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.


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



Welfare Reform: Who Really Benefited?

            The first major revision of welfare reform since the Great Society programs of democratic President Lyndon B. Johnson, was enacted in 1996 under the watch of another notable democrat, President Bill Clinton.  Dubbed the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), the new welfare policy aimed to roll back the entitlement-based system in favor of a system that encouraged personal responsibility, work ethic, family values and reduced dependence on the government payments.  On the surface, PRWORA should have had enormous benefits for welfare recipients, families, and taxpayers, as former welfare recipients found new jobs, formed two-parent families, and no longer required government assistance.  Instead, in the intervening years, many former welfare recipients found themselves in marginal jobs, living in poverty and continuing to receive government entitlements, in the form of Food Stamps, the Earned Income Tax Credits, the Child Care Tax Credit and Medicaid.  PRWORA forced millions of workers without skills into the workforce and as the largest employer of workers in marginal jobs, Walmart was the single, largest, beneficiary, therefore PRWORA must be consider a failure by any reasonable standard.

Why Change Welfare?

            In the late 1970’s there was a growing conservative backlash to the liberal ideals of the Great Society (Moss & Thomas, 2010).  Conservative Republican Governor Ronald Reagan rode the conservative backlash into office and helped define how Americans thought about welfare by creating the archetype of “welfare queen”.  During his 1976 campaign, Reagan turned a news story about a Chicago welfare recipient that defrauded state welfare programs out of $8,000, into the myth of the “welfare queen” that drove a Cadillac and who collected income of more than $150,000 annually using “eighty names, thirty addresses, twelve Social Security cards and…collecting veteran’s benefits on four nonexisting deceased husbands” (Cannon, 2000, pp. 456-457).  The growing conservative backlash, coupled with significant problems with the existing system of entitlements, helped to frame the national debate on welfare.

Accordingly, in the late 1980s and early 1990s, problems with existing welfare programs came to the forefront of the deficit debate as both the number of recipients (U.S. Dept of Health and Human Services. Administration for Children and Families, 2011) and the cost of the program for each recipient (U.S. Office of Management and Budget, 2011) skyrocketed between 1980 and 1995.  While the growing financial outlays concerned policymakers, of more import to Republican legislators was the perception that the fiscal problems were caused by the growing social problem of long-term, systematic, abuse of the welfare system by unwed mothers, a perception buttressed by President Reagan’s “welfare queen” archetype.  Republicans of the 103rd U.S. Congress, developed the Contract With America, that included a draft Personal Responsibility Act outlining the Republican perspective on the problems of welfare, “Long-term users often are young, never-married, and high school dropouts; and most AFDC families begin with a birth to a teenager” (Gingrich, Armey, Gillespie, & Schellhas, 1994, p. 68).  Additionally, Republican’s believed that recipients lacked incentive to work and were often encouraged to stay at home because of childcare burdens, therefore the Contract with America included a requirement that paternity be established in order place the fiscal burden on the father (Gingrich, et al., 1994).  The conservative backlash, the myth of the “welfare queen”, the rising costs of welfare, and the election of the Republican-dominated 103rd Congress, defined the U.S. political debate on welfare reform; but how much resistance could Republicans expect from a liberal Democrat in the Oval Office?

Surprisingly, President Clinton also sought to reform welfare and end the dependence of needy parents on government programs.  While Clinton sought to end dependence on government benefits, he also believed strongly in personal responsibility and sought to mimic the workfare programs adopted by Arkansas during his tenure as governor (Clinton & Gore, 1992).  Clinton and Gore outlined their views on welfare reform as they described “an America where we end welfare as we know it.  We will say to those on welfare: you will have and you deserve, the opportunity through training and education, through child care and medical coverage, to liberate yourself” (Clinton & Gore, 1992, p. 228).  Clinton believed the existing system trapped welfare recipients and sought to break the cycle by encouraging work and providing the means for welfare recipients to improve themselves.  The final legislation however, had a decidedly different emphasis.

