Labor Economics – Page 70 – artdiamondblog.com

More and Better Jobs Gained by ‘Insourcing’ than are Lost to ‘Outsourcing’

N. Gregory Mankiw, former chair of W.’s Council of Economic Advisors. The media, most Democrats, and some Republicans, skewered Mankiw in 2004 for simply and clearly stating the truth about outsourcing. Source of photo: online version of the NYT article cited below.

In December 2005, the McKinsey Global Institute predicted that 1.4 million jobs would be outsourced overseas from 2004 to 2008, or about 280,000 a year. That’s a drop in the bucket. In July, there were 135.35 million payroll jobs in the United States, according to the Bureau of Labor Statistics. Thanks to the forces of creative destruction, more jobs are created and lost in a few months than will be outsourced in a year. Diana Farrell, director of the McKinsey Global Institute, notes that in May 2005 alone, 4.7 million Americans started new jobs with new employers.

What’s more, the threat of outsourcing varies widely by industry. Lots of services require face-to-face interaction for people to do their jobs. That is particularly true for the biggest sectors, retail and health care. As a result, according to a McKinsey study, only 3 percent of retail jobs and 8 percent of health care jobs can possibly be outsourced. By contrast, McKinsey found that nearly half the jobs in packaged software and information technology services could be done offshore. But those sectors account for only about 2 percent of total employment. The upshot: “Only 11 percent of all U.S. services job could theoretically be performed offshore,” Ms. Farrell says.

Economists have also found that jobs or sectors susceptible to outsourcing aren’t disappearing. Quite the opposite. Last fall, J. Bradford Jensen, deputy director at the International Institute of Economics, based in Washington, and Lori G. Kletzer, professor of economics at the University of California, Santa Cruz, documented the degree to which various service sectors and jobs were “tradable,” ranging from computer and mathematical occupations (100 percent) to food preparation (4 percent).

Not surprisingly, Mr. Jensen and Professor Kletzer found that in recent years there has been greater job insecurity in the tradable job categories. But they also concluded that jobs in those industries paid higher wages, and that tradable industries had grown faster than nontradable industries. “That could mean that this is our competitive advantage,” Mr. Jensen says. “In other words, what the U.S. does well is the highly skilled, higher-paid jobs within those tradable services.”

There is evidence that within sectors, lower-paying jobs are being outsourced while the more skilled ones are being kept here. In a 2005 study, Catherine L. Mann, senior fellow at the Institute for International Economics, found that from 1999 to 2003, when outsourcing was picking up pace, the United States lost 125,000 programming jobs but added 425,000 jobs for higher-skilled software engineers and analysts.

For the full commentary, see:

DANIEL GROSS. "Economic View; Why ‘Outsourcing’ May Lose Its Power as a Scare Word." The New York Times, Section 3 (Sun., August 13, 2006): 5.

Five More Hours Per Week of Leisure Time in 2003 Than in 1965

The easiest way to measure leisure is to take survey data on how many hours a week people spend at work and subtract. Since 1965, the number of hours the average American works for pay has not changed much. By this simple measure, then, leisure has also stayed the same.

But are we really working as much as ever?

”All time away from work is not equal,” Erik Hurst, an economist at the Graduate School of Business at the University of Chicago, said in an interview. Some time off is actually just more work.

To put it in economic terms, we spend some time off the job in consumption (watching TV, hanging out with our friends, reading for pleasure) and some in production (cooking dinner, cleaning the house, doing household repairs). Some activities, like sleeping and eating, fall somewhere in between, while others, including child care and gardening, combine pleasure and production.

The difference is not just that we enjoy some activities and dislike others. It is that we could, in theory, pay someone else to do the production for us. A cook or a restaurant can make dinner, but nobody else can play golf or watch TV for you.

. . .

Americans are not, in fact, working as much as they used to. They are just getting paid for more of the work they do. Using several different definitions of leisure, Professor Hurst and Mark A. Aguiar, an economist at the Federal Reserve Bank of Boston, analyzed time-use surveys done from 1965 to 2003. Whether they defined leisure narrowly or broadly, they got a consistent result.

”Leisure time — measured in a variety of ways — has increased significantly between 1965 and 2003,” they write in ”Measuring Trends in Leisure: The Allocation of Time Over Five Decades,” a Boston Fed working paper. . . . Using the most restrictive definition, which includes only ”entertainment/social activities/relaxing” and ”active recreation,” the economists found that leisure had increased 5.1 hours a week, holding demographics like age constant. (Without that control, leisure has grown 4.6 hours.) Assuming a 40-hour work week, that is like adding six weeks of vacation — an enormous increase.

