Arnold Kling  

Where are the Jobs?

The High-Cost Producer... Saving Jobs from Outsourcing...

Virginia Postrel thinks that the Bureau of Labor Statistics may be under-estimating employment.

the bureau has missed more than 300,000 manicurists. It puts the total at around 30,000, compared with the count of 372,000 -- up from 189,000 a decade ago -- by Nails magazine, using private survey and state licensing data. Even if not all licensed manicurists are practicing, the bureau number is off by an order of magnitude. There are 53,000 nail salons in the country, most of them with more than one manicurist. The industry supports two major trade magazines, each with about 60,000 subscribers.
...It is tempting, of course, to treat these undercounts as trivial. After all, what do 200,000 massage therapists or 300,000 manicurists matter in a country of 290 million people? ... the undercounts distort our already distorted view of economic value -- the view that treats traditional manufacturing and management jobs as more legitimate, even more real, than craft professions or personal-service businesses. But the truth is, value can come as much from intangible pleasures as it can from tangible goods.

The Economist tries to sort out the cyclical circumstances in the labor market from the secular issue of outsourcing.

Now that the economy is recovering after the recession of 2001, so will the job picture, perhaps dramatically, over the next year.
Outsourcing...still accounts for a tiny proportion of the jobs constantly being created and destroyed within America's economy. Even at the best of times, the American economy has a tremendous rate of “churn”—over 2m jobs a month.
...Even though some IT tasks will be done abroad, many more jobs will be created in America, and higher-paying ones to boot.

Update: A New York Times story quotes Fed Chairman Greenspan as saying, "Everything we've looked at suggests that it's the payroll data which are the series which you have to follow," which means that he believes the more pessimistic of the two employment surveys.

Update 2: Declan McCullagh looks at the mirror image of outsourcing.

U.S. workers in the information technology industry often benefit from outsourcing. The German company Siemens, which makes electronic and electrical products, employs 65,000 people in this country. Sony Electronics employs 2,000 people in just New Jersey, while Belgium's Agfa-Gevaert Group, one of the world's leading imaging companies, writes paychecks to over 5,000 people in the United States...

For Discussion. What other recent articles would you recommend on the topic of outsourcing and the state of the U.S. labor market?

Comments and Sharing

CATEGORIES: Labor Market

COMMENTS (21 to date)
Barry Ritholtz writes:

Postel does a poor job making her case. Her article was chock full of analytical errors.

Try these few:

• Economic View: "Two Tales of American Jobs"

• Saved by Manicurists!

• Is the job market broken?

• Bush plan would need up to 5mln jobs

• Why the unemployment rate is really higher than it looks.

• Explaining the Recent Divergence in Payroll and Household Employment Growth"

• The job market: a matter of opinion

• As China Surges, It Also Proves A Buttress to American Strength.",,SB107542341587316028,00.html

That should get ya started!

Binyamin Wallace writes:

Greenspan in his Q&A last week said that non-farm payroll data rather than household data is more reliable when it comes to evaluating the health of the labor markets.

Stephen Roach concurs...

Nor do I buy the commonly expressed view that the data are simply wrong — that the payrolls-based survey of business establishments simply misses the inherent dynamism of risk-taking entrepreneurs whose enthusiasm for hiring can only be captured in the so-called household survey. Yes, the household-based job count is up 1.4 million workers in the 12 months ending January 2004 — well in excess of the paltry gain of 6,000 as measured by the establishment survey. According to the US Bureau of Labor Statistics, a little more than 25% of that discrepancy can be traced to definitional differences between the two surveys — namely a household survey that includes the self-employed, unpaid family workers, and private household staff. But the remainder of the difference could well be a perceptual one — disaffected workers sampled in the household survey who have downgraded their aspirations and simply won’t admit to the tougher reality depicted by businesses in the establishment survey. Yet there is really no comparison in the sampling accuracy of these two surveys. According to the US Bureau of Labor Statistics, the “active sample” of some 400,000 establishments in the payroll data covers about one-third of the total universe of such workers; by contrast, the monthly sample of only 60,000 households covers only 0.06% of the universe of over 106 million households in the United States. There is no doubt in my mind as to which of these two surveys should be trusted.

george gilooly writes:

hey i thought this passage from the article binyamin posted complemented richard florida's recent warnings on the US ceding its advantage in attracting so-called "creative class" types from around the world. not only then is the US at a disadvantage at the low end of the "global labor arbitrage," but maybe at the high end as well.

