Lawrance G Lux, click
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Blogs by Lawrance G Lux
Effect of Outsourcing 9/29/2004 12:02:45 PM
There has been much discussion of Outsourcing lately, because of the Election, and this is my take on it.
Drezner has an op-ed in the NY Times which states the effect of Outsourcing on Job losses has been minimal. All should read it, but even more, subsidiary information on it at his Blog (one should especially follow the links). He has done an excellent job on background information. His declaration of Outsourcing lack of effect, though, must be reexamined for possible Policy flaw.
Economists have always been too literal, due to their obsession with numbers. They concentrate daily upon marginal components of economic data, then return to economic Totals, and ignore the implications of small alterations of numeral data. It is true that Outsourcing and Business investment Overseas for purposes of Outsourcing, both made up less than 10% of the total since the Clinton years. Drezner and Economists therefore conclude Outsourcing has only minimal effect on the American Job market.
This Author dissents from the above-stated Opinion. We are experiencing an ever-increasing Trade deficit. American Business constantly increase their purchase of foreign products, such products produced at less Capital Cost due to cheaper Rents, lower Labor wages due to lack of Social Net, and a technology-enhanced Transportation network which delivers such products to American shores at rates making them competitive with American products. You may wonder how this relates to Outsourcing.
The Outsourcing currently being done is inside the realm of activity where American labor was competitive with foreign labor. The labor entailed a precision and craft producing a quality production system, where the higher American Wages still generated lower Production Costs. These Jobs did much to diminish the building American Trade deficit. They also generated a domestic Hinterland Job market to act upon and actuate their initial quality production. This Author estimates Nine Hinterland Jobs were lost, for every quality Job outsourced.
Why are these Jobs being Outsourced? American Business has realized their are differences in Skill levels required even in these quality Jobs. American Business also realized foreign Jobs markets have attained a enhanced degree of skill, and offer a lower Wage market. American Business immediately takes steps to maximize their Profits, and start to Outsource where it is viable. The Problem arises in that the subsequent Hinterland Job market is equally Outsourced, though unnoticed by Economists.
Ricardian Comparative Advantage to Trade turns in Comparative Disadvantage when total Productivity decreases, or when said Trade actually causes total Wholesale Prices to increase (generated by actual increases in Production Costs). American Business finds it more profitable to Outsource the quality Jobs, because of lower Wage scales, but the lost Hinterland Jobs transference raises total Production Costs due to the lesser cost of domestic onsite productivity. Outsourcing becomes a Ricardian Comparative Disadvantage of Trade.
