Blinder Baloney: Today's Scare Talk of Jobs Outsourcing Is Grossly Exaggerated

By Dickens, William T.; Rose, Stephen J. | The International Economy, Fall 2007 | Go to article overview

Blinder Baloney: Today's Scare Talk of Jobs Outsourcing Is Grossly Exaggerated


Dickens, William T., Rose, Stephen J., The International Economy


The fear that expanding international trade will cause job and income loss in developed countries has been with us for decades. In the past, the large wage gaps between the first and third world led many to fear an exodus of good-paying blue collar manufacturing jobs. Recently, the rise of the Chinese and Indian economies coupled with the Internet has given rise to a new concern, that high-skilled professional and technical jobs will be at risk for offshoring.

Surprisingly, some of the most prominent voices raising concerns about the new trade in services have been economists long identified with the mainstream pro-trade orthodoxy. For example, Alan Blinder, formerly vice-chairman of the Federal Reserve Board and a member of President Clinton's Council of Economic Advisors, published an article in Foreign Affairs arguing that forty million U.S. jobs are at risk of being offshored in the next ten to twenty years (he has since followed that claim up with two more articles further developing his ideas and estimates). Blinder is emphatic that in the long run, U.S. residents will benefit from offshoring overall and remains unequivocal in his defense of international trade. Despite this, he argues that offshoring of service jobs will be a "big deal," increase unemployment, and may lower some worker's incomes.

Others go further in response to this fear. Many in Congress have argued for requiring such restrictive labor standards in future trade agreements that it would likely be difficult to negotiate such treaties with less-developed economies. The previous and current Congresses failed to extend the President's trade promotion authority for the near-dead Doha Round of trade talks and have not approved a new trade agreement since the Central American Free Trade Act (CAFTA) passed in 2005, despite the fact that bilateral agreements between the United States and Peru, South Korea, and Panama have been negotiated. Support for trade agreements has virtually evaporated inside the Democratic Party; the fifteen Democratic House members who voted for the 2005 deal are derisively called the "CAFTA 15."

Beyond blocking new agreements, some in Congress would go further and insist on renegotiating past treaties, including the agreement underlying U.S. participation in the World Trade Organization. Senators Byron Dorgan (D-ND) and Sherrod Brown (D-OH) each have books cataloging the purported costs of free trade to American workers including lost jobs and lowered incomes.

Should we in the United States be afraid of declining wages or rising unemployment in the coming decades? We do not think so. The wage differentials between the first and third worlds have existed for decades, and the development of technology and institutions facilitating trade have been reducing the cost of imports since the end of the Second World War. Despite nearly constant increases in the extent of trade over this entire period, there is little evidence of substantial negative impacts on American employment or wages. Modern market economies regularly destroy and create tens of millions of jobs just from their own internal dynamics. Trade plays a very small role in this job churning. Time and again, modern market economies have proved that they can produce good jobs for workers who need them. There is no reason to believe that this will not be the case in the future.

THE HISTORICAL RECORD

The public perception that more of what we consume is "foreign-made" is true. As Figure 1 shows, imports as a share of our economy grew slowly from 1946 through 1983 and then grew more quickly from 1983 to the present. From 1983 to 1994, exports also grew, leaving the excess of imports over exports at about 1 percent of GDE However, from 1994 through 2005, the negative balance of imports over exports grew to 5.6 percent of GDP annually.

Figure 1 also shows that, as the relative importance of imports was growing, the unemployment rate was going down. …

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