Wednesday, June 9, 2004

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Public opinion about offshore outsourcing

A while back, I blogged here and here about how American consumer behavior seems generally unaffected by the spectre of outsourcing -- i.e., Americans make choices based more on price than origin of production.

To be fair, some people do not think this way -- click here for a few examples courtesy of Newsweek. Beyond anecdotal evidence, however, what do Americans now think about outsourcing? And do these feelings affect their behavior?

Two recent polls -- one by the Employment Law Alliance ("the world’s largest independent network of labor and employment attorneys") and one by Ipsos (for the Associated Press) suggest some commonalities and cleavages on the issue.

On the one hand, the polls largely confirm that most Americans are mercantilists at heart. The Ipsos poll shows that 69% of Americans believe that outsourcing hurts the country -- and only 17% think it helps the economy. 58% of respondents in the ELA poll believe that companies outsourcing work that could be done by Americans to offshore contractors should be penalized by the US government.

At the same time, the ELA poll shows that 46% of Americans believe that offshoring has been exaggerated by the media. Still, it would be hard not to conclude that most Americans think offshore outsourcing is a bad thing.

So how does this affect actual consumer behavior? Here the answer changes. On the one hand, the Ipsos poll shows that when asked to choose between a product made in the USA and a similar one made elsewhere, 93% of Americans say that they'd buy the American product. However, if the foreign good is cheaper, that percentage falls to 54%. Furthermore, a slight plurality (38% to 35%) do not check product labels so as to "buy American."

The AP story by Will Lester goes on to suggest a generational divide in the economic reaction -- with younger folks more sanguine:

"That's not a big deal to me, where it was made," said Serena Evans, a machine operator from Hurt, Va. "I look for the cheapest product, because I barely have the money to buy it."

Evans, 24, was typical of her age group.

Nearly two-thirds, 63 percent, of those younger than 30 said they seldom if ever check to see where a product is made -- more than three times the number who do. A majority of young adults said they would buy a lower-priced product from another country over a more expensive U.S. one.

Americans 60 and older were almost twice as likely to say they usually or always check labels to see where a product is made. And by more than 2-to-1, they said they would buy an American product even if it cost more than foreign goods.

As the story concludes, "Fresh concerns about U.S. jobs being shipped overseas are not being turned into renewed public sentiment to buy American."

So, to sum up -- Americans do not like offshore outsourcing as a phenomenon -- but over time, and increasing number of them are happy to reap the benefits of it as consumers.

This is really the biggest intellectual divide on the outsourcing issue -- whether one thinks the most important effect of offshoring is on employment or on consumption. Most Americans say the former but do not act on it. The data I've seen suggest that outsourcing's effect on employment is negligible -- and the effect on consumption is a positive one.

posted by Dan on 06.09.04 at 12:44 PM


The consensus majority of credentialed economists today complete agree with Dan Drezner regarding outsourcing. However, the general public wrongly perceives outsourcing and free trade issues as conservative positions. They would be stunned to learn that even so-called moderate liberals agree with the conservatives. It all boils down to this: Democrats can still win elections by opposing such realistic economic measures----and therefore these academics follow the golden rule: You don’t have to lie---but keep your %$#@* mouth shut. Say nothing which might hurt Democrats at the ballot box.

posted by: David Thomson on 06.09.04 at 12:44 PM [permalink]

MTV had this short little segment on outsourcing - one of those Rock the Vote things I think. Interviewed a young American twentysomething with a family who was laid off (IT worker) and someone in Bangelore India (IT worker, too). The American guy who was laid off basically said that he didn't begrudge the Indian guy anything - after all, the Indian guy was just trying to make a living. And the Indian guy said that he felt bad for the American guy - but this was a good job for India and he was glad he had it.

The only thing the MTV special didn't talk about was how outsourcing might possibly help the US economy. It covered the other issues pretty well, including the problems for American workers.

Still miss the videos, though. Is that just my age showing?

posted by: MD on 06.09.04 at 12:44 PM [permalink]

Most people I know (including my wife), even though they are generally liberal are relatively upscale, are going to buy the cheapest product, regardless of where it is made. My wife endlessly complains about Wal-Mart, but still buys there.

I think most people are basically ignorant or economics, regardless of their education or income level. However, I suspect that the "Buy American" sentiment is most likely to come from working class or lower-income people. Professionals and upper-income people in general don't worry about that--at least in my experience.

posted by: MWS on 06.09.04 at 12:44 PM [permalink]

I don't recall having much of a choice about whether to consume offshored services, nor a range of goods that are no longer produced in the US or are only assembled of foreign sourced components.

When I purchased my computer two years ago and needed to call Compaq customer service I got someone stateside--in Texas, I think. Last month when my computer brooke I called customer service, I got someone in India with an accent so thick I struggled for more than an hour to comprehend the questions the nice, patient young woman was asking me. Ditto, recently, for my ISP. I have no idea where and by whom my banking transactions are processed. The notion that American consumers could realisticly choose between domestic and foreign service, particularly when the service is an intermediate input of some other good or service, is simply nonsense.

Dan, you just assume that whatever welfare is generated from this global labor arbitrage winds up in the pocket of the American consumer, reflected in lower prices. This is a very difficult thing to measure of course. Probably even more difficult than measuring the extent of offshoring of service jobs (on which I think no one really has a credible number, and those that are out there probably overstate its incidence--not that the loss of jobs is the only impact on the labor market). Maybe, just maybe, the consumers of intermediate offshored services (which seem to be the bulk of the market for this industry) are not passing along the savings, but capturing rents for themselves.

Last, as I alluded to above, there is a qualitative difference between *some* services provided offshore and those provided domestically. I'm thinking largely of customer service operations here, as that is what i've had most personal experience with, but it also applies to other offshored service industries. In order to accurately asses potential gains from offshoring, one must account for hedonic pricing of the services consumed. If only because of cultural and other communication barriers, I must now spend 2+ hours on the phone with customer service rather than 1/2 an hour to solve my problem, clearly the service is of lower quality, reflecting a higher cost (and a transfer of costs from Compaq, e.g., to me).

posted by: Adam on 06.09.04 at 12:44 PM [permalink]

It's a saddeningly vicious cycle, isn't it?

The job market, already hurt by bubble bursts and terrorism losses, is further exacerbated by offshoring.

Therefore, many people lose their job, some never regain work, others take work at sharply reduced wages. Overall, people have a lot less money than they did when employment was readily available.

Therefore, they have to scrimp and save with their flexible expenses in order to continue to afford their fixed or increasing expenses (rent, gas and energy prices, loan/lease payments, all that stuff Dan never seems to worry about).

Therefore, they end up buying the cheaper commodities, which will (in theory) tend to be from overseas companies or the product of heavily offshored labor.

Which in turn, increases receipts for those companies that offshore, and reducing receipts for those that don't.

Which in turn, either causes non-offshoring companies to close, or offshore, and causes offshored companies to offshore more.

Which in turn hurts the job market even further, making it even harder to get decent-wage employment, forcing you to scrimp and save even more, and buy commodities at even cheaper prices.

And so on.

Is this really what pro-offshoring economists consider a positive economic trend?

posted by: Keith Tyler on 06.09.04 at 12:44 PM [permalink]

Keith Tyler asks:

"Is this really what pro-offshoring economists consider a positive economic trend?"

Drezner is not an economist, he learns his economics as he goes along by reading WSJ and NYT, but he clearly likes this trend.

Pro-offshoring economists are in academia and/or whoring for industrial PR groups.

I suspect Drezner is on a retainer from one of the Indian PR groups.

posted by: BrooklynBridge on 06.09.04 at 12:44 PM [permalink]

I personally know only one person whose specific job was "offshored". He is working in Chicago at the design department of a German firm which found it advantagous to move operations to the U.S.

Here in Milwaukee, one of our largest industrial firms, just coming out of bankruptcy reorganisation resultant from anti-mining policies in the U.S. is back in boom growth thru orders from China, and several other Wisconsin firms are likewise enjoying the benefit of China having American consumer dollars to spend.

posted by: triticale on 06.09.04 at 12:44 PM [permalink]

"several other Wisconsin firms are likewise enjoying the benefit of China having American consumer dollars to spend."

Good for them. Too bad many more firms are not enjoying it because USA runs, what is it now, $100B?, trade deficit with Chicoms.

FreeTradeUberAlles traitors rejoyce.

posted by: BrooklynBridge on 06.09.04 at 12:44 PM [permalink]

Brooklyn Bridge: It's more like a $124 bn deficit.

See here:

posted by: Adam on 06.09.04 at 12:44 PM [permalink]

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