"US National Science Foundation data show that the United States is currently awarding only about 200,000 bachelor's degrees in engineering and science, little changed from trends in the mid-1980s. By contrast, Asia's annual graduates of science and engineering students (for China, India, Japan, South Korea, and Taiwan, combined) has now hit approximately 650,000 per year; that's up over 50% from the graduation rate in the mid-1980s and fully three times the comparable degree production rate in the US."

[also about 40% of US science and engineering Ph.D.'s go to "non-US citizens" every year according to the NSF]

Monte writes:



Lawrance George Lux writes:

The NY Times had an article today on re-employment insurance which offered some insight, though no practical relief to Job scarcity; it would simply underwrite underemployment.

The Household survey could be brought in line with the Payroll survey, if both surveys used tight infromation on the average number of hours worked per Individual. The Household survey is kept deliberately lax, to allow counter-challenge to adverse economic data from the Payroll survey, but both are traditionally about 15% off actual performance according to later evaluation. lgl

Joy writes:

This Brookings Briefing provides insights on U.S. Trade Policy and why outsourcing jobs is not "free trade".

Eric Krieg writes:

>>SENATOR SCHUMER: Well, thank you, Ron, and I want to thank Brookings for hosting this little gathering on short notice. And I want to thank my
unlikely partner, Paul Craig Roberts. We really don't know each other very well, but when I started thinking about trade issues, I just called a whole variety of people. And I found his thoughts to be well, I guess, a more satisfying fit of the new facts than we're seeing than just about anybody else's.

I would rewrite "new facts" as "my not entirely disinterested reading of the facts".

Eric Krieg writes:

How about some other employment-related government statistics?

FY2004 Budget So Far

The latest Monthly Budget Review from the Congressional Budget Office has some interesting information.

--Through January, corporate tax revenues are up 38 percent over the same period last year. CBO attributes this to higher profits and reduced losses among corporations. While individual income tax revenues are down 2.9 percent, most of this results from legislative changes. Comparing apples-to-apples, individual revenues would be up 4 percent over the same period last year. These data are consistent with expanding economic growth.

--Nonwithheld receipts are down 4 percent. These are estimated taxes paid by individuals on nonwage income. This suggests that there may not be as much successful entrepreneurial activity going on as indicated by the growth of nonfarm proprietors' income, which was up 5.6 percent last year compared with a 3.1 percent rise for total personal income. On the other hand, if there are a large number of new business startups in the economy, one wouldn't expect them to yet be showing profits on which estimated taxes have to be paid.

--Spending data indicate an expanding economy. Outlays for unemployment compensation are down $1 billion over the same period last year. Outlays for Temporary Assistance for Needy Families are also down.

--The Office of Management and Budget is projecting $26 billion less in total revenues this fiscal year than CBO, and CBO is also projecting $25 billion in lower spending than OMB. Since CBO has a better track record in this area, it may be that this year's deficit will come in at least $50 billion below the $527 billion figure recently estimated by OMB. It is difficult to know if the disparity is the result of a genuine difference of opinion between OMB and CBO, or an effort by the administration to high-ball the deficit so as to benefit from the good news when the actual deficit comes in lower than expected.

CBO Monthly Budget Review:

David Foster writes:

I doubt if Siemens would consider itself as being primarily in the "information technology industry."

george gilooly writes:

Foreign Firms Also Outsource -- To the U.S.

"Through 2001, the most recent year for which figures are available, Mexican companies created 145,000 jobs in the U.S. While that doesn't begin to offset the number of jobs that have left the U.S., it is a small part of a bigger group: foreign businesses all over the world creating jobs in America. According to Mr. Malan's organization, U.S. units of foreign companies employed 6.4 million so-called insourced jobs in 2001, up from 5.1 million in 1996 and 4.9 million in 1991."

