Into the Breach Again I Go…

Fight it… Fight it… No… Can’t… Resist… Must… Bring up… Trade… Again…

It’s not my fault. Blame Brad DeLong. He put up a provocative post yesterday about this week’s Economist piece (subscription required) on white collar jobs in the US being outsourced to places like India. DeLong’s point is that The Economist goofed. He says:

The fact that trade balances–that dollars paid to Indian call-center workers show up as demand for American exports or as funding for investments in America*–means that the Economist is doing a bad thing when it talks about “job loss” rather than “job shift.” Bad Economist! Go lie down now!! No biscuit for you!!!

Needless to say, Brad’s post has generated a storm of comments, many of which are intelligent, articulate, and almost all of which I’ve enjoyed reading. Numerous commenters raised the issue of the job losses that the IT sector in the US has experienced over the past 2 or 3 years. There are dozens of comments along this line, but I’ll reproduce one particularly persuasive comment by a contributor named Camille Roy to give you the flavor:

Dear Mr DeLong,

Love your blog, but this is bogus. In fact the stream of consciousness in this thread, in so far as it characterizes these out sourced jobs as low-skill jobs we may be better off without, is bogus. (The ivory tower mentality reflects poorly on your profession.) I am speaking from the line of fire, as a silicon valley software engineer with over a decade of advanced lab experience in the best companies in the valley. I know what’s going on and it is ugly. The wages dropping like a stone etc, etc. I know the companies around here are sending work off-shore as fast as they can and I know that there are very few replacement jobs. Job losses here are around 300K and there is nothing on the horizon for these highly trained unemployed.

I am completely sympathetic to the feelings and fears behind these types of comments. It is true that jobs have dramatically disappeared in Silicon Valley. And it is truly awful for those who lost jobs, or can’t find jobs.

I would like to pose two questions in response to these concerns.

First, how can one tell that outsourcing is responsible for recent job losses in IT? I would argue that nearly all of those job losses are due to the end of the massive internet technology bubble of the late 1990s, coupled with the general job market recession. In other words, I bet that job losses would be about the same in the industry if no new jobs had been created in India.

My second question is related: If outsourcing is responsible for the loss of jobs in IT, then what explains the job losses in other industries? Many have argued that manufacturing jobs have also disappeared because of international trade. But jobs have also disappeared in industries that face no international competition, such as transportation and retail trade.

The table below shows the percent change in total employment, given by the BLS, between September 2000 and September 2003. Jobs that face no international competition, such as courier services, rail transportation, and various wholesalers, have disappeared just as fast as (or faster than) jobs in software publishing, accounting, and research and development, which are supposed to be the major victims of outsourcing.

What explains this? It’s simple: the state of the economy is the reason for the loss of jobs in the US, not international trade.

As I argued at length a few weeks ago, the process of losing jobs to international competition is no different from the process of losing jobs to technological advances. They both cause pain and hardship for some people, and benefits for others. Why treat international trade any differently from technological progress? If you’re worried about the state of the job market in the US, then you should focus on the state of the economy, and the competence of the people running it. Don’t worry about international trade — it’s a red herring.

Let me end this post with another comment from DeLong’s post, by a contributor named Bulent Sayin:

Suppose, just suppose, that these whatchamacallit “call center” operations did not go offshore, instead, they were completely automated.

I mean suppose these call center jobs were lost to software, not to workers in India, with exactly the same effects on American call center workers. (If it is going to make you happy, assume that the conputers hosting that software is located in US; but that won’t make helluva difference, I can tell you.)

What would you say to that?

More importantly, what would you do about it?