How Should We Think About the Exportation of Jobs?

It looks like productivity increases in the U.S. are accommodating growth with little increase in the number of jobs. Doesn’t it suggest that the jobs that people do hold must be getting better?
by James Heskett

Summing Up

The exportation of jobs "will create bigger markets and opportunities to sell goods and services from the developed economies," says reader Suman Das. "This is indeed very troubling, as the classic answer of 'retrain those who lost jobs for higher paid jobs' begins to fall apart" with increased training times and more rapid changes in international job markets, according to Michael Lindsey. "We're headed for a two-tier economic society..." says Mike Dorkoski. While Brad Leach opines, "The real question is how to deal with the disproportionality of this impact: the broad, shallow, positive impact on product prices versus the narrow, deep, negative impact on individuals."

These quotes help sum up the nature of the thought-provoking debate stirred by this month's column. On the one hand, arguments based on accepted macroeconomic theory generally came down in support of the free exportation of jobs, regardless of how imperfect labor markets are in comparison with markets for capital, goods, and services. Those arguing for some kind of intervention in this market activity cited the negative impact on jobs and people (especially their self-esteem), increasing long-term disparities in incomes, a negative impact on the ability of disadvantaged workers to invest, and an ultimate decline even in economic activity in net job-exporting countries. Some argued that these phenomena were irreversible. Others suggested that even if painful, they were transitory. As Sudip Sen put it, "The 'export' of any activity, be it manufacturing or service outsourcing, is driven by pure economics. True, it has a social and political impact; but more often than not the latter adjusts against the former and not vice-versa."

The pattern of responses did not correlate well with country of origin. One interesting example concerned fears about the two-tiered economy created by job exportation. Before concluding, "These trends cannot be stopped by any government," A. J. Balasubramanian pointed out that due to job importation, "In India, we are creating two different societies with a large disparity in income as well as access to knowledge and information."

In large part, the comments seemed to reflect reactions to both differences in the fluidity of markets for capital and labor as well as the increasing fluidity in markets for labor fueled by dramatic improvements in communication. Those with a global, macro economic view tended to regard these developments as long overdue. Those concerned about the psychological and social impact of job exportation on people and communities emphasized the need of some kind of intervention ranging from increased job training to incentives to those organizations willing to restrict the flow of jobs. Dan Barr's comments suggest that the issues raised create a false dichotomy (something of which I would never want to be accused). As he said, "The productivity improvement that I am familiar with seems to always create jobs and grow companies and countries." What do you think?

Original Article

It has taken economists, journalists, and the rest of us years to get used to the idea that over 80 percent of the jobs in any developed economy are service jobs. And that the "good old days" of relatively strenuous, dangerous, and boring manufacturing jobs are not coming back. Many of those jobs have been exported for good. Now we are confronted with a new reality: Service jobs are just as exportable as many of the manufacturing jobs that left the U.S. and other highly-developed economies before them. And not all of them are relatively boring and low-paying. How should we think and feel about these trends?

Much of the current commentary would lead us to believe that we are being left with jobs, many of them low-paying, that cannot be exported—those involving personal services such as face-to-face retailing and repair work. The Wal-Martization of work in the U.S. is emphasized while the fastest-growing types of service jobs in medicine, high-tech maintenance and development, and construction are downplayed.

At the risk of oversimplifying, job quantity and quality is a function of growth and productivity. If growth occurs that is roughly equivalent to increased productivity, little change occurs in the number of jobs although the quality of those jobs (assuming that higher output per person leads to higher income as well) should increase. Growth without a change in productivity ought to lead to more jobs, but jobs of about the same quality as before. Growth with a loss in productivity is likely to lead to more but poorer-paying jobs. Only when the growth rate exceeds productivity increases should more and better jobs be created. Of course, these relationships hold only as long as an economy is closed and self-contained with no exportation or importation of jobs. Those days are long gone.

What is the situation we face in the U.S. today? It appears that productivity increases are accommodating growth with little increase in jobs. But doesn't that suggest that the jobs that people do hold must be getting better? And to the extent that productivity can fuel growth that exceeds the rate of job export, doesn't that bode well for the future of employment in the U.S.?

On the other hand, it can be argued that jobs have an intrinsic value regardless of their quality. They keep people occupied and out of trouble. Crime rates historically have varied inversely with employment. The loss of any job has social costs greater than the loss of income. But do we have to export jobs in order to create better ones? Does it matter if the jobs exported are those involving relatively little "ownership" potential and they are replaced by those created by the entrepreneurial, small-business engine that has fueled the U.S. economy for decades with jobs that involve either psychic or actual ownership? How should we think about job export? What do you think?

