else entirely: viz., American skilled workers in displaced sectors will find that their human capital has been malinvested. The amounts involved are considerable, so this is a significant problem.
Posted by: guest | May 7, 2007 4:42:41 PM
Another fantastic letter, Dr. Boudreaux. Bravo.
I also loved Dr. Mankiw's remarks.
It seems that Alan Blinder doesn't want protectionist policies. He said so when he "came out" with his views in the WSJ, he said so in a video interview with the WSJ and he said so at the post-debate dinner.
However, if I interpret Dr. Blinder's comments correctly, what he does want is more income redistribution to “soften” the impact of offshoring for those directly impacted.
But doesn't that just set up another entitlement? And doesn't that do what all entitlements do - destroy the individual's need to change, to innovate and ultimately to create wealth? Doesn't that also create another reason for politicians to tax us to death to establish these entitlements, providing further disincentive to create wealth and making our economic slide inevitable? Or am I missing something here?
Posted by: Methinks | May 7, 2007 4:51:19 PM
The thing that I don't quite understand is why Professor Blinder assumes we "need" a safety net. The accountants and the programmers, who will supposedly have their jobs offshored, aren't exactly "idiots".
Aren't most of them perfectly capable of adapting to the market?
Posted by: Biomed Tim | May 7, 2007 7:59:32 PM
Biomed Tim:
Whether or not programmers can adapt is somewhat of a moot question. If you don't adapt, then you die. Some will find similar positions at other corporations. Others will become consultants. Some decide to go off in a different direction altogether. However, it would be interesting to find out how they fare on average financially. That's where the issue of the "safety net" comes in especially if you're older with kids.
If you think that it's important that America has a base of skilled programmers, then it's discouraging how less and less students are majoring in computers at college. They've seen people who spent decades in the industry get tossed aside because of outsourcing, mergers and cost cutting. Consequently, many have no desire to find themselves in the same boat especially when you consider the crazy hours. And so, outsourcing can become a self-fulfilling prophecy.
Posted by: David P. Graf | May 7, 2007 8:28:51 PM
David,
What your describing as a self-fulfilling can also be viewed as a market response of constricting supply to meet reduced demand, which could just as well ultimately raise the wages for the remaining domestic programmers.
Every specialization goes through waxing and waning demand. The real discipline that Americans will have to learn is how to save for the slim times instead of feeling their entitled to whatever they earn in the good times.
Posted by: M. Hodak | May 7, 2007 8:51:01 PM
I think Blinder is misguided on a number of levels.
One, he draws a distinction between product trade and services trade. But this is not interesting. Why trade should be any more or less costly because you make something that goes in a box as opposed to provide a service is unclear.
Two, he ignores productivity differences which mean Americans at much higher pay can compete with Indians and Chinese.
Three, why focus on trade as a driver of costly change. Change from within, through technology, is at least as important to changing the demand for jobs in the economy. All of those changes put people out of work and create new jobs elsewhere. Is a criticism of the costs of this from trade not also a criticism of technology - and doesn't this demonstrate the basic silliness of the point?
Finally, and perhaps most importantly, even workers who bear the costs of trade in losing their jobs and having to find another one still enjoy its enormous benefits - like access to low cost goods, the latest foreign technology, and the discipline that that competition induces in local suppliers. I do not believe these huge benefits of trade are separable from the costs of displacement. Furthermore, I would like to see some evidence that the costs of outsourcing are as large as Mr Blinder says. My hunch is that outsourced workers do not suffer reductions in living standards as they tend, on average, to move from shrinking local industries undergoing outsourcing into expanding local industries. Just a hunch.
Posted by: ben | May 7, 2007 8:53:44 PM
Two factoids
1) Even w/o outsourcing, almost 20 million people lose their jobs in the US each year. However, even more people get jobs -- this sort of loss and churn is part of capitalism.
2) The US GDP around $12.5 trillion. The value of those aforementioned white-collar services imported from India (as measured in India's export figures), is approx $20 billion ie, less than 0.2% of the US GDP.
Enough said!
Posted by: Prashant | May 7, 2007 10:52:34 PM
I once worked with a woman whose husband was an unemployed IT worker. He was unemployed for almost two years at the time. He was "displaced" after the bubble popped in 2000. He was just sitting around waiting for to get an IT job.
A guy I go to church with was displaced as well, an IT guy with Global Crossing. He took a loan, bought as many servers as he could afford, and went in business for himself as an IT consultant. Today he makes quite a bit of money.
Posted by: Ray G | May 8, 2007 12:33:13 AM
GREAT example, Ray.
I worked several jobs to get through school, got "displaced" a few times and went into business for myself eventually. Lots of people I know just moaned until someone hired them and then moaned if they were hired at a lower compensation rate than they were used to. Why I should be held responsible for the welfare of smart and educated but lazy professionals is beyond me.
If you can't compete with labour in the third world, what makes you entitled to a lifestyle any different from theirs?
