"An Outsourcing Finger Exercise" -- Brad DeLong's Great Blog

[On the Road]

Here's a great resource if you ever get into a discussion with a free-trader who thinks outsourcing is necessarily good. It's a fairly simple economic model (a little too long for this post) on the effects of outsourcing higher- vs lower-paying jobs:

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Of all the surprising things to have happened on this weblog, the comment reaction to what I saw as an innocuous post quoting Jared Bernstein on outsourcing was the most surprising. The assertion that outsourcing was more benign if it put downward pressure on the incomes of the yuppie rich than if it put downward pressure on the incomes of the working class drew the most fire. But I think I'm right. And here's why:

--- snipping details of economic model

Now, what's our bottom line going to be? It seems pretty clear to me that in the first case (outsourcing high-income jobs) -- in which workers' incomes go up, average incomes go up, the average proportional change in incomes is greater than zero, and only yuppies suffer -- that trade leads to a better society. It is richer and more equal.

--- snip

The second case is harder. Workers' real incomes fall, total national product rises, the average proportional change in incomes is negative, yuppies make out like bandits. We have a richer and more unequal society as a result of trade and outsourcing. But the rising tide has not lifted all boats: it has swamped most.

Here there is a very strong case for the proposition that trade liberalization needs to be accompanied by redistributional social insurance schemes in order for it to count as an increase in overall social welfare.


http://www.j-bradford-delong.net/movable_type/

[mhr]

1. My Letter To Mr. Delong

Mr. Delong,

I found your web log and the article posted on outsourcing just today.

I noted with wry interest your surprise that many disagree with your thoughts as represented by the exceedingly high feedback.

Like others, I congratulate you on highlighting the economic issue of outsourcing and its impact on American society and Americans.

Adding to the replies, I would ask what would you have people do? I'll use myself as an example.

I hold degrees in electrical engineering and business administration - BSEE, MBA. I am also a FAA certified commercial pilot and served honorably as a US Naval Officer.

To date, I have been unemployed since 6/2000, 46 months! I have sent 1,437 resumes and have my resume posted on 105 job boards. Networking? My friends and acquaintances are tired of being pestered. Retraining? Retrain for what? What new college level skill might I acquire that won't be outsourced in the future: law, medicine, finance, advanced engineering?

What's the old saying - don't throw good money after bad?

So like others, I do not believe that outsourcing and off shoring is good for our economy because it proscribes the future with uncertainty for those that have worked hard and it stifles aspiration for those that would like to succeed.

Said simply, when someone with my level of training, experience and skill cannot find a job in America, we have a problem!

I thank you for your time.

Sincerely,

MHR