As the 110th Congress prepares to convene,
investors are beginning to debate the prospects for
the emergence of protectionist legislation. After all,
can Congress sit by idly as, according to one
estimate, more than three million U.S. service jobs will
move offshore in the next 15 years, taking more than
$136 billion in wages with them?1
Then again, are such claims fact, fiction or
politically convenient rhetoric?
To be sure, sufficient anecdotal data does appear
to reinforce the statement’s plausibility—but only to
those who are unwilling to consider that outsourcing is
not a one-way street.
Research from the Federal Reserve Bank of New
York (Bank) brings new light to what factors are
relevant in evaluating the impact of offshore
outsourcing. In “U.S Jobs Gained and Lost through
Trade: A Net Measure,”2 the researchers concluded
that the one interpretation of the source data—an
interpretation that gave rise to the legend—may have
misrepresented the true effects of outsourcing and
bilateral trade on the U.S. job market. To them, the
issue at hand is not outsourcing, per se. Instead, the
authors argue, understanding the impact of offshore
outsourcing requires an assessment of the net
change in U.S. labor force employment resulting from
both import and export activity. In other words,
measuring the job creation arising from export
activities is just as important as measuring domestic
job reductions resulting from increased import
activities.
The relevant calculation seeking to quantify the
issues is, I believe, relatively straightforward. The net
employment figure measures how many U.S.
workers—at current wages, prices and productivity
levels—would be needed to produce the goods and
services imported to the United States, minus how
many jobs currently produce goods and services for
export. The result, according to the bank researchers,
is a truer measure of the trends toward outsourcing
U.S. jobs overseas.
And, as is the case with many politically charged
issues, the research clearly reveals there is a wide
gap between fact and urban legend. You see, if the
Bank’s research, covering the period 1983-2000, is
indeed the appropriate way to assess trade and labor
flows, the net number of jobs lost to bilateral trade is
not only a fraction of that purported but also does not
appear to be accelerating from earlier trends. In fact,
as I read it, the statistical evidence reviewed by the
researchers leaves little room for any protectionist
debate in the halls of Congress. Simply put, bilateral
trade is a natural evolution of a nation’s production
and spending cycles—not a one-way ticket to
competitive disadvantage.
1 “3.3 Million U.S. Service Jobs to Go Offshore,” by John C.
McCarthy, et.al, TechStrategy, Forrester Research,
November 2002.
2 “U.S. Jobs Gained and Lost through Trade: A Net
Measure,” Erica L. Groshen, Bart Hobijn, and Margaret M.
McConnell, Current Issues in Economics and Finance,
Federal Reserve Bank of New York, Volume 11, Number 8,
August 2005. Available at
http://www.newyorkfed.org/research/current_issues/ci11-
8.pdf,
This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its
accuracy. The forecasts and opinions in this piece are not necessarily those of Van Kampen, and may not actually come to pass. Information
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