U.S. Jobs Gained and Lost through Trade: A Net Measure

[Moshe Vardi <vardi@xxxxxxxxxxx>]

http://www.ny.frb.org/research/current_issues/ci11-8/ci11-8.html


New York Fed tackles offshore outsourcing

The following is excerpted from Erica L. Groshen, Bart Hobijn, and
Margaret M. McConnell, "U.S. Jobs Gained and Lost through Trade: A Net
Measure" in the August 2005 edition of the Federal Reserve Bank of New
York.s Current Issues in Economics and Finance:

    In the aftermath of the 2001 recession, the perception has grown
that vast numbers of U.S. services jobs are being relocated to India,
China, and other developing countries. Anecdotes abound of companies
using overseas call centers, computer programmers, help desk workers,
and accountants while closing down whole departments here. The alleged
surge in relocations after 2001 coincided for some years with a sluggish
job recovery, prompting many to conclude that the .offshoring. of jobs
accounted for much of the persistent weakness in the U.S. labor market.
While concerns about job relocations were fueled by the slow job growth
during the recovery, the belief that U.S. workers are losing jobs to
foreign competition has a much longer history: Indeed, the current
concerns echo those voiced in many earlier periods about the impact of
international trade on domestic workers.

    In this edition of Current Issues, we explore the relationship
between trade and job creation in the United States....

    [W]e find no evidence to support the claims that a surge in
offshoring played a large role in the jobless recovery. Jobs embodied in
net imports did not grow at an accelerated pace after the 2001
recession. In fact, the increase in U.S. jobs sent abroad has averaged
about 30,000 per month since 2001;a deceleration from the monthly
average increase of 45,000 jobs during the period from 1997 to 2001.

    More broadly, our results show no clear or necessary relationship
between a pickup in jobs lost to trade and weakness in the U.S. labor
market. A case in point is the 1997-2001 acceleration in offshoring,
which occurred when U.S. payrolls were expanding steadily. 

    [One common] assumption is that sectors that are heavily or
increasingly exposed to trade suffered disproportionate job losses
during the recession and recovery. To test this assumption, we examine
job growth rates in this period relative to growth rates during the
1990s expansion for both trade-sensitive and trade-insensitive
industries. Starting with goods-producing industries, we find that
manufacturing-one of the sectors most exposed to trade-did indeed lose a
disproportionate share of jobs during the downturn and subsequent
recovery. However, mining and natural resources, another heavily traded
industry, performed better in this period than in the preceding
expansion, while the nontraded construction industry experienced
disproportionate job losses.

    Turning to services, we find that the results are even more mixed.
Business services--an industry in which outsourcing is believed to have
taken a large toll on domestic jobs--saw above-average job losses during
the recession and recovery. However, finance, insurance, wholesale
trade, and management and engineering jobs did relatively well, despite
often-voiced concerns about outsourcing. Moreover, a number of services
industries that are not exposed to trade incurred above-average
employment losses; the leisure and hospitality trades, for example, do
not transfer jobs to overseas workers but still experienced heavy
payroll shortfalls relative to the preceding period.

    The absence of any consistent pattern in the fortunes of individual
industries suggests that while trade-related competition may have driven
job losses in some sectors, layoffs in many other sectors occurred for
reasons unrelated to trade. Indeed, in a number of industries, forces
such as technological change, investment overhangs, and changing
consumption behavior are much more likely to have caused job losses.