”I was surprised by the magnitude,” Mr. Aguiar said in an interview, though the general trend agrees with earlier research.

For the full commentary, see:

VIRGINIA POSTREL. "ECONOMIC SCENE; The Work You Do When You’re Not at Work." The New York Times (Thursday, February 23, 2006): C3.

A PDF of the NBER draft of the Aguiar and Hurst paper can be found at:

http://faculty.chicagogsb.edu/erik.hurst/research/aguiar_hurst_leisure_nber_submit_final.pdf

“The More Sweatshops the Better”

JACQUELINE NOVOGRATZ, a veteran of the Rockefeller Foundation and a former consultant to the World Bank, talks enthusiastically about the development of a company in Africa where some 2,000 women earn, on average, $1.80 a day producing antimalarial bed netting. With the assistance of a $350,000 loan from an American investor, the business started making the nets nearly three years ago and is likely to add 1,000 more jobs within the next year.

”They’re in the process of building a real company town there,” Ms. Novogratz said.

Ms. Novogratz is not an outsourcing executive at a multinational company. Rather, she is the chief executive of the Acumen Fund, a philanthropic start-up based in New York that uses donations to make equity investments and loans in both for-profit and nonprofit companies in impoverished countries. One of the stars of her small portfolio is the bed-netting maker, A to Z Manufacturing, a family-owned company in Tanzania — a country where 80 percent of the population makes less than $2 a day.

. . .

”To put it in the baldest possible terms, the more sweatshops the better,” said William Easterly, professor of economics at New York University and author of ”The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good.” Professor Easterly is not advocating the deliberate creation of workplaces with miserable conditions. ”As you increase the number of factories demanding labor, wages will be driven up,” he said, and eventually such factories will not be sweatshops.

Ms. Novogratz says it can be difficult to tell well-off, philanthropy-minded Westerners that what Africa really needs is more $2-a-day jobs. But when they understand the alternatives, she said, such concerns tend to melt away. Before they found work at the netting factory in Tanzania, for example, many of the women were street vendors or domestic workers and earned less than $1 a day. A to Z’s wages place the women in Tanzania’s top quartile of earners, Ms. Novogratz said.

For the full commentary, see:

DANIEL GROSS. "ECONOMIC VIEW; Fighting Poverty With $2-a-Day Jobs." The New York Times Section 3, (Sunday, July 16, 2006): 4.

Life Has Improved; And Can Continue to Improve

Source of graphic: online version of the NYT article cited below.

(p. 1) New research from around the world has begun to reveal a picture of humans today that is so different from what it was in the past that scientists say they are startled. Over the past 100 years, says one researcher, Robert W. Fogel of the University of Chicago, humans in the industrialized world have undergone “a form of evolution that is unique not only to humankind, but unique among the 7,000 or so generations of humans who have ever inhabited the earth.”

. . .

(p. 19) . . . stressful occupations added to the burden on the body.

People would work until they died or were so disabled that they could not continue, Dr. Fogel said. “In 1890, nearly everyone died on the job, and if they lived long enough not to die on the job, the average age of retirement was 85,” he said. Now the average age is 62.

A century ago, most people were farmers, laborers or artisans who were exposed constantly to dust and fumes, Dr. Costa said. “I think there is just this long-term scarring.”

For the full story, see:

Kolata, Gina. "The New Age; Older and Better; So Big and Healthy Grandpa Wouldn’t Even Know You." The New York Times, Section 1 (Sunday, July 30, 2006): 1 & 18-19.

Source of graphic: online version of the NYT article cited above.

Source of graphic: online version of the NYT article cited above. Source of book image: http://www.cambridge.org/us/catalogue/catalogue.asp?isbn=0521808782

Fogel’s book is a primary academic source for much of what is interesting in the New York Times article. Fogel predicts that if we don’t screw things up, half of today’s college students will live to be 100. He shows that academics in the past have consistently and significantly underestimated the maximum lifespans that would be attainable in the future.

The full reference for the Fogel book is:

Fogel, Robert William. The Escape from Hunger and Premature Death, 1700-2100, Cambridge Studies in Population, Economy and Society in Past Time. Cambridge, UK: Cambridge University Press, 2004.

Current Workplace Revolution Benefits Labor

(p. 8) Would you change places with your grandfather? Would you want to work 11 brutal hours a day… in yesterday’s Bethlehem Steel mill, a Ford Motor Company factory circa 1935? Not me. Nor would I change places with my father … who labored in a whilte-collar sweatshop, at the same company, in the same building, for 41 l-o-n-g years.

