Transcript Indiana`s Exciting Energy Frontiers

Offshoring - - Implications for
the States
Prepared for National Association
of Workforce Boards Chairs,
Denver
August, 2004
Graham Toft &
Nadine Jeserich
Hudson Institute
[email protected]
[email protected]
317 549 4103
1
Outline







2
Global Job Shift: Economic & Political Buzz
Refresher: Growth Economics 101
What Jobs Are On The Move and to Where?
What Increased Income in Developing Countries
Means for U.S. Markets and Workers
Where is the Wealth Being Created?
What Global Job Shift Means for State Policies
Bottom Line
Global Job Shift: Economic &
Political Buzz








3
Manufacturing Jobs
Steady worldwide decline in employment, including in many
developing countries such as China
But productivity increases ensure growth in output and family wages
in the U.S.
Changing from product focus to “total solutions”, which includes
services.
Service Jobs
Services present 80% U.S. GDP
White-collar jobs represented 87 % of U.S job growth in the 1990s
Share of high-skill service jobs provided overseas or by third-parties
is rising
Global Job Shift: Economic &
Political Buzz
Countries gaining

Significant wage and unit labor cost convergence mainly among
advanced countries

Several East Asian nations show remarkable productivity
improvements

U.S. productivity growth remains robust. IT still continues to
transform. Five key U.S. productivity industries:

Semiconductors & electronics manufacturing

Post and telecommunications services

Wholesale trade

Retail trade

Financial services
4
Global Job Shift: Economic &
Political Buzz (cont.)
The Political Buzz
 IUE-CWA : “…what Brazilian workers do best is: get
fired for organizing; what we do best in the U.S. is:
get laid off. And what GE does best is: make $16
billion a year in profits!”
The Economic Development Buzz
 Clusters
 Creative Class
 Innovation Development
5
Refresher: Growth Economics 101
Import Substitution Theory:



Replace imports with locally competitive substitutes
Self-sufficiency Strategies
Both require efficient government and large internal market and
even then limits efficiency improvements and therefore growth
Export Base Theory:




Sell competitive goods and services to the outside in exchange for
direct imports
The traded sector – now very competitive; costs and productivity
matter.
The derivative sector – lots of jobs here! But some being lost to
offshore also.
High quality of life – health, education, environment, amenities –
still depends on traded wealth
Talent Base Theory:



6
Not what you make or sell, but what brain and skill power you have.
But if you train, educate and nurture creativity will they stay?
Attracting and retaining the “creative sector” is important.
Refresher: Growth Economics 101
(cont.)
A new Force: Creative Destruction (Schumpeter)





7
“Knowledge Economy” requires constant innovation and
technological adaptation in products and services
Changes in productivity or trade competition upset traditional
comparative advantage
Human talent is displaced, then redirected at expanding and
higher-value economic needs – “skills on the run” e.g.
displaced defense and aerospace engineers & scientists from
the 80’s ended up in the .com 90’s boom.
New Policy Issue: Agglomeration vs. “Disagglomeration”
(Clusters yes / no)
Very difficult to pick winners.
What Jobs Are On The Move and
To Where
• Main Driver: Fragmentation of Production Chain due to
Technological Advancement and Globalization (integration of
global markets)
• Two Forces: Outsourcing and Off-shoring: Both have
increased in last decades:
 Campa & Goldberg (1997) estimated U.S. outsourcing
activities doubled between 1975 and 1995 in MFG
 “Survey of Current Business”: Employment and Gross
Product of U.S. affiliates abroad has not changed
dramatically relative to the size of the economy
 Reports on IT and financial industry outsourcing predict
several million jobs shipped abroad in the next 5-10 years
(McKinsey, Deloitte, Gartner, Forrester)
8
What Jobs Are On The Move and
To Where (cont.)
• India: but has to improve infrastructure and control wage
costs; now already outsourcing its outsourcing sector to
China
• China: but has to invest in infrastructure, language skills and
cultural competencies
• Latin America – Free Trade of the Americas, the next
frontier?
• Countries with % of workforce with postsecondary education
above the U.S. average: Canada, Israel, Lithuania,
Singapore.
• Overall, 70% of trade and investment is among advanced
economies and their wages are equilibrating.
• Only 11% of jobs have been identified as at risk, mostly in
computer, support and administrative services and only 2.5%
of total U.S. employment is expected to leave by 2015 . But
this means a lot of dislocation at all knowledge & skill levels.
9
What Increased Income in Developing
Countries Means for U.S. Markets

