Outsourcing not what you think, say researchers
Study finds most outsourcing is done within the U.S., where almost one-half of full-time employees work at companies that use contractors and suppliers to do work once likely performed in-house. About 23 percent of full-time employees work at companies that offshore work to other countries.
Special to The Seattle Times
It seems so long ago, the 2012 campaign, when President Obama and Mitt Romney traded accusations about the other being “outsourcer in chief.”
The Obama campaign made much of the former Massachusetts governor’s time as founder and chief of Bain Capital, a private equity outfit that invested in companies specializing in relocating jobs done by Americans to new operations in low-wage countries.
Among the charges sent back from Romney forces was that General Motors, saved by the president, outsourced some two-thirds of its jobs to other countries. And Obama’s efforts in renewable energy supported some companies that made products offshore.
Then the election passed and so, seemingly, did the outsourcing debate. Now the fights at the rhetorical and policy barricades are over the minimum wage.
But the issue remains important, especially in a time of weak job growth, stagnant wages and high unemployment. The Puget Sound region has an acute interest because of the trouble Boeing encountered with the highly outsourced 787 Dreamliner. Economists continue to study the phenomenon.
The newest examination was released last week by Clair Brown, economics professor at the University of California at Berkeley, and Tim Sturgeon, a senior research affiliate with MIT’s Industrial Performance Center.
Companies have been outsourcing work for decades and anybody in the manufacturing heartland of the Midwest or the former textile temple of the Carolinas knows people who lost jobs to Mexico or China.
It’s an emotionally charged issue. Critics cite statistics that major U.S. companies cut domestic positions by 2.9 million in the 2000s while increasing their overseas employment by 2.4 million. According to the progressive Economic Policy Institute, from 1990 to 2010, some 3.5 million U.S. jobs were lost to offshoring and Chinese trade.
In 2012, The Wall Street Journal analyzed 35 U.S.-based multinationals, finding that they added jobs faster than other firms the previous two years. But three-fifths of the new jobs were overseas.
Former Intel CEO Andy Grove wrote a provocative essay in 2010 lamenting the loss of technology manufacturing in the U.S. Apple had 25,000 employees in the U.S., but 250,000 Foxconn workers making its products in China. This country had lost the ability to “scale” its innovations into job creation, and innovation would be the next loser.
But it is difficult to know how much of this happened because the companies were moving U.S. jobs offshore or expanding in new and fast-growing markets. Economists argue over the costs to jobs and benefits in cheaper consumer products.
Brown and Sturgeon wanted to go deeper. The result is a pilot study funded by the National Science Foundation using 2010 data. It’s wonkish. I recommend it for insomnia sufferers. Still, some results are surprising, though I doubt they will do much to quell the controversy.
Most outsourcing is done within the U.S., where almost one-half of full-time employees work at companies that use contractors and suppliers to do work that was once likely done in-house.
About 23 percent of full-time employees work at companies that offshore work to other countries. However, most of it is done to high-cost locations such as Canada and western Europe. This would seem to confound the conventional wisdom of companies only seeking the cheapest labor.
Major corporations are the big users of offshoring, so their decisions have an outsized effect on the labor market. These companies, which employ more than 20 percent of all full-time workers, usually offer better-quality jobs with higher wages and benefits than the average U.S. employer.
According to Brown, “We do expect offshoring and domestic outsourcing to expand as the economy continues to grow. The recovery allows companies to restructure and expand through more offshoring and outsourcing, instead of just rehiring and returning to old practices.”
My translation: More downward pressure on domestic wages and a significant driver of a jobless recovery and inequality.
Also, other studies make it clear that cheaper wages do indeed drive much outsourcing. The benefit for companies is stronger profits, higher stock prices and ever increasing compensation for top executives.
Grove called for a ”rebuilding of the industrial commons” and Obama has talked a great deal about doing this. But the promise of “reshoring” hasn’t resulted in many manufacturing jobs. Nothing has been done to change the tax code and other federal incentives to match the inducements that companies receive in China.
Thus, it has been left to the states to fight a nasty battle over a shrinking pie. Washingtonians should understand, even if they don’t approve, why Gov. Jay Inslee and lawmakers were so quick to provide Boeing with $9 billion in tax breaks for the 777X.
Pieces of the project will be outsourced. But thousands of well-paying jobs will be guaranteed in a state that still has an industrial commons.
But this is hardly a solution. Whoever is outsourcer-in-chief and in Congress depends on money raised by companies that want this status quo. The clock can’t be turned back to 1979. But a better balance can be found.
You may reach Jon Talton at email@example.com
About Jon Talton
Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest