Sunday, July 3, 2005

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I've got my reading material for the week

The World Trade Organization has just issued its annual trade report. Beyond an update of recent trade developments, the document -- like its IMF and World Bank counterpart -- also provides more extensive analytic essays on various trade topics.

According to the executive summary, "The core topic in this year’s report is standards and international trade." Hmmm... yes, yes, I do believe I would find that topic interesting.

Oh, and there's also a shorter essay of offshore outsourcing. In which you can find the following:

The most curious aspect of this heated debate is that all the expectations and fears of offshoring and the backlash against it in the high income countries are based on very partial, selective information, mostly from private sources or anecdotal evidence. It has proved difficult up to now to glean hard evidence from official balance of payments data or employment records. Recently, a number of studies and new statistical information have pointed to the “modest” size of the services offshoring trend if viewed from a macroeconomic perspective. The annual growth rates cited alone might look impressive, but as a percentage of total inflows and outflows in the relative labour markets, or as a percentage of total services trade, the numbers are far less impressive....

At the firm level, there are technical, strategic and managerial limits to offshoring. Technical limits relate to the extent to which services are separable from the core activities of the firm in question. Strategic limits relate to the need of companies to control strategic assets, while managerial limits relate to managerial capability and the costs of dealing with foreign suppliers. Market forces apply to offshoring in much the same way in every sector. If demand for IT skills and English-speaking workers increase sharply in services-exporting countries, wages will start to rise and the price gap between local and imported services will narrow. As shown by Bhagwati et al. (2004) the supply of skilled workers in India is scarce, and is likely to remain so in the foreseeable future. In other words, the situation is not one of an almost unlimited supply of adequately skilled workers. A rise in demand is therefore likely to drive up wages....

While the general perception among the US public appears to be that the United States is importing more services from India than it is exporting, US balance of payments statistics report a surplus in favour of the United States. The most detailed sectoral breakdown of US data by country (which covers both affiliated and non-affiliated trade) refers to the category “Other private services,” which is defined as total private services less travel, transport and royalties and license fees. At this level, US services exports to India stood at $2.1 billion, while imports amounted to $1.1 billion in 2003. Throughout the 2000-03 period, the United States consistently reported a bilateral trade surplus. It may be concluded that the US BOP data provide a more positive picture for US services trade than might be gleaned from the discussion of US job losses attributed to offshoring services to India....

The strength in the rebound in [IT] employment in 2004, and the resilience of wages of computer occupations, do not support the view that offshoring services of high-skilled IT specialists had a marked impact on overall US employment in these occupations up to the end of 2004….

It is interesting to note that at $60,000 in FY2002 and FY2003, the median annual earnings of H-1B beneficiaries in computer-related occupations closely match the average wages paid domestically in this occupation (see Appendix Table 9 and annualized hourly wages given in Appendix Table 6). Onshore outsourcing by US firms of IT services to domestic providers of IT services employing H-1B beneficiaries is therefore unlikely to be driven by wage cost considerations. It seems more likely that persistent skill shortages in the US economy play the most prominent role in approvals of H-1B visas. (emphasis added)

Yeah, I'm not interested in this report at all.

Frances Williams has a nice summary of the offshoring sections of the WTO report in the Financial Times.

posted by Dan on 07.03.05 at 12:06 AM


I'm completely sympathetic with the implications of the WTO essay. For the record, however, that last paragraph is kind of strtange. The rules of H1-B visas dictate that foreign employees not earn less than domestic prospects. (The wage offers, for example, have to be publicly posted for all to see, so anyone who chooses can object to any undercutting of citizen candidates.) While this means that any individual decision is driven by qualifications, that does not at all mean domestic wages are unaffected by foreign competition -- obviously. More supply, lower price. That some wages are impacted by competition comes nowhere close to supporting an argument for restraininf the free flow or resources, of course. But the free trade cause isn't really advanced by off-the-mark arguments like that last bit in the WTO passage.

posted by: Dave Altig on 07.03.05 at 12:06 AM [permalink]

I'll bet half of the electrical engineers and IT geeks I know over the age of 50 are unemployed or severely underemployed.

The visa process allows corporations to practice age discrimination and get away with it. Cheaper is better. Ask the Bush administration.

posted by: save_the_rustbelt on 07.03.05 at 12:06 AM [permalink]

More offshoring hooey!