Goals of PRWORA

            To illustrate, Clinton worked with Republicans to draft the eventual PRWORA legislation, but the new bill had abandoned critical training, education and medical coverage requirements outlined during Clinton’s campaign.  Rather, the major goals of the final PRWORA legislation was to end the dependence of welfare recipients on government benefits, increase the flexibility of states to administer welfare programs, and prevent and reduce the incidence of out-of-wedlock pregnancies and encourage the formation of two-parent families and finally, to reduce the welfare spend by $55B annually (United States. Congress. House. Committee on Ways and Means., 1996).  Ultimately, Clinton largely adopted the Republican’s Contract With America, and signed PRWORA into law, but to what result?  The benefit of ten years passing allowed an introspective Clinton to opine on the results of PRWORA in a New York Times op-ed piece to help answer the question, did welfare reform achieve its intended result?  According to Clinton, because Democrats and Republicans compromised and passed PRWORA, the number of welfare recipients dropped from 12.2 million down to 4.5 million, caseloads declined by 54%, 60% of mothers who left welfare found work and “100 times as many people moved out of poverty and into the middle class during our eight years as in the previous 12” (Clinton, 2006, p. 1).  Apparently, the law had not only reduced the caseload, but had put a significant dent into poverty as well.  Would an objective view of the results tell the same story?

Results of PRWORA

            To date, PRWORA has been in place for fifteen years, providing ample time to reflect on whether the legislation met its stated goals.  The primary goal of the legislation was to end dependence of welfare recipients on government benefits.  Indeed, as Clinton indicated, because of PRWORA policy limitations on how long welfare recipients may remain on welfare, the number of recipients dropped from over 12 million in 1996 to 4.5 million in 2010 with a 57% decrease in corresponding caseload (U.S. Dept of Health and Human Services. Administration for Children and Families, 2011).    Unfortunately, total entitlement payments had increased substantially from the $277B annual spend in 1996, ballooning by more than $450B a year to a whopping $720B, a far cry from the $50B in annual savings projected by lawmakers (U.S. Office of Management and Budget, 2011).  Much of the current spend can be found in entitlements related to issues not addressed in PRWORA, including Medicaid, Earned Income Tax Credit, housing programs, substance abuse and mental health programs, child nutrition, and a slew of others (U.S. Office of Management and Budget, 2011).  Additionally, the number of families living in poverty has remained at roughly 14% for the last thirty years (U.S. Bureau of the Census, 2010), while the number of out-of-wedlock pregnancies and single parent families are still on the rise (Temporary Assistance for Needy Families Program, 2007).  While the number of cases and recipients decreased, the ballooning entitlement spend would suggest that many welfare recipients are obtaining benefits through other means.  Conversely, the only tangible result of PRWORA appears to be the creation of a new generation of working poor.

The Working Poor

            To explain, between 1996 and 2000, 1.5 million people in the ranks of the unemployed joined the workforce as unemployment dropped from 5.4% to 4% (U.S. Department of Labor, 2011), when former welfare recipients, many of them single mothers, joined the ranks of the employed.  In fact, between 1996 and 2000, employment for single mothers rose nearly 25% (Wolf, 2006).  It could be argued that greater employment for single mothers was a positive development, unfortunately, most were likely employed in marginal jobs.  “Ron Haskins of the Brookings Institution, who helped write the new law when he worked for Congress, worries that too many women on welfare have turned into the working poor” (Wolf, 2006, p. 1).  The Institute for Women’s Policy Research (2003) also found that “Following welfare reform, poor single parent families not receiving TANF were more likely to live in dire poverty” (p. 1).  Given so many former welfare recipients moved into marginal jobs, the use of other entitlement programs expanded as the working poor sought the means to survive on minimum wage.  According to Wolf (2006):

While welfare was trimmed, other parts of the nation’s social safety net were expanding. The number of people receiving Medicaid and food stamps has soared by 50% since 2000. Medicaid is now the nation’s largest entitlement program, with 53 million recipients; 25 million people get food stamps. (p. 1)

In essence, PRWORA had the effect of driving millions of welfare recipients into marginal jobs and other entitlement programs, while doing little to break the cycle of dependency or help welfare recipients earn enough to avoid living in poverty.

Who Benefited?