A workplace revolution is under way. No sensible person expects to spend a lifetime in a single corporation anymore. Some call this shift the "end of corporate responsibility." I call it … the Beginning of Renewed Individual Responsibility. An extraordinary opportunity to take charge of our own lives.

Source of passage:

Peters, Tom. Re-imagine! London: DK, 2003.

(Note: all of the ellipses in the above passage, appear in the original.)

Job Hopping May Aid Technological Experimentation

When employees jump from company to company, they take their knowledge with them. ”The innovation from one firm will tend to bleed over into other firms,” Professor Rebitzer explained. For a given company, ”it’s hard to capture the returns on your innovation,” he went on. ”From an economics perspective, that should hamper innovation.”

He found a possible answer to the puzzle in the work of two management scholars, Carliss Y. Baldwin and Kim B. Clark. In their book ”Design Rules: The Power of Modularity” (MIT Press, 2000), they argued that when there is a lot of technological uncertainty, the fastest way to find the best solution is to permit lots of independent experiments. That requires modular designs rather than tightly integrated systems.

”By having a lot of modular experimenters, you can take the best, which will be a lot better than the average,” Professor Rebitzer said. Employee mobility may encourage productive innovation, as people quickly move to whichever company comes up with the best new technology.

. . .

To Professor Rebitzer’s surprise (though not his co-authors’), it turns out that Silicon Valley employees really do move around more often than other people. The researchers looked at job changes by male college graduates from 1994 to 2001. During that period, an average of 2.41 percent of respondents changed jobs in any given month.

But, they write, ”living in Silicon Valley increases the rate of employer-to-employer job change by 0.8 percentage point.”

”This effect is both statistically and behaviorally significant — suggesting employer-to-employer mobility rates are 40 percent higher than the sample average.”

For the full commentary, see:

VIRGINIA POSTREL. "ECONOMIC SCENE; In Silicon Valley, Job Hopping Contributes to Innovation." The New York Times (Thursday, December 1, 2005): C4.

A PDF of the paper by Rebitzer and colleagues is downloadable at: http://www.federalreserve.gov/Pubs/feds/2005/200511/200511abs.html

The book Postrel praises, is:

Source of book image: http://www.amazon.com/gp/product/customer-reviews/0262024667/104-2835260-2878345?redirect=true

Free International Labor Markets

As a fellow-signer of the Open Letter, I second Professor Armentano’s response to Rep. Rohrabacher:

So according to Rep. Dana Rohrabacher (Letters, July 5), economists who advocate relatively free international labor markets must be "lefty academics." Oh, yeah? I thought that "lefties" took the opposite position, that government (and not the market) should control resource availability in the so-called "national interest." And I also thought that advocating the removal of restrictions and penalties on the free movement of labor and other resources was the essence of a free-market position.

The economists (such as myself) who signed the Independent Institute’s Open Letter to the President on immigration were taking a consistent free-market position. We hardly need to be slandered with a label that implies the exact opposite

Source:

Dominick T. Armentano. "Open Letter to President Was a Free-Market Stance." The Wall Street Journal (Sat., July 8, 2006): A11.

The text of the Open Letter can be found at: http://www.independent.org/newsroom/article.asp?id=1727

Or access the Open Letter by clicking the link below:

Continue reading “Free International Labor Markets”

Raising Minimum Wage Destroys Job Opportunities

. . . , Ted Kennedy, argues that the minimum wage should be increased because it’s difficult to raise a family with the only breadwinner making the current minimum. It’s a popular claim, but it is flawed, for three reasons.

First, a study by economist David A. Macpherson of Florida State University and Craig Garthwaite of the Employment Policies Institute suggests that only 20% of the workers who would have been directly affected by an earlier $1 increase in California’s minimum wage were supporting a family on a single minimum-wage income. The other 80% were teenagers or adult children living with their parents, adults living alone or dual earners in a married couple.
Second, as economists David Neumark of the Public Policy Institute of California and William Wascher of the Federal Reserve Board show, increases in minimum wages actually redistribute income among poor families by giving wage increases to some and putting others out of work. They estimate that the federal minimum-wage increase of 1996 and 1997 increased the proportion of poor families by one half to one percentage point.
Third, consider the long run. Mr. Neumark and Olena Nizalova have found that even people in their late 20s worked less and earned less the longer they were exposed to a high minimum wage, presumably because the minimum wage destroyed job opportunities early in their work life.

For the full commentary, see:

David R. Henderson. "Rule of Law; Minimum Wage, Minimum Sense." Wall Street Journal (Sat., Feb 25, 2006): A11.

