New Economy: Debate Over Exporting Jobs Raises Questions on Policies

The New York Times

February 23, 2004
By STEVE LOHR

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."