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The Jobs That Went Offshore
Subject Offshoring
Topic Employment, Unemployment, and Inflation
Key Words Offshoring, Unskilled Labor, Skilled Labor, Competitiveness, and Efficiency
News Story

With the job market emerging as one of the key issues related to a strong recovery for the American economy, a new political and economic question is being raised. How many more jobs would exist in the United States today if so many had not been "offshored"? The Labor Department conducts numerous surveys of American employees and employers, but has never attempted to calculate the jobs lost to foreign workers.

Recent history suggests that most of the lost jobs are in manufacturing or in telephone call centers where low cost labor can bid jobs away from American companies. It becomes a matter of cost competition for companies deciding to shift jobs overseas. Management consultants are telling their clients to take advantage of the low-cost opportunities that exist in other countries. "What we are basically saying is that if your competitors are doing this, you will be at a disadvantage if you don't do it too," said Harold Sirkin, a senior vice president at the Boston Consulting Group.

Not all offshored jobs require merely unskilled labor. Recent losses to foreign countries include aeronautical engineers, software designers and stock analysts. China, Russia and India, for example, have large ranks of educated workers who are merging rapidly into the global employment market. Intel Corporation has maintained about 60 percent of its employees in the U.S. but added about 1,000 software engineers in China and India during the last year. "To be competitive, we have to move up the skill chain overseas," said Craig R. Barrett, chief executive officer of Intel, the computer chip manufacturer. Boeing is shrinking its engineering employment in Seattle while hiring engineers in Moscow. Morgan Stanley is adding jobs in Bombay, but not in New York.

The estimates of job losses from offshoring run quite a gamut. Mark Zandi, chief economist at Economy.com estimates 995,000 jobs have been lost to overseas companies since March of 2001. If correct, this number is 35 percent of the total fall in employment since then. Most of the loss is in manufacturing, but about 15 percent affects college-trained employees.

On the low end, John McCarthy, a researcher at Forrester Research Inc. and Nariman Behravesh, Chief economist at Global Insights, estimates only 500,000 to 600,000 jobs have been lost to offshoring in the past 30 months, mostly manufacturing positions. Mr. McCarthy adds that he expects the globalization of American production to eliminate about 3.3 million jobs at home by the year 2015.

The loss in U.S. jobs represents a boom to those countries gaining jobs, because it often takes two or three less-efficient workers to replace one worker in the U.S. Nevertheless, after allowing for the extra costs associated with transportation, communication and other expenses, the very low wages of the competing workers can still result in a savings of as much as 50 percent for each job shifted. As long as costs savings of this magnitude are present, it will be no surprise to see more jobs shifted offshore.

(Updated October, 2003)

Questions
1.

Develop your own definition of the term "offshored."

2. Explain what you would expect the salary of engineers in China to do if the trend reported in the story continues.
3. At what point will Boeing stop hiring in China and return to hiring American workers?
Source Louis Uchitelle, "A Missing Statistic: U.S. Jobs That Went Overseas," New York Times, Online, October 5, 2003.

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