In age of outsourcing, do the old rules apply?

The demise of communism and socialism has invalidated this old trade theory, Roberts says. Cheap labor in Eastern Europe, not to mention burgeoning China, has suddenly and eagerly joined the global work force. India, a long-socialist economy, has an added advantage: Millions of people with English skills.

In many cases, low shipping and communication costs make it feasible to produce abroad and send the output back to the US at a cost saving for the company.

"Any worker whose job does not require daily face-to-face interaction is now in jeopardy of being replaced by a lower-paid, equally skilled worker thousands of miles away," Roberts wrote recently with Sen. Charles Schumer (D) of New York.

About 14 million jobs, or 11 percent of the US total, are at risk of being sent abroad, estimates McKinsey & Co., a management consulting firm.

John Williamson, an economist at the pro-trade Institute for International Economics in Washington, calls the Roberts thesis "a load of nonsense." The US economy, when it is firing properly, creates more than 2 million jobs a year, enough to offset losses to India or other nations. And many of these jobs will be paying well.

The classic argument is that while trade costs some jobs, it helps create more by helping the overall economy grow faster. Consumers benefit as prices for goods and services drop. And in some cases, when a company locates some jobs abroad the costs savings allow other jobs to be created at home.

Moreover, economists of all stripes agree that US jobs are disappearing - and being created - for many reasons other than outsourcing. In manufacturing, for instance, the key factor behind job losses is rising productivity.

But that doesn't diminish the dislocation caused by outsourcing. And critics aren't confident that jobs lost overseas will be replaced by well-paid jobs in the US, especially in the short term.

William Baumol, a well-known trade economist at New York University, holds that the Ricardian model "needs extension and modification" to deal with today's outsourcing issue.

Globalization, he writes in an e-mail, "should enhance overall world welfare, but at the immediate and extreme expense of the workers in the US who lose their jobs or suffer wage cuts as a result ... it is indefensible to ignore these effects and fail to do something about them." Even in the long run, outsourcing "may reduce per capita US income or hold back its growth," he adds.

Dean Baker, an economist with the Center for Economic and Policy Research in Washington, says that outsourcing of jobs has been limited so far to those with less political clout. By going to politicians for protection, medical doctors in the US limit the number of foreign interns. US doctors' incomes are twice the average in most industrial nations. Lawyers have not standardized law sufficiently so far to let some jobs go abroad.

Politicians are trying to figure out if there are ways to discourage outsourcing without killing trade and international investment with its benefits.

Sen. Christopher Dodd (D) of Connecticut has introduced the United States Workers Protection Act, which would prohibit taxpayer dollars (tax deductions) from being used for offshore outsourcing related to work paid for with federal funds.

Page: 1 | 2