Posted by: Methinks | May 8, 2007 8:46:05 AM
The person above who talks about shortage of IT jobs is on crack. I am a paid member of ACM (Association for Computing Machinery). Study after study shows that employers are desperate to hire more and more people in the IT industry and that demand severely outstrips supply. Therefore, it may be true that kids have that illusion of outsourcing-the-devil. However, Within the next 10 years, it'll be easier than ever to find an IT job.
Posted by: Tushar Saxena | May 8, 2007 7:57:36 PM
Tushar,
What nation are you referring to that has so many companies desperate to hire IT professionals? India? Where are these surveys? The ACM itself has released a study on outsourcing which states "economists agree that even if a nation as a whole gains from offshoring, individuals and local communities can be harmed". Furthermore, the ACM encourages students to "choose work in industries and jobs occupations less likely to be automated or sent to a low-wage country". What is the source of your incredible optimism? If you know which employers are hungering to hire more IT people in America, please let me know as I have several friends who would be grateful for the information.
Posted by: David P. Graf | May 8, 2007 9:47:42 PM
David Graf,
What do you mean by IT jobs? Have your friends looked at websites such as DICE.com?
I found 328 jobs for .Net professionals in the Dallas area alone. Most had been posted in the past two weeks. Companies included Raytheon, IBM, Zale, and Citigroup.
DICE.com had 688 jobs for .Net professionals in the Los Angeles area. Most had been posted in the past two weeks. Companies included Capgemini, Los Angeles Times, and Fox.
So where are your friends not finding IT jobs? Michigan? Ohio?
Posted by: JohnDewey | May 9, 2007 7:11:36 PM
JohnDewey - Information Week recently reported that the number of employed programmers has fallen about 26% since 2001. That doesn't sound like much reason to rejoice.
If you really take seriously the "opportunities" posted on online sites, then why is it that these sites never post the ratio of joh hunters to successful hires? You'd think that'd be a big selling point for them.
Plus, you have to understand that a number of the jobs are plants - used by HR departments to get an idea of who's available if they need to hire in the future and to find out current salary requirements in order to peg their own salaries against the market. In addition, many of the jobs are dups, but are being offered through different consulting groups. I have yet to meet anyone who got a job through these online sites.
Posted by: David P. Graf | May 10, 2007 12:08:01 AM
David Graf,
I personally know several people who have gotten jobs through these sites. Do you honestly think that these sites - of which there are many - would exist if they were not matching applicants to jobs?
I know one high tech worker who has gotten two interviews in the past week for jobs posted on these sites. Do you really think companies are going to waste time interviewing people for jobs they are not filling?
I don't know anything about the Information Week study you referenced. But I do know a lot about computer programming in large businesses. I've been programming computers for over three decades. For most of that time my job title was not "programmer" and I didn't work in an IT department.
David, do you know whether the Information Week study was based on real Labor Department statistics? or did the data come from surveys of IT departments?
Posted by: JohnDewey | May 11, 2007 2:27:50 PM
David Graf,
Here's the most recent data I can find about computer occupations in the U.S.:
from the BLS National Occupational Employment and Wage Report:
Computer and Mathematical Science workers
May 2005......2,952,740
Nov 2001......2,825,820
Do you have any reason to doubt these statistics, David? Any reason to believe that this occupation has declined in the U.S. since May, 2005? I'm a computer professional, David. I've seen no decline in the demand for computer professionals the past two years.
IMO, the BLS economists are better qualified than anyone to predict the trend in U.S. computer jobs in the future. Their most recent estimate was a 30.7% increase in computer and mathematical science jobs in the next ten years.
Posted by: JohnDewey | May 11, 2007 2:56:43 PM
JohnDewey:
I've been in computing over three decades myself in a variety of roles including a good chunk of time as a programmer. In addition, I spent a fair amount time while in graduate school working with statistics. And so, let's go over the BLS stats.
Whenever dealing with statistics, the devil is in the details. In 2000, the BLS stats state that about 745,000 people were employed as programmers. In 2005, the comparable number is 389,000 employed programmers. That's a fairly good drop wouldn't you say? If anything, the Information Week stats are a bit more optimistic than the BLS's.
And, given all the need and desire for more people in computing that you talk about, doesn't it seem strange to you that total employment in ALL aspects of computing has increased by only 125,000 positions since 2001 according to the BLS's own stats?
Regarding the BLS's accuracy, well - it's questionable whether anyone really can predict the future. However, the BLS's own occupational outlook doesn't present a rosy picture for programmers in the future.
You may ask why I concentrate on programmers. That's because programming is the entry level position in IT. Once those positions get zapped by outsourcing and the like, it becomes increasingly harder for people to break into the field. Yes - computer scientist positions are definitely increasing, but the additional requirements including advanced degrees put those out of reach for most people. And as outsourcing moves up the food chain, you can expect to eventually see a toll in those numbers as well.
Regarding the job sites, I'll go over that in more detail in a later posting. I've got to get to bed now.
