The American economy never rests-at this
moment, in fact, economic growth is vigorous. Yet every time there
is a slight dip in the acceleration of output, jobs, or incomes,
the undying myths of a sputtering, backfiring economy rise again.
Today, many of those myths concern the ills of
The plain facts, however, lay all of
today's myths about outsourcing to rest. But there is still a real
danger that politicians working with incomplete or incorrect
information will hobble American competitiveness. Scapegoating poor
Third World countries, "Benedict Arnold CEOs," and free Trade will
not improve the U.S. economy or labor market, but would likely
cause great harm. Robert McTeer of the Federal Reserve Bank of
Dallas summed up the promise of government action on outsourcing
well: "If we are lucky, we can get through the year without doing
something really, really stupid."
Myth #1: America is
Fact: More Americans
are employed than ever before.
employment survey of Americans indicates that there are 1.9 million
more Americans employed since the recession ended in November 2001.
There are 138.3 million workers in the U.S. economy today-more than
Myth #2: The low unemployment rate
excludes many discouraged workers.
is dropping, despite a surging labor force.
Not only is the
unemployment rate low in historical terms at 5.6 percent, but the
workforce has been growing-there are now 2.03 million more people
in the labor force than in late 2001. Without a higher rate of
unemployment or a shrinking workforce, there is no evidence of
Outsourcing will cause a net loss of 3.3 million jobs.
Outsourcing has little net impact, and represents less than 1
percent of gross job turnover.
Over the past
decade, America has lost an average of 7.71 million jobs every
The most alarmist prediction of jobs lost to outsourcing, by
Forrester Research, estimates that 3.3 million service jobs will be
outsourced between 2000 and 2015-an average of 55,000 jobs
outsourced per quarter, or only 0.71 percent of all jobs lost per
Myth #4: Free Trade,
free labor, and free capital harm the U.S. economy.
Economic freedom is necessary for economic growth, new jobs, and
higher living standards.
A study conducted for the 2004 Index
of Economic Freedom confirms a strong, positive relationship
between economic freedom and per capita GDP. Countries that adopt
policies antithetical to economic freedom, including trying to
protect jobs of a few from outsourcing, tend to retard economic
growth, which leads to fewer jobs.
Myth #5: A job
outsourced is a job lost.
Outsourcing means efficiency.
Outsourcing is a
means of getting more final output with lower cost inputs, which
leads to lower prices for all U.S. firms and families. Lower prices
lead directly to higher standards of living and more jobs in a
Myth #6: Outsourcing
is a one-way street.
Outsourcing works both ways.
The number of jobs
coming from other countries to the U.S. (jobs "insourced") is
growing at a faster rate than jobs lost overseas. According to the
Organization for International Investment, the numbers of
manufacturing jobs insourced to the United States grew by 82
percent, while the number outsourced overseas grew by only 23
Moreover, these insourced jobs are often higher-paying than those
American manufacturing jobs are moving to poor nations, especially
Nations are losing manufacturing jobs worldwide, even
America is not
alone in experiencing declines in manufacturing jobs. U.S.
manufacturing employment declined 11 percent between 1995 and 2002,
which is identical to the average world decline. China has seen a
sharper decline, losing 15 percent of its industrial jobs over the
Only greedy corporations benefit from outsourcing.
Everyone benefits from outsourcing.
Outsourcing is about efficiency. As
costs decline, every consumer benefits, including those who lose
their jobs to outsourcing. A 2003 study by Michael W. Klein, Scott
Schuh, and Robert K. Triest, which includes dislocation costs in
its calculations, shows the benefits of Trade outweighing its costs
by 100 percent.
The government can protect American workers from
Protectionism is isolationism and has a history of
Proposals to punish businesses that
outsource jobs, institute tariffs, or change tax rules will carry
unintended consequences if enacted. Such measures would injure U.S.
firms that export goods and services and erode U.S.
competitiveness, often in unexpected ways. Recent steel tariffs,
for example, cost jobs in dozens of industries while raising prices
#10: Unemployment benefits should be extended beyond 26
Jobless benefits are already working
The median duration of unemployment is
now 10.9 weeks; most workers are covered by existing benefits,
which last for 26 weeks. Extending today's coverage to 39 weeks
would cost billions of dollars and have little impact.
deserve a more informative, less partisan debate on outsourcing.
The negative impact of outsourcing on the economy and American
employment has been greatly exaggerated, and the benefits of
outsourcing almost entirely ignored.
Ph.D., is Research Fellow in Macroeconomics in the Center for Data
Analysis, Brett Schaefer is Jay Kingham Fellow in the Center for
International Trade and Economics (CITE), and Alison
Acosta Fraser is Director of the Thomas A. Roe Institute for
Economic Policy Studies, at The Heritage Foundation.