Offshoring, International Trade, and American Workers

An interesting new research summary from the National Bureau of Economic Research assesses our current state of knowledge on the connections between offshoring, international trade, and the deteriorating job conditions faced by many American workers.  The researchers, Ann Harrison and Margaret McMillan, summarize a host of studies that examine these connections. They find that, to date, researchers often present contradictory findings—with some asserting that offshorring leads to job loss, while others contend that the offshoring of low-wage and low skill jobs actually improves both job quality and quantity here at home.

Digging deeper, Harrison and McMillan depict a more nuanced reality. In general, offshoring costs jobs here at home.  But, if American workers and foreign labor work on different tasks, expanded domestic and multinational employment can go hand in hand.

But the picture still remains complicated and the general news is not good.  Offshoring puts great pressure on domestic wage rates and the downward spiral grew worse in the 1990s in comparison to previous decades.  Moreover, the researchers find that, when displaced workers obtain new positions in the manufacturing sector, their wages don’t change greatly.  However, if they move into new service sector occupations, wage declines are significant.  And, given the continued erosion of manufacturing jobs, most displaced workers follow this latter path toward service sector jobs.

So what does this all mean to the displaced American worker?   The best strategy is to find new employment in high paying manufacturing industries.   The second best strategy is to find a service sector job that pays comparable wages to the manufacturing sectors—not an easy task in today’s economy!    The authors note that this transition is not going to occur through the magic of the market.    They suggest that some kinds of “soft” industrial policies, such as investment in infrastructure or a strengthened education system, are needed.   In my mind, these suggestions represent a minimalist strategy.  We need even more aggressive and creative tools to help workers effectively respond to the new globalized labor marketplace.

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