Report

A Fairer Deal For America’s Workers In a New Era of Offshoring

Lael Brainard, Nicholas Warren, and Robert E. Litan

Introduction

Public anxiety has surged over a new wave of offshoring that for the first time puts white-collar jobs at risk from competition with low-wage foreign providers. White-collar offshoring burst into public consciousness in the middle of a peculiarly unbalanced recovery. The 2001-3 recovery stands out on two counts: the unusually low rate of job creation relative to job destruction, as highlighted by Erica Groshen and Simon Potter, and the “decline in the proportion of that national income going to compensation of employees,” as emphasized by Federal Reserve Chairman Alan Greenspan. Critics were quick to point to the new wave of white-collar offshoring as a major contributor to the poor performance of the U.S. labor market, although the importance of offshoring relative to productivity growth, the bursting of the IT bubble, and other forces remains murky due to incomplete data. But the fact remains that much more can and should be done to help safeguard the livelihoods of American workers in the face of structural shifts of whatever form — while preserving the benefits of an open economy.

Whether lauded for its remarkable fluidity or lamented for its heartless insecurity, one of the most striking characteristics of the American job market is high job churning. As our colleague, Charles Schultze, has pointed out, apart from cyclical ups and downs, roughly 15 million new jobs are created each year, while another 13 million are destroyed. No other OECD economy comes close. This high turnover rate reflects the vigorous forces of competition in the economy, the creation and death of firms, the growth of some, and the decline of others. The latest wave of white-collar offshoring is the most recent in a longer list of drivers, which includes shifts in consumer tastes, innovation that creates new products and services and makes it possible to produce more with less, new opportunities to outsource elements of the business system domestically and overseas, competition from imports, and job opportunities associated with rising exports.

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