Offshoring of American Jobs
The debate on offshoringof jobs is here with us. The rise of developing economies like China, India and former soviet block back to capitalistic economies poses a great threat to labor market. The cheap labor that has been available from these countries seems to erode the labor market. The media has posted some articles concerning this issue while different economics have also had a share in this. Bhagwati etal (2009) further discusses this issue in a more detailed way
Distinction between offshoring and outsourcing
Offshoring involves carrying out of one country economic activities in another country i.e. away from the country sea shore hence offshoring. In other words, it is a situation where a job is moved from the country. An example , if the Microsoft contracts to another company say Inforsys in Bangalore India to provide software lab services then this will constitute offshoring as well as outsourcing. However if this contract was given to a company in U.S. then this will constitute outsourcing.
On the other hand outsourcing involves contracting for services from another source. A job may be outsourced from one company to another. In this case the country where the job is being done is irrelevant. For example if Microsoft company contract another company to provide software lab services either in US or in another country this will be said to be outsourcing.
Bhagwati (2009 p 62) postulate that, services, especially which do not demand physical contact with a customer are being outsourced to any where in the globe e.g. in Britain, creative services such as design and advertising work.
Blinders concerns
Trend of services the personal and impersonal services
The trend of increase of impersonal services as opposed to personal services concerns Blinder. Personally delivered services e.g. surgery, are non tradable while impersonally delivered services e.g. advertising, are tradable. Most of impersonally performed services are provided by cheap labor from India, China and former Soviet Union.
Since many Americans earn their living by providing services, the electronic delivery of services is expanding as technology expands and that workers from China and India who can provide the same services will grow over time, then the offshoring trend poses an alarm
Comparative advantage
According to Blinder, India has come in with more labor and has a comparative advantage in providing the impersonal services at low cost. The results are that real wages around the world will be pushed down where the impact is felt most by English speaking rich countries with high tradable types of labor.
Blinder argues that entry of India, China and the former Soviet bloc to the global capitalist economy poses a long and difficult transition for workers all around the world.
Ever improving technology.
Technological improvements will cause more non tradable jobs to be tradable e.g. accountancy. In such a situation a comparative advantage can be created although not based on resources endowment. Workers in the U.S. holding such a job will easily lose their jobs and experience more pressure on their wages.
Blinder also brings out the issue cost of personal services. He postulates that personal services have little scope for productivity improvement as compared to impersonal services which experience regular productivity gains. In this case his argument is that changing the trade patterns will keep almost all the personal services jobs at home while a large number of jobs producing impersonal services will migrate overseas. This means that there will be great adjustments ahead of rich countries. However, on the other hand, the cheap labor is an advantage to offshoring companies and the same time large markets for rich countries.
The main worries of Blinder are that the gross job losses in the rich, English speaking countries will eventually be huge, continue for decades, posing many adjustment problems and its dominance of political economy for years.
On the issue of technology blinder argues that the information and communication technology will keep on improving and this will increase the range as well as complexity of the services that can be electronically delivered.
Emergence of India, China and other countries
Blinder asserts that these countries will continue to provide both large and increasing number skilled labor force since it take time to train labor force.
Blinder opposes protectionism in trade but instead propose that comparative advantage should be made in industries and or tasks where it formerly had none e.g. the Japan and automobiles success. Meaning that, modern comparative advantage can be moved around in response to changes in costs. He has no objection to free trade.
He postulates that, any country that loses a comparative advantage to a new entrant then the country can end up worse off. However comparative advantage does not have to be lost. In the case of U.S. losing her comparative advantage in some services can be reversed. Blinder is also concerned that offshoring will depress the real wages of many service workers in the US who do not lose their jobs through stripping of the previous immunity to foreign competition.
Offshoring of jobs as part of import of services
Offshoring count the imports of services. Some are classified as foreign direct investment as opposed to trade e.g. where build a software lab in England
Blinder is concerned that the offshoring will force major changes in the U.S. industrial structure, in what Americans do to earn their living especially in wages, in job security and turnover.
In his words the transition will be massive, and painful transition as millions of workers are rudely reallocated by the unforgiving market (Bhagwati etal p72).
Rich countries are more vulnerable to job offshoring and thus great wage pressure in future. The jobs provide impersonal services, some now pay high wages and some of which do not. The wage inequality among educated and uneducated is very conspicuous. In fact education is very important to any citizen in these countries.
