Outsourced and Out of Work

The latest buzzword in the globalization debate is outsourcing. Suddenly Americans - long champions of globalization - seem concerned about its adverse effects on their economy. Its ardent defenders are, of course, untroubled by the loss of jobs. They stress that outsourcing cuts costs - just like a technological change that improves productivity, thus increasing profits - and what is good for profits must be good for the American economy.

The laws of economics, they assert, ensure that in the long run there will be jobs for everyone who wants them, so long as government does not interfere in market processes by setting minimum wages or ensuring job security, or so long as unions don't drive up wages excessively. In competitive markets, the law of demand and supply ensures that eventually , in the long run, the demand for labor will equal the supply - there will be no unemployment. But as Keynes put it so poignantly, in the long run, we are all dead.

Those who summarily dismiss the loss of jobs miss a key points: America's economy has not been performing well. In addition to the trade and budget deficits, there is a jobs deficit. Over the past three and a half years, the economy should have created some 4 to 6 million jobs to provide employment for new entrants into the labor force. In fact, more than 2 million jobs have been destroyed - the first time since Herbert Hoover's presidency at the beginning of the Great Depression that there has been a net job loss in the US economy over the term of an entire presidential administration.

At the very least, this shows that markets by themselves do not quickly work to ensure that there is a job for everyone who wishes to work. There is an important role for government in ensuring full employment - a role that the Bush administration has badly mismanaged. Were unemployment lower, the worries about outsourcing would be less.