"Job-Creating Offshoring?"

Since we are already talking about immigrants, may as well continue the Lou Dobbs type topics. Here is evidence from Japan that offshoring may help to create domestic jobs:

Job-creating offshoring?, by Mitsuyo Ando and Fukunari Kimura, Vox EU: European business is internationalising its supply chain; European manufacturing employment is falling. The correlation – combined with a lively anecdotes of West European jobs being transferred to low-wage Central European nations – has given rise to a growing choir of anxious voices. Public opinion and politicians both worried that globalization would ship jobs abroad and domestic workers will suffer.

The term ‘hollowing out’ is not new. Kūdōka (hollowing-out due to offshoring) has been a concern in Japan since the mid-1980s. Since it has been going on so long in Japan, it is natural place to look to the Japanese data for the employment impact of this new form of manufacturing organisation.

Theoretically, the effect of offshore outsourcing on domestic operations may be positive or negative. The outcome depends on whether the cost savings from offshoring make the firm more competitive, inducing it to expand at home, and whether the activities abroad are complementary to domestic operations. Thus, the effect of foreign direct investment (FDI) on the home labour market is an empirical issue. This column examines the globalizing activities of Japanese firms, with a particular emphasis on East Asia.

From the mid-1980, East Asian firms began to 'unbundle' their manufacturing processes by slicing up the value-added chain, a trend that accelerated in the 1990s. This fragmentation of production processes across the region resulted in a massive increase in the vertical trade of parts and components. Japanese firms have been major players in these international production and distribution networks, especially in the manufacturing sectors. As these firms have expanded their manufacturing operations in labour-abundant neighbours such as China, some in Japan have shared the fears expressed in Europe and North America about the impact of firms investing abroad to take advantage of the large wage gap between developed and developing countries. In a new CEPR Policy Insight, we use extensive data on the behaviour of Japanese firms with and without operations abroad to assess whether offshoring is a boon or bane to domestic manufacturing.[1]

Main findings Japanese firms are major players in East Asian production and distributions networks, and the acceleration of Japanese investment in East Asia, especially in manufacturing, over the last decade has spurred fears that Japanese domestic production may be hollowed-out by offshoring. However, the data demonstrate complementarity between firm-level trade and FDI, suggesting an increasing unbundling of manufacturing processes across production and distribution networks in East Asia. Therefore, firms establishing affiliates abroad need not shrink their domestic activities, as these operations are often complementary to the rest of the value added chain.

Using comprehensive firm-level data, we examine the relationship between firms' offshoring of activities and their domestic operations. The statistics and our formal analysis both suggest that globalising manufacturing firms are less likely to reduce their domestic employment than other firms. In fact, controlling for other firm characteristics, they experience greater job creation at a rate as high as 8%. Unfortunately, the dataset does not permit analyses of the skill structure of labor that is directly employed. We so however clearly observe that Japanese firms intensifying operations in East Asia tend to retain domestic operation including employment, more successfully than other firms – particularly in the case of SMEs globalizing their activities. Indeed, we find that SMEs expand domestic operations while offshoring.

These findings provide evidence that fears of offshoring may be unwarranted. Increased globalisation of manufacturing processes does not necessarily imply a hollowing-out of domestic production, and in Japan's recent experience, firms that go abroad expand employment at home relative to non-globalisers. In East Asia, at least, there is evidence that domestic workers ought to welcome offshoring by their employers. [See original for references and footnotes].

Comments

[Denis Drew]

This post reminds me that all the Japanese and German cars built over here (the last year I heard of we shipped 160,000 BMWs to Europe) mean that other countries outsource jobs to us too (partial explanation for Japanese depression?).

[Arne (not anne)]

Things look rosy for firms that are successful in off-shoring, but not so much for everyone else?

For the domestic worker, wouldn't the overall effect be of more interest?

[robertdfeinman]

Japan has an aging population and a birth rate below replacement. I think this makes it an unusual case and should be factored in when doing any analysis.

There has also been a change in social norms with younger people not buying into the salaryman mentality and lifelong employment. This should be considered as well.

There were also a few unique circumstances like the fumble of the US auto industry which allowed the Japanese to move in. A similar thing happened in the consumer electronics area. Not only did domestic US brands ossify and fail to innovate they were also slow to outsource manufacturing. There are no domestic brands in home electronics and just a handful in computers. These conditions won't recur.

[calmo]

A priori and empirically, I am suspicious of writin like this:

Thus, the effect of foreign direct investment (FDI) on the home labour market is an empirical issue.

You wanna take my blood pressure an see? (You think some of us should read less philosophy and more economics?) Does the writer think that it could be anything else than a 'let's look an see'..or does he want to just bethump us with "empirical"...leaving his reputation in crumbs for me (See what you get for carrying that Big Stick people? --a thrashing. Use the small stick and the little probing step rather than the distracting strut.) [You distracted?]
Alrighty then...continuing right along:

This column examines the globalizing activities of Japanese firms, with a particular emphasis on East Asia.