Eric Krieg writes:

"In 1998, at the peak of the Clinton-era economic boom, 6,934 LLCs were formed in Tennessee. That dropped to 5,710 in 1999, and then plummeted in 2000 as the Clinton-era boom ended, the Internet bubble burst, Wall Street slid, and the economy slumped toward a recession. There were just 4,629 LLCs formed in Tennessee that year. In 2001, President Bush's first year, the rate of LLC formation began to rise, reaching 4,962. In 2002, there were 6,204 LLCs formed in Tennessee. And last year, as the Bush Boom gained strength, Tennessee entrepreneurs formed 7,412 LLCs.
Tennessee is only one state - I'd love to have data from all 50 states - but it is one more bit of data indicating there may well be more validity to the household survey than its critics will admit."

S.M. Wobbe writes:
S.M. Wobbe writes:

My link didn't show up on my previous posting. Let's try this again.

Eric Krieg writes:

>>The "free-trader" will respond: yes, but so has the janitor, the security guard, and on up the ladder. But if we add up their gains in the form of cheaper consumer goods, and subtract what they have lost due to the downward pressure on their wages, most workers have suffered a net loss from America's global economic experiment of the last 30 years.

And the reason that this guy doesn't link to this calculation is that IT ISN'T TRUE!

Eric Krieg writes:

Yeah, Indian competition is MURDER on security guards' wages.

S.M. Wobbe writes:

We have different interpretations of this passage with janitors and security guards.

First of all, you are right to criticize Weisbrot for not providing calculations to support his argument. But I think we both know that for an op-ed column, which it is, calculations aren't needed. There would be less opportunity for discourse. Second, Weisbrot never said Indian competition is DIRECTLY decreasing security guards' wages. What he is saying, I think, is that everyone who is a consumer, even janitors and security guards, benefits from the outsourcing of our manufacturing sector by paying lower prices for consumption goods. However, even wages of janitors and security guards can be affected by outsourcing jobs. Think about it, what happens to the demand for security guards and janitors if there are no businesses to secure or buildings to clean because they are all over seas?

Eric Krieg writes:

Okay, valid point, but trivial. Outsourcing is a small part of the trend towards more productivity and its nasty little flip side, the need for less workers overall.

Also it seems to me that janitors and security guard wages are being suppressed by immigrants, not outsourcing. Where is this guy on the issue of immigration. That's as issue that most people just want to ignore.

Finally, the issue isn't trade, it isn't wages, it is competitiveness. American companies could be more competitive if certain changes were made in the overall economy. For example, we need the English system of tort law. We need an education system that actually educates kids. We need a more rational, more simple, more business oriented tax system. We need pension reform. We need Social Security reform (buinesses pay half of all SS taxes directly).

You can't pin the problem with job creation on trade. There are other societal issues that are suppressing job creation and making US workers and US businesses uncompetitive.

S.M. Wobbe writes:

I agree. The problem is competitiveness, but that also subsumes outsourcing, trade, and immigration issues. Actually, I think one of the biggest factors is technology. We simply don't need as many workers anymore because most of MANufacturing is not done by men; it is done by machine. I have no solution to this problem yet.

Regarding increasing the competitiveness of businesses to remedy joblessness by reforming social programs, I don't see how that can be very effective. Though, I agree many social programs should be reformed. What I'm saying is that I'm not sure how better education will make businesses more competitive. And if SS is reformed to have businesses pay half, would that not lead to the business having to choose between cut profits, increasing the price of their goods, or decreasing the pay of their workers. Unless of course they instead get some form of tax break. That could possibly work. Maybe this is what you are talking about when you mentioned business oriented tax system. Still, I don't see how these things can make businesses more competitive in global markets, and I definitely don't see how it will create jobs.

Eric Krieg writes:

Businesses currently pay 1/2 of the payroll tax. The employee pays the other half. In effect, this is a tax on job creation. A privatized Social Security system where the employee is responsible for investing for his or her retirement would increase the incentives for employers to hire.

Granted, this isn't a near term solution! Bush and Kerry wouldn't get much traction by using SS privatization to create jobs.

S.M. Wobbe writes:

And what do you suggest the government do about that huge loss of payroll tax revenue? Higer taxes somewhere else? Deficit?

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