New York Times

Steve Lohr


February 23, 2004

New Economy

Debate Over Exporting Jobs Raises Questions on Policies


There is certainly no shortage of political heat surrounding the subject of jobs migrating abroad. On the campaign trail, Senator John Kerry routinely decries "Benedict Arnold" bosses. And N. Gregory Mankiw, chairman of the White House's Council of Economic Advisers, faced an uproar after he said earlier this month that offshore outsourcing was a good thing for the economy in the long run.

In a presidential election year, when few new jobs are being created despite a growing American economy, the issue of jobs lost to foreign competition - and what can be done about it - will be an important one on the campaign agenda of both Democrats and Republicans.

Job migration, while only one factor in the current employment slump, points to two related economic challenges. 

The first is how the United States will respond to a new wave of international competition, and the second is what policies can help displaced workers make the transition to new jobs. 

Transplanting work, not just call center operations but also skilled professional labor like computer programming, to lower-cost nations is a manifestation of a change in the terms of trade in global competition. Such jobs can more easily be sent to India or China largely because of technology - inexpensive telecommunications and the Internet. And China, Eastern Europe and India, which all have large numbers of well-educated workers, have entered the global trading system in earnest only in recent years.

" The structure of the world has changed and policy has to change as well," said Craig R. Barrett, chief executive of the Intel Corporation, the world's largest computer chip maker.

Mr. Barrett is also the chairman of the Computer Systems Policy Project, a Washington-based policy and advocacy group whose members include the chief executives of leading technology companies like Hewlett-Packard, I.B.M., Dell and others. The group supports a series of policy steps intended to spur innovation and long-term job growth. The recommended steps include doubling federal spending on university research and development, extending research-and-development tax credits and an initiative to hasten the deployment of high-speed Internet services nationwide.

Investment and innovation, to be sure, are time-tested engines of economic growth. In the 1980's, Japan seemed unstoppable, and Silicon Valley and other industries were reeling. Yet the high-tech industry soon regained its footing, mainly through innovation, as American companies led the way in personal computing and the Internet. The United States enjoyed much of the resulting wealth and job creation.

This time, however, the interests of companies and workers are not as closely linked as they were in the 80's when both groups seemed to suffer together. For example, the American semiconductor industry lost $4 billion from 1984 to 1986 and lost 50,000 jobs in the United States.

Today, most American companies are doing fine with profits rising, as they shop the global labor market for the best bargains. It is sensible corporate strategy, and many companies, like Intel and I.B.M., are also hiring skilled workers in America even as they send some work abroad.

But the risk for corporate leaders is that they end up at one pole of a divisive issue - championing innovation and global competition, seeking tax breaks and other benefits from Washington, while mostly paying lip service to the need to help displaced workers.

Some industry representatives recognize the risk. "Offshore outsourcing is mainly the tip of the larger issue of American competitiveness," said Bruce P. Mehlman, a former official in the Bush administration who is the executive director of the Computer Systems Policy Project. "But we've got to think through and do better at helping people make the transition to new jobs."

Programs for worker retraining and education will require political commitment and financing. Many labor experts note that the 1,200 two-year community colleges, which do much of the nation's worker training, are an important educational resource for retraining people for new jobs. President Bush, in his State of the Union address, proposed a $250 million initiative for community colleges.

But by cutting federal financing for other occupational education and job training programs at community colleges by roughly the same amount, the White House's budget effectively undercuts President Bush's promises.

" We welcome the Bush administration's sincere interest in community college job training," said David Baime, vice president for government relations at the American Association of Community Colleges. "But it's about a wash in terms of money coming to the community colleges for these kinds of programs."

President Bush also repeated his proposal for "personal re-employment accounts" that would give unemployed workers up to $3,000 to spend as they wish on training, education or counseling. A personal re-employment account bill was introduced in the House last year, but never reached a floor vote. The estimated cost of the program was $3.6 billion.

Some labor experts and economists advocate wage insurance as a way to provide displaced workers an incentive to get a new job as quickly as possible and soften the blow of lost income if the new job pays less. Most proposals would pay about half of the difference between the old job and the lower-paying new one with an upper limit on the stipend, which would last for a year or two. Wage insurance proponents say the most effective kind of retraining is often on-the-job education.

" Wage insurance is something we haven't really tried, but its day has come," said Robert B. Reich, the former labor secretary and a professor of social and economic policy at Brandeis University in Waltham, Mass.

Robert E. Litan, a senior fellow at the Brookings Institution, a research organization in Washington, and Lori G. Kletzer, a professor of economics at the University of California at Santa Cruz, estimate that a wage insurance program at the current levels of unemployment would cost about $5 billion a year. Their working paper assumed a maximum yearly payment of $10,000 a worker for up to two years. A more generous maximum threshold would, of course, push up the cost of the program.

It would not be cheap, but Mr. Litan notes that the Bush administration's tax cuts would average over $100 billion a year for 10 years. "For a fraction of that, we could have a program that addresses the anxiety that grips both parties and much of the country," Mr. Litan said.

Another approach is to restrict the migration of jobs abroad through legislation. The National Foundation for American Policy, a research group, says more than 30 bills are pending in 20 states to curb the use of offshore contractors by state and local governments.

The Senate recently passed an amendment to the government procurement bill, sponsored by two Republican senators, Craig Thomas of Wyoming and George V. Voinovich of Ohio, that prohibits the use of offshore workers on some government jobs.

Senator Kerry, who is seeking the Democratic presidential nomination, says he wants to repeal tax loopholes that he argues encourage companies to set up operations and hire workers overseas.

Mr. Reich, the former labor secretary, said the idea of limiting the deductibility of jobs corporations send offshore - payroll costs are typically fully deductible as an expense - might be worth looking at as a short-term measure. "There may be a case for slowing things down a bit," he said.

Still, other experts say that taxes are only a minor factor in the movement, swamped by the wide salary disparities between workers in the United States and a growing number of educated people in developing countries who often bring similar skills to their jobs. 

And many analysts are much more worried that proposals for government curbs on the use of offshore workers are the advance guard of an unfortunate drift toward trade protectionism.

" The impulse is understandable,'' said Clyde V. Prestowitz, president of the Economic Strategy Institute in Washington and a former trade negotiator. "But it would be nice in a campaign year to avoid shooting ourselves in the foot if we can."

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