Bhagwati etal assert that, there is need for systematic data, especially in service sector which have not been available. Collection of systematic data about which jobs are deliverable electronically over long distances and those are not. Blinder is concerned that no one is doing this. Due to this, it will be difficult to assess the size as well as the nature of the offshoring problem and constructive action about this will be less in absence of this data.
Issue of job satisfaction
In the recent decades, the existing trend of increasing impersonal and manufacturing services may shift to personal services in future decades especially in rich countries. This may lead to less alienation and greater average job satisfaction
In this case Bhagwati etal asserts that impersonal services can be delivered electronically and from far with little or no degradation of quality. However third industrial revolution that will emphasize personal services may occur. Blinder fears that this revolution although will neither drive all impersonal services offshore nor lead to mass unemployment, the necessary adjustments will be large, complex and multifaceted. Blinder is also concerned that the rich countries, U.S. included, seem to be unprepared for the coming industrial transformation. He suggests that, data systems, trade policies, and education systems politics should adapt to the fundamental movement from impersonal to personal services jobs.
Emergence of China, India with their available workers to do offshoring jobs poses mixed worries while India carrying the great weight. China has concentrated so much on manufacturing services unlike India whose impersonally performed services have been expanded. The electronic development in India as they pursuit their development will force America to make great adjustments in the coming decades. Blinder asserts that. Many intellectual do no want to awake from their slumber land as far as this issue is concerned.
Is offshoring likely to affect MOST workers or only a modest portion of U.S labor force .Dose it constitute a major threat to U.S living standards or does it benefits the U.S economy (and the public) at least mildly when all of its ramifications are considered
The magnitude of offshoring
The current effects of offshoring have affected modest portion of US labor force but the future trend may be lethal if actions not taken. A survey carried out by Employment Law Alliance reported that 6 of the workers have lost a job because their work was sent overseas , those who feared losing their job due to offshoring were 10 while 30 reported to know someone who had lost a job due to offshoring.
In another report from an associated press IPSOS, 20 of Americans reported that, a family member or someone they knew personally lost a job to offshoring.
As claimed by Freeman, the reality which U.S. has gone through job losses caused by offshoring and trade. She has also experienced stagnated real wages for three decades despite the rapid productivity growth accompanied by greater inequality contributed by globalization. Freeman urges that contemporary world is on a huge transition toward a global labor market which will greatly benefit the vast majority of persons but that will create problems for many workers in high wage countries of which U.S. is included
As postulated by Blinder, offshoring will destroy more jobs as opposed to jobs created. The unemployment will be characterized by structural and frictional type where many Americans will be displaced from their previous job in impersonal service occupation and forced to find work elsewhere. There will be downward pressure on wages caused by threat of potential offshoring.
Characteristics that make jobs offshored
Tradable Some jobs can be delivered by another person without any degradation of quality e.g. advertising.
Cost Jobs whose cheap labor is available in another country are usually offshored since more profits can be earned
Digitalization Jobs which can be done at any locale connected to the global information technology communication network can easily be offshored.
Many jobs which are offshored do not demand any physical contact with the customer.
Polices
Policies that will shift the workforce out of impersonal services and manufacturing services into personal services while training workforces accordingly should be emphasized.
Better unemployment insurance programs. Insurance policies should be made to cover risks associated with unemployment
Earned income tax credit should be made more generous. Taxation policies should not be exorbitant to the workers.
Healthy insurance be made universal. Health insurance will make the paying of hospital bills more easy to every person as well as cover risks associated with poor health.
Greater pensions portability
Wage loss insurance
Policy that will help in bouncing the displaced workers back into productive employment should be enacted.
To add on this Blinder propose that effort to prepare the future workforce for high-end personal services occupation that will not be offshored should be emphasized.
Increased research in areas of which a comparative advantage will be gained in the coming decades.
Freeman suggests that institutions that represent normal workers i.e. trade unions should be strengthened. The non market goods and services should be increased while guaranteeing the level of income to all citizens without regarding how they fair in the labor
Conclusion
The issue of offshoring is becoming a big debate especially in U.S. in our contemporary world especially in rich countries, a job is being offshored. The issue of free trade is also becoming questionable. Its pros and cons need to be evaluated. The protectionism approach should not be the solution to offshoring to this problem. However policies that will counter the problems including policies that will enhance inshoring, impersonal and personal services should be encouraged.