Posted by: David P. Graf | May 12, 2007 1:18:16 AM
Regarding the job sites, I think the most telling fact is that none of the job sites provide statistics on how many people got jobs through them. As far as I can tell from independent studies, the rate is between 3% and 8%. That's hardly a success story. One of the studies can be found online at: http://www.careerxroads.com/news/SourcesOfHire06.pdf
And, let us not forget how crooks and identity thieves love these online job sites because once they have your resume they've got most of what they need to go to town.
As I mentioned before, many of the jobs are not for real. They're used by HR departments to get resumes and salary information. At one of the top companies in the nation, we were laying off employees. However, that wasn't the picture we were presenting to job seekers. When I contacted HR about this, that's when they let me into their dirty little secret and they didn't have any remorse over doing this at all. Plus, there's also the online scams who advertise on these boards and whose only intention is to take advantage of job seekers. That being said, there are legitimate jobs out there, but the success rate makes using these sites a real crap shoot.
Posted by: David P. Graf | May 12, 2007 8:53:12 AM
JohnDewey - I did some additional hunting on BLS stats. In 2000, the BLS states that 2,932,810 people total were employed in computing. In 2005, the corresponding figure is 2,952,740. And so, we're talking about an increase of only 20000 positions over five years?????
Posted by: David P. Graf | May 12, 2007 9:00:29 AM
David Graf,
I don't think I can agree with a number of your assertions. I'll separate my reasons into several replies.
First, I do not believe that the "conputer programmer" job category represents entry level positions for computer professionals. It may represent the least-skilled among the computer professional ranks. But it is by no means the only position open to computer professionals with little experience. I started as a "systems analyst" years ago. I know several people at my previous employer whose first computer jobs were not computer programmers.
Posted by: JohnDewey | May 12, 2007 4:18:50 PM
David Graf,
You seem to make a big deal out of teh statistic for a single job category. I think that is an incorrect view. But even so, where did you get the numbers? Where did you obtain the two figures you quoted for computer programmers in 2000 and in 2005? Were thes numbers - which you claim show a drop from 745K to 398K - from the same BLS reports?
The BLS National Occupation Employment and Wage Estimates show these figures for the very restrictive classification "Computer Programmer":
1999.....528K
2000.....531K
2001.....502K
2002.....451K
2003.....403k
2004.....396k
2005.....389k
I could find no figure of 745K in any BLS statistic for "Conputer Programmer".
Posted by: JohnDewey | May 12, 2007 4:28:37 PM
David Graf,
The BLS National Occupation Employment and Wage Estimates report shows that IT jobs are not declining in the U.S. The Information Week article you cited looked at a very narrow definition of comnputer professionals. Here's the change in the largest categories of computer professional occupations from 2001 to 2005:
Computer programmers................-112K
Software engineers, applications ....+94K
Software engineers, system software..+59K
Systems analysts ....................+44K
Total programmers, software engineers,
and analysts.........................+86K
Companies are requiring more skills of computer professionals. The old jobs of "computer programmer" were little more than coders. These jobs are drying up fast, or, in some cases, being offshored. But that doesn't say anything about the overall state of high tech jobs in the U.S.
Posted by: JohnDewey | May 12, 2007 4:38:58 PM
David Graf,
Your assertion that job sites such as Dice.Com and Monster.Com do not represent real jobs is an opinion, and based on no facts that you have presented.
My last two employers definitely used those sites to find employees. I was one of them. I personally know several recruiters who use those sites regularly. They most certainly attract talent through the ads they post on Monster.Com and Dice.Com and other sites.
If you want to believe that internet websites do not represent real jobs at real companies, feel free to do so. But please present facts proving your belief if you wish to invalidate my argument that they do. You are basically claiming that the hundreds of corporations who weekly post computer jobs on these sites are lying. I think that's an outrageous claim.
Posted by: JohnDewey | May 12, 2007 4:49:31 PM
JohnDewey -
Upon further reflection, I have to agree with much of what you've said. My apologies for not having done a bit more thinking on my part before posting.
First, You are correct about my error on the 745,000 figure for programmers. That'll teach me to not put together a post that late at night. Regarding the BLS stats, my starting point at http://www.bls.gov/oes/oes_data.htm is probably the same one that you use.
Second, the total number of people employed as programmers has dropped significantly from 2000 to 2005. However, that has been balanced by an increase in the number of positions in other categories such as analysts. Given outsourcing. the use of packaged solutions by more businesses and object oriented tools, the need for simple coders has dramatically dropped in the last few years. One may regret that, but you've got to change with the times or get left behind.
Third, of course, there are legitimate positions on online job sites. I still stand by my concern that some companies use them for unethical purposes since I have had direct experience which verifies that. However, I have no good reason to believe or even imply that's the norm.
Fourth, I still stand by my concerns regarding the online job sites themselves. When you consider that the statistics are not encouraging about the success rate (3% - 8%), then I think that these sites are overselling themselves to job seekers.
Lastly, I'm now heading to breakfast where there's a heaping portion of crow on my plate waiting for me. Again, my apologies.
Posted by: David P. Graf | May 13, 2007 9:26:35 AM
Posted by: laptop battery | Oct 13, 2008 3:34:15 AM
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