    • Jeff O'Byrne
    • Professor, Campbell University

    The issue is not exportation of jobs, but rather the increased marketplace generated by our far-reaching policies after World War II. As we fostered the rebirth not only of our allies but also former enemies, we unleashed a global revolution. Of its many implications, not the least is the increased educational level of many populations. After the survival issues were solved, many nations embraced higher education. For the U.S., the only economy at full capacity in 1945, this has led to competition. The answer is to educate our young people to compete in the ever-increasing global marketplace.

    • A. J. Balasubramanian
    • Manager, Kaveri InfoSys Private Ltd., India

    By developing markets in countries such as India and China, eventually every nation in the world would gain. The transition would be painful. But such constraints and new challenges could lead to opportunities that had never been explored. It is not going to be long before countries like India could be facing a different set of problems, similar to what has been quoted by another reader here. In India, we are creating two different societies with a large disparity in income as well as access to knowledge and information. These problems, along with less-developed infrastructure and more uneducated people, are going to be having a greater impact on the society. Even between regions, there are likely to be wider gaps and differences. For example, the southern Indian states are doing well in this IT boom.

    Later, having since overcome problems due to jobs moving offshore, the U.S. may have a different set of opportunities and problems. The cycle would continue. These trends cannot be stopped by any government.

    • K. R. Kashyap

    In automobile [manufacture], U.S. automakers once ruled the world. But Europe and Japan soon caught up with better quality, fuel efficiency, and lower costs. The U.S. auto industry not only lost jobs but also its competitive position. This loss was felt both in the U.S. domestic and international markets.

    Contrast this with IT where U.S. companies have always ruled the world. In the 80s, most computer hardware and software was made in the U.S.A. (read U.S. jobs). Today, it may not be the case, but there is a big difference. Computer hardware and software sold across the world have created far more jobs outside the U.S. But why isn't anyone complaining? Because the revenues and profits still (mostly) go to U.S. companies!

    The choice is obvious: The key to U.S. prosperity doesn't lie in fighting for jobs in the U.S. American companies can create many jobs by focusing on the rest of the world. They need to serve more customers and give them better value for money. Today, some U.S. companies may retain U.S. jobs by either ignoring the rest of the world or creating unacceptable trade barriers. Tomorrow, they will have neither the jobs nor retain their market share in the rest of the world.

    • Swier Miedema
    • Management Consultant, LogicaCMG B.V., The Netherlands

    I keep having a feeling that exporting jobs is more or less "taking the easy way out." Companies that find they can hire skilled people in another area for less money are going for the fast buck. They do not solve a much more basic problem in their own company, however, and that is the build-up of company resilience. This is a rather "soft" value that will help the company survive in times of trouble. It does not mean that a company will survive bad times without problems, but it will at least ease the pain.

    What I keep seeing in companies is that people working are trying to matter in that company, just as they want to matter in their private environment. How do they do that? By contributing to the environment to which they want to belong. How can you contribute? By adding your strength to that environment in order to make it function better. According to The Gallup Organization, a strength consists of three items: skills, knowledge, and talent.

    Skills and knowledge are transferable from person to person, but are generally specific for the situation. Talent is defined as "a recurring pattern of thought, feeling, or behavior that can be productively applied," is transferable from situation to situation, but is specific per person.

    Talented employees can do jobs with two fingers in their nose and their other hand tied behind their back and still out-produce their colleagues. They know what their talents are and use them. We can export skills to anywhere and we can ship out knowledge by the shipload, but we can never export talent.

    Isn't it time we started looking at talent (in a proper definition) a little bit better?

    • Anonymous

    Thank you for even raising the question. The most astounding thing about the off-shoring trend of the past several years is the absolute lack of public debate.

    Statistics indicate that half a million people lost their jobs in IT last year—and who knows how many more from other fields—but the government and industry organizations continue to publicly insist that there is an IT skills shortage and that the few "low-skill" jobs that have been lost were replaced by new, higher-paid, "creative" work.

    It's like living in the old Soviet Union, where the government and party publicly announced record levels of industrial and agricultural productivity, while the converse was obvious to every citizen. A brave new world indeed.

    • Michael Lindsey
    • M.B.A. candidate, Harvard Business School

    Five years ago, when I graduated with a computer science degree, that major had just surpassed Chemical Engineering in producing the highest-paid new graduates. Responsible parents everywhere were encouraging their children in high school to consider a C.S. degree. However, by the time that those students graduated, C.S. graduates were far from the top earners. The primary reason, even more than the dot-com crash, was the increasing availability of highly skilled programmers in India, which sharply diminished the need for homegrown, entry-level C.S. talent.

    As a result, in just four years (the time it took one class to graduate college), almost an entire sector of skilled laborers was or was in the process of being exported. Though C.S. is one of the starker examples (due to the relative ease of "shipping" specifications and code across borders), the potential for massive job export exists in most skilled professions as the economy turns more digital.

