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Sunday, February 19, 2012

NBER Research Summary: Offshoring, International Trade, and American Workers

Here's a description of recent academic work on offshoring and US workers:

Offshoring, International Trade, and American Workers, by Ann Harrison and Margaret McMillan, NBER Reporter 2011 Number 4: Research Summary: In 1982, only one out of four employees of U.S. multinationals was located offshore, and over 90 percent of those employees were in industrial countries. By 2007, the share of offshore employment had reached 44 percent, and the majority of those jobs were in low-income countries. These trends in offshoring are mirrored in the statistics on international trade: over the past two decades imports from low-wage countries have more than doubled.1
Over this same time period, U.S. employment in the manufacturing sector fell sharply and income inequality increased. ... Our research is motivated by these parallel developments and seeks to understand the implications for American workers.
Are U.S. Based Multinationals Exporting Jobs?
This question has always been of interest to policymakers and is arguably more important now than ever before. Accordingly, there is no shortage of academic research on this topic.2 The problem is that the answer to the question seems to change depending on the study. ... Our research examines this seemingly contradictory evidence in an attempt to bring closure to this debate. ...
Interpreting the Results on Multinational Employment Abroad
Our results indicate that whether the offshoring of jobs by U.S. multinationals leads to a decline in U.S. based employment depends on both the location of the investment abroad and the motive for the investment. In general, the expansion of employment in low-income countries has been associated with a contraction in employment in the United States... However, when American workers and workers in low-income countries perform different tasks, the expansion of multinational employment abroad can lead to increases in domestic employment. Taken together, these results go a long way toward explaining why previous researchers have found seemingly contradictory results. ...
Economy-wide Trends in Employment, Wages and Inequality
Using data from the CPS, we show that between 1982 and 2002, total manufacturing employment fell from 22 to 17 million, with rapid declines at the beginning of the 1980s and in recent years. However, the effects were uneven across different types of workers. For workers without a college degree, there were significant declines in manufacturing employment over the entire period. The opposite was true for workers with a college degree. Within manufacturing, the labor force has become increasingly well educated, as college graduates replace workers with high school degrees.
Wage trends mirror the shifts in employment. While wages fell for the least educated workers, they increased for workers with at least some years of college. The biggest wage gains were for manufacturing workers with an advanced degree. The decline in wages for high school dropouts and the steep wage increases at the upper end of the income distribution indicate a sharp increase in wage inequality.
Are Trade and Offshoring Responsible for Growing Wage Inequality?
... We focus on ... the movement of workers across sectors and occupations. To the extent that trade leads workers to switch industries (for example from manufacturing to services) or occupations (for example from machine tool operator to burger flipper), studies that focus on the impact of trade liberalization on within-sector inequality miss an important part of the story.
... We begin by showing that trade and offshoring are associated with a contraction in the manufacturing workforce. Then,... we demonstrate that workers who switch industries within manufacturing experience almost no decline in wages. However, when workers relocate to the service sector, they experience a significant wage loss. The negative wage impact is particularly large among displaced workers who also switch occupations. ... These effects are most pronounced for workers who perform routine tasks. This downward pressure on wages because of import competition and offshoring has been overlooked since it operates between and not within sectors. ...
Implications for American Workers
The trends in offshoring and international trade that we have described are likely to accelerate. China currently employs around 120 million people in the manufacturing sector and, although some reports indicate that wages are rising in China, those wages are still only a tiny fraction of wages in the United States. Moreover, China is expanding its manufacturing base to low-wage countries across the globe through a series of overseas economic zones11 . The implication for American workers is that in order to regain ground, they will need to find jobs outside of manufacturing where wages are comparable to those in manufacturing.
This is a tall order. ... This state of affairs has led some economists, including one of us, to reconsider the role of industrial policy. ...

    Posted by on Sunday, February 19, 2012 at 12:25 AM in Economics, Income Distribution, International Trade, Unemployment | Permalink  Comments (33)


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