Middle Class Living Standards Have Risen

(p. C1) ONE of the most influential political books of the last few years has been ”What’s the Matter With Kansas?” by Thomas Frank. Published during the 2004 campaign, it neatly captured the Republicans’ success in using social issues to attract blue-collar Kansans who don’t really benefit from Republican economic policies.

”All they have to show for their Republican loyalty,” Mr. Frank writes, ”are lower wages, more dangerous jobs, dirtier air, a new overlord class that comports itself like King Farouk,” and a culture in ”moral free fall.”

The book was a New York Times best seller for 35 weeks.

But close inspection uncovers a big problem with Mr. Frank’s economic analysis. Wages haven’t been falling in Kansas. Up and down the economic spectrum, they have been higher in the last few years than they were at any point in the 1980’s or 90’s, according to inflation-adjusted numbers from the Economic Policy Institute. The median Kansas worker made $13.43 an hour in 2004, 11 percent more than in 1979, which might help explain why many people don’t vote on bread-and-butter issues anymore.

Now, an 11 percent raise over the course of a generation — which is similar to the national increase — is (p. C10) not especially impressive. It’s certainly smaller than the increase workers received in the 25 years leading up to 1979, and for the last few years, wages have not risen at all. But they did rise during the 1990’s boom, and pretending otherwise does not jibe with most people’s experiences.

More to the point, some other improvements have accelerated recently. In just the last 15 years, the murder rate has been cut almost in half. Many big cities are far more vibrant places than they used to be. About 33 percent of young adults get a bachelor’s degree these days, up from 25 percent in the early 1990’s. The gap between men’s and women’s pay reached its lowest ever last year. The divorce rate has stopped rising.

Many luxuries of earlier generations — owning a three-bedroom house, flying across the country, calling relatives who live overseas — are staples of middle-class life. If all this doesn’t add up to a rise in living standards, I’m not sure what the phrase means.

For the full commentary, see:

DAVID LEONHARDT. "This Glass Is Half Full, Probably More." The New York Times (Wednesday, May 24, 2006): C1 & C10.

Illegal Immigration Reduces Wages for High School Dropouts by Only 3.6%

Source of graphic: online version of the NYT article cited below.

As Congress debates an overhaul of the nation’s immigration laws, several economists and news media pundits have sounded the alarm, contending that illegal immigrants are causing harm to Americans in the competition for jobs.

Yet a more careful examination of the economic data suggests that the argument is, at the very least, overstated. There is scant evidence that illegal immigrants have caused any significant damage to the wages of American workers.

The number that has been getting the most attention lately was produced by George J. Borjas and Lawrence F. Katz, two Harvard economists, in a paper published last year. They estimated that the wave of illegal Mexican immigrants who arrived from 1980 to 2000 had reduced the wages of high school dropouts in the United States by 8.2 percent. But the economists acknowledge that the number does not consider other economic forces, such as the fact that certain businesses would not exist in the United States without cheap immigrant labor. If it had accounted for such things, immigration’s impact would be likely to look less than half as big.

. . .

. . . , as businesses and other economic agents have adjusted to immigration, they have made changes that have muted much of immigration’s impact on American workers.

For instance, the availability of foreign workers at low wages in the Nebraska poultry industry made companies realize that they had the personnel to expand. So they invested in new equipment, generating jobs that would not otherwise be there. In California’s strawberry patches, illegal immigrants are not competing against native workers; they are competing against pickers in Michoacán, Mexico. If the immigrant pickers did not come north across the border, the strawberries would.

"Immigrants come in and the industries that use this type of labor grow," said David Card, an economist at the University of California, Berkeley. "Taking all into account, the effects of immigration are much, much lower."

In a study published last year that compared cities that have lots of less educated immigrants with cities that have very few, Mr. Card found no wage differences that could be attributed to the presence of immigrants.

. . .

When Mr. Borjas and Mr. Katz assumed that businesses reacted to the extra workers with a corresponding increase in investment — as has happened in Nebraska — their estimate of the decline in wages of high school dropouts attributed to illegal immigrants was shaved to 4.8 percent. And they have since downgraded that number, acknowledging that the original analysis used some statistically flimsy data.

Assuming a jump in capital investment, they found that the surge in illegal immigration reduced the wages of high school dropouts by just 3.6 percent.

For the full commentary, see:

EDUARDO PORTER. "ECONOMIC VIEW; Cost of Illegal Immigration May Be Less Than Meets the Eye." The New York Times, Section 3 (Sunday, April 16, 2006): 3.