    This is indeed very troubling, as the classic economic answer of "retrain those who lost jobs for higher paid new jobs" begins to fall apart as training cycles lengthen and qualifications increase for even higher-skilled jobs. It takes more than five years to train a skilled programmer and ten years to train a skilled biogeneticist. With job export potential and thus employment risk increasing sharply, how can even the few laborers who could expect to be successful in those fields be expected to make that type of time investment?

    In summary, the ability of our economy to adapt to the loss of jobs through retraining is being greatly hindered by both the increasing knowledge requirements of the new positions and the increasing risk of exportation of those professions. The result is likely to be a sharp increase in income discrepancy between those who are both fortunate enough to have the intellectual capability to train effectively and to choose correctly the few positions that do not get exported, and those who fail at one of these two tasks and are forced to subsist through "Wal-Martish" jobs. And, history has shown repeatedly that increased wealth discrepancy leads to increased social chaos.

    • Dan Barr (HBS MBA '67)
    • VP, TDA

    So which companies are exporting jobs? If one looks at the Six Sigma flagship companies (60+), their total multifactor productivity is about 60 percent of the average for U.S. companies. In the past five years, their employment grew 3 percent. In comparison, the BusinessWeek High Growth Companies had 200 percent greater productivity and their employment increased 53 percent. The superstars were 200 percent more productive, but employment increased only 37 percent. Are "freezing" companies exporting jobs, in part, because they don't really understand the principles of profound performance improvement? The productivity improvement that I am familiar with seems to always create jobs and grow companies and countries.

    • Daniel Mayer
    • Technological Due Diligence Consultant

    Let's assume that, one for one, a foreign employee is as productive as an American one, yet cheaper. The inescapable conclusion is that the more American service employees a corporation displaces with foreign service workers, the more efficient it becomes. Long term, this trend will result in significant degradation to the standard of living in the U.S. There would seem to be accrued benefits to corporate stockholders; however, as Americans' ability to invest is stocks degrades over time, corporations will increasingly be owned by international rather than American stock owners.

    • Janal Kalis
    • Partner, Schwegman Lundberg Woessner & Kluth

    I tell my nieces and nephews to find something they are passionate about and be prepared to start their own businesses selling it. They should expect to use the best talent they can find in the U.S. and in other countries.

    Our law firm is very small, about fifty patent attorneys, and is located in the Midwest. We are all engineers and lawyers. We designed our own enterprise class, Web-enabled case management system and are licensing it to others in a software company we started. We are using this system ourselves to communicate with and receive communications from a paralegal staff that we hired in India. I am talking with Chinese law firms interested in using our Indian staff for organization of their international patent files. These firms are also interested in engaging our services for global intellectual property strategizing for their Chinese company clients.

    Go figure. I would never in my wildest dreams have imagined this situation ten years ago. I think the next ten years will be even more exciting.

    • Anonymous

    I see exportation of jobs at this time in our economic history as very detrimental. Not everyone is looking for psychic or entrepreneurial "ownership." Many are simply seeking a job to replace the income they once had or close to what they had... As a career counselor, I have seen many individuals from diverse career backgrounds who have lost jobs. Many of these people have sought new computer skills expecting these skills to make them more marketable in their job search. Unfortunately, we are seeing many of these computer jobs, especially in customer service and technical trouble-shooting, going overseas.

    What remains is a growing population of skilled, unemployed workers; and a good percentage is keeping the pharmaceutical companies in the black with their use of anti-depressants. We seem to be doing a good job of creating a population of depressed, low self-esteemed, overweight non-workers... Many have simply given up!

    We need government intervention to help create new industries and job categories for the highly educated, un- and underemployed people in our country. Why waste money on going to the moon and giving citizenship to illegal immigrants when there are such great needs among our own population?

    • Suman Das

    With service jobs now being exported to developing countries, it can be fairly expected that these economies will be boosted over time. That in turn will create bigger markets and opportunities to sell goods and services from the developed economies. That should be good all around.

    A good example is China. It has taken a good few decades for China to become an important economy. Last year it was a massive importer of many goods and services and it will continue to do so. Such moves can only help the developed markets and employment, as one type of job is lost, others appear.

    • Yadnesh

    I feel that if one exports those jobs to countries that can perform better at a lower cost as well as faster due to specialization in those fields, it is a fair deal. After all, aren't the American companies also looking for profits and sustainability? Let politics not hinder the true spirit of business. Cheers to globalization.

    • Peda Mucic

    First the blue collar jobs went overseas, now the white collar jobs are leaving... What's next? Actual "collars,"' also known as people, will be leaving.

