Here Are the Facts About Offshoring
Between now and the election, we're going to argue a lot about jobs - who can or can't create them. It's going to be mighty confusing. For proof, witness the latest installment: the debate over outsourcing and offshoring. If you missed this dust-up, here's a recap.
On June 21, The Post published a story headlined "Romney's Bain Capital invested in companies that moved jobs overseas." The story implied - but did not say explicitly - that Romney had, contrary to his campaign rhetoric about creating jobs, personally encouraged U.S. companies to shift work abroad.
Not surprisingly, President Obama's campaign, less restrained, accused Romney of just that and aired TV spots repeating the allegation. The Romney campaign objected that any outsourcing that occurred while he was at Bain Capital (he left in 1999) was to other U.S. operations: for example, a firm subcontracting its call centers to another U.S.-based company. If work moved abroad, this happened after Romney departed. Two journalistic reviews agreed.
"We found no evidence to support the claim that Romney - while he was still running Bain capital - shipped American jobs overseas," said FactCheck.org.
The Post's fact-checking column said: "There is little in The Post article that backs up the Obama campaign's spin."
There's a distinction between outsourcing (subcontracting work to another company) and offshoring (moving jobs outside the United States).
Meanwhile, Romney has countered that Obama's economic policies, by making the United States less "competitive," has caused companies to locate jobs abroad.
Lost in all this back-and-forth was perspective on how much offshoring reduced U.S. job growth. The answer: probably not much.
Consider. The Labor Department conducts two major job surveys: one of households, the other of businesses (the "payroll survey"). From 1999 to 2007 - when there was much concern over offshoring - both surveys indicated strong employment growth: 12.6 million more jobs by the household survey and 8.6 million more by the payroll one. (The two surveys often produce slightly differing results.) For the same years, the unemployment rate averaged 4.9 percent.
Compared with today's 8.2 percent unemployment rate and feeble job growth, that looks impressive. Why didn't offshoring have a bigger effect?
It's not that offshoring is a myth. No one knows its full extent, because comprehensive employment figures for international trade and money flows don't exist. But there are estimates for some items. America's huge trade deficit with China might have cost 2.8 million U.S. jobs from 2001 to 2010, says Robert Scott of the Economic Policy Institute, a liberal think tank. (The estimate counts jobs created by exports and subtracts jobs lost to imports.)
Although that's a lot, the loss in any single year would have been modest, and even the total is only about 2 percent of all U.S. payroll jobs (129.8 million in 2010). Also, offshoring is not all negative for U.S. employment. Cheap imports may have boosted U.S. economic growth - and job creation - by holding down inflation and increasing both consumer purchasing power and business profits.
The larger point is that developments in the domestic economy, for good and ill, still dominate job expansion and decline. The housing boom, consumer borrowing and business optimism powered the economy and job growth before 2008; and the financial crisis, housing bust and huge loss in household wealth depressed spending and led to huge layoffs and cautious rehiring.
In a job-short world, it would help if some offshored work returned to the United States. Some observers think this will happen. In a recent report, the Boston Consulting Group, a well-known management advisory firm, predicted that rising wages in China would cause some companies to shift more production to the United States. The firm estimates that as many as 2 million to 3 million U.S. jobs might be created by the end of the decade. If this forecast - highly controversial - comes true, the gain would still occur gradually.
Offshoring is a powerful political symbol, because it seems unpatriotic (helping foreigners at the expense of Americans) and heartless (putting profits over people). But economics is not politics. The success or failure of the next president in reducing unemployment will depend mostly on how much - or how little - his policies influence Americans to spend, hire and shed their present pessimism. This should be the focus of our attention and of the national debate.
