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Crazy
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The following article appeared in last week's issue of Barron's. It bears great relevance to the topic at hand, so I thought I'd present it for further discussion. Keep in mind, the article is not political rhetoric, but economic analysis.
Quote:
Offshore and Off-Base
If white-collar work costs less, real incomes rise
Gene Epstein
Barron's, Monday, January 12,2004
"Services offshoring is going to be the next big thing in the American globalization debate," predicted Brookings Institution senior fellow Lael Brainard Wednesday. And, God help us, she is probably right.
Brainard made this remark at what she called a "great debate to kick off the year" that this liberal think-tank hosted for New York's Democratic senior senator Charles Schumer, and his collaborator, Hoover Institution senior fellow Paul Craig Roberts.
The day before, the New York Times ran an op-ed piece by Schumer and Roberts, in which they expressed "concern" that "any worker whose job doesn't require daily face-to-face interaction is now in jeopardy of being replaced by a lower-paid, equally skilled worker thousands of miles away."
Which only makes it plain that these two thinkers have been leading cloistered lives.
Truck drivers (3.4 million) are not required to have "daily face-to-face interaction" to earn their paychecks, and neither are many of the other workers in the U.S. involved with transportation and freight-handling (8.0 million). Construction workers (6.8 million), mechanics and repairers (4.9 million) don't have this in their job descriptions either.
How many workers might really be affected? Out of about 45 million doing skilled service work for better-than-average pay, make it one in four. And that assumes nearly all engineering, architecture, computer, mathematic, design, accounting, bookkeeping, records-processing and call-center work eventually goes foreign. Then, for good measure, add 5% of managerial workers (out of 21 million), and 10% of health-care workers (out of 10.5 million).
But lawyers, dentists, physicians, nurses, therapists, teachers, college professors, social workers, writers, public-relations specialists, air traffic controllers, high-end sales people, and 95% of managerial labor? Not for a while, anyway.
Now, take the final step. What would happen if one in four -- about 12 million -- skilled-service jobs really did drift abroad?
As economist George Riesman points out (see www.mises.org), the real income (adjusted for changes in purchasing power) of the average worker could only increase. After all, the vast majority of us don't supply these services -- we purchase them! So if a service job costing $100,000 per year (the American salary) now costs $10,000 (what the foreigner will accept), our real -- that is, inflation-adjusted -- income goes up by the difference. That's because, in this era of fierce competition, nearly all of it gets passed on to the consumer in terms of lower prices.
Regarding the job loss itself, Brainard asks rhetorically, "Is this a matter of concern? You bet it is" -- and then goes on to speak of initiatives that might prevent it.
White-collar folks have always been best equipped to land on both feet, especially in a service economy. Must the average worker be expected to lift a finger for this wealthier group, by forgoing a rise in his own income?
As Riesman explains, the white-collar person will get another job paying more than $10,000, because if that sum were acceptable, the foreign worker paid $10,000 couldn't have displaced him in the first place.
That point is crucial to the net result. Let's say the displaced worker gets another job for $60,000. He's down $40,000, while all others have gained $90,000, for a net gain of $50,000.
This outcome is actually no different from a job displacement due to rising productivity. Imagine the worker lost a job in agriculture. At a salary of $100,000, say he produced a thousand bushels of wheat, which now cost only $10,000 to produce because of better technology. This worker is also freed up to contribute in some other way, which we'll value at his new salary of $60,000.
That is how incomes rise. And in this case, distribution of income has become more equal.
The December jobs report, issued Friday, was a distinct disappointment, although its subcomponents subtly confirmed that the basic trend is up. Payroll employment rose by a meager monthly average of 48,000 in the three months through December. But nearly all gains were in the private sector, and temp work, a leading indicator, is still rising.
Also, the unemployment rate fell two tenths of a percentage point to 5.7%. The decline is being dismissed as illegitimate because the labor force also fell, but that's an old, old fallacy that refuses to die.
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Skwerl. Its wuts fer dinner.
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