Economic Update
The truth about outsourcing and unemployment

If you believe all the rhetoric spewing from politicians and the mainstream media about outsourcing, U.S. unemployment numbers, the decline of manufacturing, and the rise of China and India as economic superpowers, you may as well pack your bags and set off for Bangalore or Shanghai. However, before you sell the house and hire a moving company, you might want to consider the facts about the state of the U.S. economy and outsourcing.

It’s true that despite relatively robust economic growth, unemployment numbers haven’t dropped as quickly as many economists predicted. The U.S. unemployment rate was 5.7 percent as of March. This may seem high, especially if you’re one of those currently unemployed, but it’s actually below the 35-year average unemployment rate, which is 6.2 percent.

It’s also true that 300,000 U.S. jobs have moved offshore in the last three years, according to an article in the April 10 issue of The Wall Street Journal. But this equates to only about 0.2 percent of the total job market in any given year, according to John McCarthy, a researcher at Forrester Research Inc.

So, if we’re relatively well-off, why aren’t more people working? An excellent article in the March 22 issue of Business Week titled “The Price of Efficiency” reveals that productivity improvement is the real culprit behind anemic job growth. (The entire article is available online at www.businessweek.com.)

U.S. businesses have squeezed out productivity gains of nearly 5 percent annually since the end of the recession, according to the article. That might not sound like much, but a one-percentage-point increase in annual productivity growth costs about 1.3 million jobs.

Remember the do-no-wrong 1990s and the billions of dollars thrown at technology? All that investment in hardware and software paid off. We’re a much more productive and efficient society now. For example, Web retailing has eliminated the need for sales clerks, restockers, cashiers and retail labor. And look at how automated airline reservations systems, tax preparation software, automated teller machines and the like have reduced employment.

And don’t forget initiatives such as Six Sigma and lean. These have saved corporations billions of dollars and resulted in much more efficient organizations that need fewer workers.

The United States is quite simply a much more efficient animal than it was 10 years ago. Now that corporations have fully embraced the global labor market and seen the direct bottom-line effect of productivity improvement, there’s no turning back. Employment numbers will come back, but not at the rates experienced after previous recessions.

We Americans are a fickle lot. We panic over outsourcing yet enjoy near-zero inflation because low-cost foreign labor keeps our DVD players, computers and cell phones cheap. We’re outraged at foreign labor taking U.S. jobs, yet we happily shop at Wal-Mart, which long ago abandoned its Buy America campaign in favor of cheap offshore goods.

I don’t mean to dismiss the issue of outsourcing, and I certainly understand the pain of job losses, but I believe our economy is more robust than many believe. Instead of politicizing outsourcing, let’s look at the data in the proper context.