Outsourcing: Its Effects on Ohio
In the current political climate, the subject of "outsourcing" of American jobs overseas is a controversial issue. Indeed, there are currently anti-outsourcing bills being considered in 23 states, including Ohio, as well as measures proposed at the federal level. Concerned politicians everywhere from county commissioners to U.S. senators are determined to do something about this problem of American jobs being outsourced to foreign countries.
However, a closer look reveals that the problem may only exist in the minds of political opportunists looking for votes by complaining about a problem that doesn't really exist.
In fact, outsourcing is as old as business commerce itself. Consider your local supermarket. The store probably does not plow its own parking lot after a snowstorm, but hires an outside firm with an expertise in the job of plowing snow. Law firms, doctors' offices, retail stores and other small firms outsource janitorial and food services. My dentist outsources the caps she puts on my teeth. This is a common practice among businesses and is done in order to increase efficiency and improve the profitability of the firm. Outsourcing has been done like this forever, but has only become a problem in the political arena as firms have found it possible to outsource jobs to foreign countries.
Is outsourcing as big a problem as our political leaders would lead us to believe - and is it a serious problem for Ohio workers? The answer is an emphatic, no.
In fact, Ohio is one of the nation's major beneficiaries of "insourcing" jobs from foreign countries. According to The Organization for International Investment, Ohio ranks 10th in the nation with more than 242,000 workers employed by foreign firms operating in the state. California leads the nation with 713,000 workers dependent on jobs created by foreign firms investing in the state [1]. Ohio's Honda plant, for example, employs more than 14,000 workers. Bridgestone, Reed Elsevier, Siemens, and Tomkins Industries are other examples of foreign-owned firms that operate in Ohio and employ Ohio workers. These are jobs that have all been outsourced from foreign countries to Ohio.
On the national level, the Labor Department reported recently that only slightly more than 4,600 jobs moved overseas in the first three months of 2004. This is less than 2 percent of the 239,000 workers who were laid off during that period [2].
The benefit of outsourcing is that it increases the firm's productivity, making it more profitable and allowing it to expand and actually hire more workers for its home location. In fact, the evidence indicates firms that engage in international trade employ more workers than those that don't, and also pay higher wages on average [3]. Current studies show that the benefits of trade outweigh its costs by a ratio of two to one as well as saving consumers billions of dollars in the form of lower cost goods [4].
Many political candidates would like us to believe that we are losing our industrial base because of outsourcing. But manufacturing employment has been falling for the past 50 years while manufacturing production has been steady as a percentage of the gross domestic product. Increases in productivity created by new technologies are the real reason for the drop in manufacturing employment, not the outsourcing of jobs. The same thing has happened in agriculture. As farm technology advances, fewer farmers are needed to produce the food that feeds the world.
The Index of Manufacturing shows that since 1980, industrial production has nearly doubled from an index of 58.7 to 111.4 in 2002 [5]. In Ohio, average hourly earnings in manufacturing have more than doubled since 1980 while the value added per production worker has risen from $142,000 in 1995 to $157,000 in 2001 [6].
It would seem that our political leaders in Ohio could better serve the state's workers by focusing on tax and regulatory reform that truly would attract new businesses to the state, rather than on a problem that doesn't exist.
Notes
[1] http://www.ofii.org/insourcing/top_twenty.cfm
[2] U.S. Survey Finds Few Jobs Moving to Offshore Homes", The Wall Street Journal, June 11,2004, page A2.
[3] Michael Schroeder, "Outsourcing May Create U.S. Jobs", The Wall Street Journal, March 30, 2004, p. A2.
[4] Timothy Kane, Ph.D., Brett D. Schaefer, and Alison Fraser, 'Myths
and Realities: The False Crisis of Outsourcing", Backgrounder, The
Heritage Foundation, No 1757, May 13, 2004.
[5] Statistical Abstract of the United States: 2003, table 772, p. 517.
[6] Statistical Abstract of the United States: 1997, table 1221, p.
746; Statistical Abstract of the United States: 2003, Table 988, p. 640.
Joseph Zoric is an academic advisor at The Buckeye Institute of Public Policy Solutions and is an associate professor of economics at Franciscan University in Steubenville, Ohio.