            While neither former welfare recipients, nor taxpayers, appear to have benefited from PRWORA; perhaps there were other parties that did?  It appears that the single, largest, beneficiary of PRWORA was Walmart Corporation, as its growth was dependent on a large labor pool on unskilled workers willing to work for minimum wage.  In 1996, Walmart had reached nearly $100B in annual sales, had net income of 2.9% of sales and had hired over 50,000 additional workers, employing 675,000 people (Walmart Inc., 2011).  By 2010, only 14 years later, Walmart had quadrupled sales to over $400B annually, had net income of 3.5% and employed more than 2.1 million people (Walmart Inc., 2011).   Walmart’s phenomenal growth was achieved by significantly growing the number of stores and hiring 1.5 million workers to staff the stores, many of whom were likely former welfare recipients.

Furthermore, Walmart workers are notoriously among the lowest paid workers in the retail industry.  A University of California, Berkeley study found that Walmart has had a significant effect on the retail labor market by putting downward pressure on both wages and healthcare benefits, estimating real wage reductions of nearly 14% across the entire retail sector in regional markets with significant Walmart presence (Dube, Lester, & Eidlin, 2007).   Additionally, a similar study found that many low-wage, Walmart workers relied on the public programs like Medicaid, food stamps, and subsidized housing in order to survive on Walmart wages; in effect, Walmart employee’s reliance on public assistance, “has become a form of indirect public subsidy to the company” (Dube & Jacobs, 2004, p. 8).  Employment by Walmart has the impact of keeping many workers living below poverty level, while growing the public’s financial burden for Walmart’s workers.   Walmart’s need for millions of low-wage workers and their ability to externalize their labor costs to U.S. taxpayers have combined to make Walmart the single, largest, beneficiary of PRWORA.

Rethinking PRWORA

            Indeed, PRWORA’s emphasis on personal responsibility and goal of ending dependency on government benefits are both noble and ambitious.  As citizens, labor unions, government officials, and social scientists consider what has been learned in the 15 years since PRWORA was signed into law, some key considerations come to mind.  First, it is not enough to simply force workers into the labor pool without assuring that the minimum wage is actually a living wage.  Setting the minimum wage standard to allow marginal workers a survivable wage would help to decrease the overall costs associated with government programs not associated with PRWORA, like food stamps and housing subsidies.  Second, holding corporations accountable to workers and taxpayers, by putting policy into place to prevent them from externalizing costs, while privatizing profits, should be a primary consideration of future efforts to reform welfare.  Critics might argue that such regulation could be bad for business and inhibit growth of corporations like Walmart.  Rather, those corporations that successfully externalize their costs to the public would be placed on an even footing with their socially responsible competitors.  Lastly, welfare reform needs to invest to break the cycle of dependency on public programs.  It is not enough to simply make benefits conditional upon work and set time limits.  In order for welfare recipients to truly end their dependency on the government, they must be educated or trained for higher-skilled jobs.


             In short, government and business, whether by happenstance or collusion, have created a situation whereby poor, mostly un-educated, welfare recipients were forced into wage slavery, in order to receive the entitlements they had come to depend on.  Time limits built into the legislation forced recipients out of the system and into marginal jobs.  Walmart, the largest employer of low-wage workers, enjoyed the benefit of a made-to-order labor pool to staff the growth of its stores.  Because Walmart does not provide a livable wage and externalizes a portion of labor cost, Walmart also accrues to itself an additional benefit of higher earnings performance.  As a result, Walmart must be considered the largest beneficiary of the PRWORA legislation and therefore PRWORA must subsequently be considered a failure.  Further inquiry should explore the relationship, if any, between the Clintons and the Waltons to determine whether the circumstances surrounding PRWORA legislation was, in fact, the result of more than the good fortune or business acumen of the Walmart corporation.


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Dube, A., & Jacobs, K. (2004). Hidden Cost of Wal-Mart Jobs: Use of Safety Net Programs by Wal-Mart Workers in California (pp. 9). Berkeley, CA: UC Berkeley.

Dube, A., Lester, T. W., & Eidlin, B. (2007). Firm Entry and Wages: Impact of Wal-Mart Growth on Earnings Throughout the Retail Sector.

Gingrich, N., Armey, R. K., Gillespie, E., & Schellhas, B. (1994). Contract with America : the bold plan by Rep. Newt Gingrich, Rep. Dick Armey and the House Republicans to change the nation (1st ed.). New York: Times Books.

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Wolf, R. (2006, 17 July, 2006). How welfare reform changed America, USA Today, p. 1. Retrieved from http://www.usatoday.com/news/nation/2006-07-17-welfare-reform-cover_x.htm