    • Brad Leach
    • Profitable Growth Strategist, Milliken & Company

    Generally, any opportunity to lower the cost of inputs into the economy is favorable. However, labor markets are not models of absolute market efficiency. Labor markets are considerably less efficient than the efficiency of the product markets that benefit consumers generally. Because of this lack of efficiency in the labor market, individuals in specific regions or states bear the entire economic burden of the exportation of jobs. On a local level, the outcomes can be disastrous—for example, the textile industry in South Carolina.

    The real question is how to deal with the disproportionality of this impact: the broad, shallow, positive impact on product prices versus the narrow, deep, negative impact on individuals.

    • Allan Wakefield

    With the English language becoming so generally accepted around the world, the English-speaking world is the hardest hit by the export of call center and IT jobs— especially to India. Europe (excluding the U.K.) has not been as hard hit so far, largely because fewer people in developing countries speak German, French, Italian, etc. Those countries also have far more rigid labor markets than the U.S., U.K., and Canada, and would have more trouble adjusting to sudden changes in the demand for labor.

    But the other side of the coin is that the U.S., U.K., and Canada are achieving significant productivity gains by outsourcing. In a globally competitive world, this can only enhance their competitive edge and share of global markets. While the transition is not easy to manage, it should have a net positive outcome.

    • Sudip Sen
    • Project Manager, Voest-Alpine (India)

    The "export" of any activity, be it manufacturing or service outsourcing, is driven by pure economics. True, it has a social and political impact; but more often than not the latter adjusts itself against the former and not vice-versa. A good example of economics engendering an adjustment in society and politics is the decline of communism.

    Service jobs by nature require extensive communication between human beings, either face to face or through some communication medium. And the easier and cheaper it becomes to communicate and commute, the greater the possibility of migration of service jobs from high-cost to low-cost zones.

    But instead of trying to stop this natural economic phenomenon by imposing social and political restrictions, which anyway cannot be held on to, a better idea for the highly developed countries would be to gradually migrate from services jobs to mainly "innovation" jobs as was done previously when they migrated from the mainly manufacturing jobs to mainly service jobs.

    • Hari Padmanabhan
    • IT adviser, Southern Roadways Ltd

    Can growth constantly exceed the rate of increase in productivity so that incremental labor can find jobs?

    Governments have a major role in creating the right environment for this to happen. They can and must sponsor major initiatives in cutting-edge research projects, implement new technologies and, above all, drive the quest for constant worker retraining. It would help if governments helped laid-off workers keep abreast of advancements in their professions by paying for their retraining—in fact, make it conditional for their receiving welfare payments.

    Trade unions and corporations must join in this initiative, as governments alone cannot perform this role. A policy mix of stick and carrot is needed to drive them to this end.

    • Mike Dorkoski
    • Assistant director for technical consulting, Bucknell SBDC

    Regarding the exportation of jobs: We're headed for a two-tier economic society as we head toward a knowledge economy. There will always be those who are academically gifted—those who benefit from a knowledge economy—and those who are otherwise gifted—who will not benefit from a knowledge economy. In decades past, a living wage could be earned with the hands, creating value from raw material, one's work ethic, experience, and common sense.

    When that option is no longer viable for a large segment of the population, their only choice will be to move down the economic ladder, causing wage decline as U.S. population increases. Productivity improvements will not help this segment achieve a higher standard of living, as they will have less income to buy the now-imported goods. Government policy should support a stratification of jobs, not a race to the high end.

    • Pavel Straka

    Free markets and capitalism will continue to prosper only if they benefit their constituents. In an unregulated global marketplace, capitalism will allocate resources to their best use. Since the GDP per capita rates vary widely around the world, gradual wealth equalization on a global scale will occur resulting in wealth transfer from rich to poor countries endangering both free markets and capitalism. Because the extent of wealth disparities among nations as economic units is so significant, neither productivity growth or economic growth in wealthy nations can reasonably be expected to negate the wealth transfer, [and] it becomes merely a question of the rate of wealth transfer.

    The wealth transfer may be gradual, but it started on its course some time ago. However, the current macroeconomic data coming from the United States, China, India, and, to a lesser extent, perhaps because of a somewhat less aggressive form of capitalism in Europe, the E.U., suggests that the wealth transfer may accelerate. So far the wealth transfer has clearly enriched developing countries on a relative basis, but the creeping absolute transfer of wealth should become evident and noticeable in the general economy soon, beyond just the misfortunes of the unemployed.

    Since the United States is highly leveraged financially not only at the federal and state governmental levels but also at the consumer level, the United States as an economic unit lacks sufficient financial reserves to see if it can overcome, negate, or benefit from the current global economic transformational changes which it initiated. The lack of financial reserves, along with the dubious nature of possible solutions to the wealth transfer issues, endanger not only the standard of living in the United States, but in the entire developed world.

    As distasteful as putting any constraints on the purity of free markets would appear to be, specifically, the free movement of labor and capital, the alternative may be even less palatable.