See: Profits, Not Jobs, on the Rebound in Silicon Valley 0...wqQY006nVc6Epag

Pish on the corporations, and their economisty sycophants!

posted by: camille roy on 07.03.05 at 12:06 AM [permalink]

The link above isn't. Here is the link for
"Profits, Not Jobs, on the Rebound in Silicon Valley":

Sample quotes:
"In the last three years, profits at the seven largest companies in Silicon Valley by market value have increased by an average of more than 500 percent while Santa Clara County employment has declined to 767,600, from 787,200. During the previous economic recovery, between 1995 and 1997, the county, which is the heart of Silicon Valley, added more than 82,800 jobs.
The issue is not just outsourcing, though, but also big leaps in productivity. Cisco, the behemoth maker of Internet equipment, now has annual sales of $680,000 per employee, compared to $480,000 in 2001.

One key measure, known as value added per employee, rose 3.7 percent in 2004, to $222,000 in economic value per worker. That compares with $85,000 per worker in the rest of the country, according to data reported by Joint Venture Silicon Valley, a regional economic research group.

By a number of other measures, companies are watching profits and sales rise. An analysis published in April by The San Jose Mercury News found that the top 100 public companies in the region had revenues of $336 billion in 2004, an increase of 14 percent from the previous year.

Mr. Henton said that measure, while not entirely indicative of what is going on because it includes worldwide sales, gives a good sense of the growth here.

"It's a clear recovery," Mr. Levy said. "It's a high-productivity jobless recovery."

In the past, much of the job growth has come from investment by venture capitalists in start-up companies. That engine is starting to rev up again, with venture capitalists putting $7.4 billion into 724 Silicon Valley companies in 2004, according to the National Venture Capital Association.

That is up 17 percent from 2003, but still far below the $34 billion invested in 2000, at the peak of the phenomenon.

Also, newer start-ups are under pressure from their venture-capital investors to outsource work to lower-cost regions..."

I suppose all this makes Dan Drezner a happy clam. I think supporting this kind of thing is akin to being a scoundrel.

posted by: camille roy on 07.03.05 at 12:06 AM [permalink]

"... and the resilience of wages of computer occupations, do not support the view that offshoring services of high-skilled IT specialists had a marked impact on overall US employment in these occupations up to the end of 2004 ..."

Tough stuff to try to separate out all of this stuff in a rigorous way. Resilience of wages seems like a tough way to back up this position though as wages are usually a bit sticky downward (take awhile to adjust). Would also be interesting to tease out questions like 1) did the numbers for employment levels rebound as much as they would have without offshoring, 2) if overall levels did not get hit with a "marked impact", any hints at which areas within the IT sector got hit the hardest, 3) can the BOP numbers and relative changes in offshoring numbers be normalized to a per company basis or a per company that offshores basis, etc. -> some way to support a position that there has been less than a marked impact.

posted by: Steve Shu on 07.03.05 at 12:06 AM [permalink]

In the past 4 years, George Bush and the Republicans have pissed away $2 Trillion of our savings and yet the US economy is still limping along and we have 7.6 million unemployed citizens.

One out of five of those unemployed citizens are long term unemployed.

As I've documented earlier, the bulk of the money from Bush's tax cut for the rich is going into foreign investments, NOT into renewing the US industrial plant.

We know that older industries are constantly shedding workers due to decline in demand, greater efficiency from maturing technology and economy of scale, etc. High Tech is important because that is the source of new jobs. So why should jobs needed by workers in transition be given to foreign workers?

Yet Daniel Drezner blandly assures us that things are peachly keen.

Why in the hell do US voters support our universities? What thing of value --what iota of real truth -- does the University of Chicago's Department of Political Science provide to us in exchange for the annual funding by the taxpayers?

posted by: Don the Greater on 07.03.05 at 12:06 AM [permalink]

“What thing of value --what iota of real truth -- does the University of Chicago's Department of Political Science provide to us in exchange for the annual funding by the taxpayers?”

U of C is a private University. To imply that sole funding comes from federal government is false.

posted by: Johnny Upton on 07.03.05 at 12:06 AM [permalink]

Re Johnny Upton's comment:"To imply that sole funding comes from federal government is false."

a) I never implied anything about "sole funding"

b) If Upton looks up FACTS he will see that U of Chicago got roughly $145 Million in federal R&D funds a few years ago --I assume their annual take is in the same ballpark

c) That doesn't include the huge sum of money coming in via student tuition/fees/boarding paid for by federal tax money (loans/scholarships with students as middlemen)

posted by: Don the Greater on 07.03.05 at 12:06 AM [permalink]

b) I never realized that the Poli Sci department was a big draw for R&D grants.

Per it appears that their “take” was closer to $362MM. Based on the above, the Social Sciences department received $19MM split between 12 schools. My uneducated guess would be that the School of Economic receives the bulk of the above funding.

c) Tuition, room and board is now paid for by the Feds? Damn I sure missed the boat.

posted by: Johnny Upton on 07.03.05 at 12:06 AM [permalink]

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