Bonk me good should I use "this column" (or "this post"). I want to hear what the writer of this column has to say. Please spare us the "One examines...we examine...but especially "the column (the Greek one with all the answers) examines". [This post finds the avoidance of the 1st person, "I", inappropriate to the task at hand. How bout if we (same 'we' who gathers for The Queen) respond to the editor of the column to lodge a complaint?]
Continuing along...to the conclusion of the emprical examination (and not mere navel gazing)

These findings provide evidence that fears of offshoring may be unwarranted.

and that abandonment of the "empirical" thingie, no? Or does the column wish to say that Japanese offshoring fears may be unwarranted?
I think I am just bein impossible today, you? (You been bonged by melvin? twas him that did this, twas.)

[Brooks]

http://www.swordscrossed.org/node/1662My Question for Lou Dobbs

[James Killus]

Ah well, dutiful repitition of this one's position:

Offshoring, globalization, and immigration are far more useful as methods of distracting the body politic from the real criminals, and as a means of pitting one group of productive workers against another (thereby creating greater confusion for the aforementioned criminals to ply their trade).

The proper response to such threats is a counterthreat. I suggest torches and pitchforks.

Note: I would have said "my position" above, but I wanted to test the limits of calmo's liguistic tolerance. Plus, there is that use of "more" without a "lesser" antecedent, but we'll take that as understood, and an exercise for the reader.

[Meh]

I don't know. The authors themselves note that this result might be specific to East Asia.

There's more caveats to be contained too: So the main company expands or retains jobs, but what about suppliers?

The basic worry is that supply of workers is much greater than demand for workers, because whilst offshore countries (e.g. China, India) are good at producing, they are not actually demanding goods at the same level...

So, what we have is overcapacity of production currently. That's bad news. No two ways about it.

[calmo]

Greetings James...and 'one' duly noted...along with 'torches and pitchforks' (let me know if you are helmeted writing this...I hate to be undressed for any occasion.).
This B the ting: adopting the formal (they think "respectable") tone (so "objective", scuse me while I go and drop a small snake into their pants) immediately sits me down, shuts me up and forces me to receive messages. Well what self-respecting message handler wouldn't start heckling? [You message handlers still sitting down? This ain't no coffee break...]
And it might even B a respectable message worth listening to and evaluating...possibly even agreeing to...could even B The Word of God. [Ok, you religious people out there, I didn't mean it...of course God would contact me directly. (no 1-800 numbers and a series of multiple choices to speak to The Operator there.)]
Ordinarily I can jump this hurdle, but today, the least little thing and I lose "my position"...yes, crave for "one's position", "our position", even the cloak of "the consensus of opinion" looks good.
Sorta like being banged into "the proper" thingie like this:

The proper response to such threats is a counterthreat.

So truculent James, you wearing helmet and gumboots while you post? My boots are not steel-toed, yours?
Where izat manOscience in you that might prevent you from squishing "the column"? Why should I insist you exercise more tolerance than myself and defend its merits? Must B somethin there worth retrieving ...but my dog refuses to hunt --today only... service will B back as soon as I find my colony? as soon as Killus's dog retrieves whateva value izinit?

[anne]

There was never a depression in Japan, only slow growth and shallow recessions that were further muted by generally declining prices. I remember that in the 1990s, Japanese news anchors would not how many general months prices had declined since 1993-1994. Middle class households were remarkably well insulated. Japanese families would wonder at how poorly the economy was doing but how secure they and friends were. Fiscal policy, which we ridiculed as wasteful was, as Paul Krugman almost alone wrote, highly successful as an insulator.

[James Killus]

Oh calmo, I am but a simple villager, confronted with outlandish magicks beyond my ken, so I must use harsh measures on those who would frighten me.

Also, anne is quite correct about Japan, although Krugman (and others) did decry the Bank of Japan's tendency to "sterilize" monetary policy and thereby create that slow deflation. But it's the whipsaws that do you in.

[Dickeylee]

Oh boy, slow growth AND shallow recessions! And just what did the Yen do over this time against the Euro and Pound? Did the Central Bank of Japan let it float against the Dollar?

[Bob]

Yeah losing jobs is actually good for the economy.

And there are WMDs in Iraq.

If you can't grap this it's cause you don't "understand" what the smart people know.

[Real Person from the Real World]

I work for a 3rd world entrepreneur. I have a job, great, but the pay is SHIT, and what he really values is NOT traditional skills, but SALES. He needs a US front to sell, sell, sell, and make it more palatable to his customers. Job creation isn't necessarily the same as creating good jobs with good pay and benefits. Also, his values are different, and not always appealing. While many are there in our own US based businesses, some of the most eggregious practices are exaggerated. Very structured, and he wants to make sure, like a school marm, that everysecond you are clocked in, is productive to him. He and his relations may screw up, but heaven help you, if you make errors. Facade is extremely important, and skilfully lying appropriately. Payments under the table.

[Real Person from the Real World]

Oh, one more thing.... they don't provide benefits, especially hospitalization, but if you get into an accident, and are incapacitated for a while, your job is up for the next body, and you are OUT.