Out of a Job: Offshore Labor, Outsourcing or Something Else Entirely?

Image from: vlima.com

As the United States economy rebounds from the effects of the latest recession, many in the media are calling the recovery another jobless recovery, citing the growth of the gross domestic product coupled with a high unemployment rate.  Both the media and politicians frequently suggest that the trend to outsource manufacturing and move service jobs offshore is the culprit for our economic woes.  As a result, legislators are attempting to stem the tide of offshore labor and outsourcing through protectionist policies that mandate the use of American goods and services, tax corporations that use offshore resources or other draconian measures (Sealover, 2011).  Both the media and politicians are spending their time and energy on the wrong problem.  According to some estimates, offshored jobs will only make up 2% of the jobs lost by 15 million Americans annually (Lael & Robert, 2004).  If outsourcing and offshore labor are not the cause of job loss, who or what is the real culprit?  In short, the culprit is good-old-fashioned, American know-how.

Since before the creation of the Computing- Tabulating- Recording Company in 1911, the predecessor to IBM (“IBM Archives: 1900s,”), businesses in the United States have sought the means to improve business performance through the use of technology.  From advanced robotics and computers on the factory floor to self-service kiosks at airports and grocery stores, automation has displaced far more United States workers than have migrated offshore (Collins & Ryan, 2007).   Daniel Drezner, Associate Professor of Political Science at the University of Chicago also sees technology innovation as the root cause (2004):

There is no denying that the number of manufacturing jobs has fallen dramatically in recent years, but this has very little do with outsourcing and almost everything to do with technological innovation. As with agriculture a century ago, productivity gains have outstripped demand, so fewer and fewer workers are needed for manufacturing. (p. 27)

Former Secretary of Labor, Robert Reich described a tour taken at a U.S. factory, where the entire plant was run by two employees instructing more than 400 robots on the factory floor (Reich, 2009).

The capitalistic process of creative destruction, first described by Engels and Marx is alive and well as new industries consume the flesh of the old (Marx & Engels, 1974).  For example, the newspaper business is a shadow of its former self because of Internet technologies.  It would stand to reason that if millions of jobs and whole industries were destroyed via the relentless advance of technology throughout the last 30 years, then the total number of jobs in the United States would be shrinking.  Yet, even given the current unemployment rate of 9.6% for 2010, the United States has added nearly 47 million jobs over the last 30 years of technology innovation and achievement; therefore additional contributing factors are likely at work (Bureau of Labor Statistics, 2011).

“Historically, the number of jobs has closely followed the growth of the labor force, despite major increases in foreign trade and the advent of a host of new job-displacing technologies” (Lael & Robert, 2004, p. 3).  U.S. Bureau of Labor Statistics historical data for the since 1980 confirms that the labor force has grown at an annual rate of 1.18% while the number of employed workers has grown at a corresponding rate of 1.09% (Bureau of Labor Statistics, 2011).  “When the U.S. economy gets back on track, many routine jobs won’t be returning–but new jobs will take their place. A quarter of all Americans now work in jobs that weren’t listed in the Census Bureau’s occupation codes in 1967” (Reich, 2009).

It is in the nature of journalists to make the public aware of problems.  Equally so, it is in the nature of politicians to attempt legislative solutions.  Henry Louis Mencken once wrote, “There is always an easy solution to every human problem—neat, plausible, and wrong” (Mencken, 1949, p. 443).  The backlash against offshore and outsourcing is the classic example of focusing on the wrong problem.  Instead of focusing on the relatively few jobs moving to lower cost labor pools, the United States should focus on quickly retraining workers displaced because of innovation.  So the next time your hear the media blast the evils of outsourcing or your local politician suggest some new form of protectionist policy to prevent the use of offshore labor; picture them as the Dutch boy with a finger in the dike, trying to stem the tide of innovation, progress and good-old-fashioned, American know-how.

References

Bureau of Labor Statistics, U. S. (2011). Employment status of the civilian noninstitutional population, 1940 to date. In cpsaat1.pdf (Ed.). Washington D.C.: United States Department of Labor.

Collins, D., T. , & Ryan, M. H. (2007). The strategic implications of technology on job loss. Academy of Strategic Management Journal, 6, 27.

Drezner, D. W. (2004). The outsourcing bogeyman. [Article]. Foreign Affairs, 83(3), 22-34.

. IBM Archives: 1900s. IBM – United States  Retrieved May 11, 2011, from http://www-03.ibm.com/ibm/history/history/decade_1900.html

Lael, B., & Robert, E. L. (2004). Services offshoring: Bane or boon and what to do? Brookings Policy Brief(132), 3.

Marx, K., & Engels, F. (1974). The Communist manifesto. Belmont, Mass.: American Opinion.

Mencken, H. L. (1949). A Mencken chrestomathy ([1st ed.). New York,: A. A. Knopf.

Reich, R. B. (2009). Manufacturing jobs are never coming back. Forbes. Retrieved from Forbes.com website: http://www.forbes.com/2009/05/28/robert-reich-manufacturing-business-economy.html

Sealover, E. (2011). Colorado House kills bill about overseas jobs. Denver Business Journal. Retrieved from Denver Business Journal website: http://www.bizjournals.com/denver/news/2011/05/04/house-kills-bill-about-overseas-jobs.html