Growth of U.S. Exports (% of GDP in constant dollars)
1980: 6.8% 1990: 8.6% 2000: 12.4%


10
Categories of exports today:

Top 5: Valves/transistors, Aircraft/spacecraft,
Motor vehicle parts/accessories, Telecomm. &
Computer equipment

Services account for 28%, doubled in last decade
Growing Exports in the future

Capital & financial acumen

Technology and Know How

Education and training.
Where is the Wealth Being
Created?

The Value Chain Today: Domestic and international
Networks of contracts and trade; Focusing on efficient highvalue-added stages and outsourcing the rest - - the “sweet
spots”.

Trading Partner China: Largest Trade Deficit with China
(although official numbers exaggerate), but both Imports and
Exports are growing. U.S foreign direct investment flows to
China are less than 2% of total outflows.

China’s Value-Added: Of $1 U.S. product value going
through China only 20 cents are value-added there
11
What Global Job Shift Means for State
Policies
 Research, Innovation and Commercialization

Advanced products / services at home (e.g. Design)
 Exports of know-how!
 Entrepreneurship (all ages, all ethnic and racial groups) - - a
U.S. growth engine!
 Policies for Firm Agility





12
Avoid picking industry winners (create climate for clusters but
don’t pick them)
Create conducive, solid economic foundations (tax, regulatory,
information policies, strong basic education / skills)
Let the entrepreneur do his / her thing.
Nurture inter-firm collaborations around education / training.
Know who your growth companies are.
What Global Job Shift Means for State
Policies (cont.)


13
Policy for Worker Adjustment / Agility
 Re-think economic adjustment policy - - not just for large,
extreme situations
 Provide accurate, up-to-date, easily accessible labor market
information. (real time state / local LMI – needs business
cooperation)
 Keep moving One Stops to physical and virtual full service
“success stores”.
Policy for Youth and Adult Educational Advancement.
 Focus on transportable critical skills
 Find ways to link WIA training / support with career technical
education and adult education (a quasi-state “skills
corporation”?)
 Support the growth of community-based, lifelong learning
centers.
 Work with others to ensure seamless web of education /
training offerings and career pathways.
What Global Job Shift Means for State
Policies (cont.)


14
Policies Concerning Social Services
 Act as catalyst to help human services organizations link client
– centered services through networked case management.
(help employers get help)
Policies for Community and Regional Development
 Create “regional investment corporation” that integrates career
technical education, adult education, workforce preparation,
regional planning and economic development. Pool funding
sources, seek federal waivers. Could WIB’s be a lead?
 Create state “onshore” regions in rural, non-metro parts of the
state through competitive matching grants – highly efficient,
lower labor cost competition to offshore alternatives.
Bottom Line:
 You don’t win with the most production workers or
lowest wages but with an attractive and aggressive
economic and workforce environment (Ireland)
 China’s and India’s economic futures are still very
unpredictable, but offer promise of a more
prosperous, stable world. They should not be taken as
a threat but an opportunity
 Outsourcing domestically or overseas is a necessary
and profitable business strategy for certain production
stages and products if carefully planned - - global
business strategies are here to stay.
15
 These trends are neither temporary nor avoidable
American Outlook, April 2004: Nadine Jeserich and Graham Toft
“China and the New Geography of American Jobs”
www.americanoutlook.org
Progressive Policy Institute May & July 2004: Robert D.
Atkinson “Understanding the Offshoring Challenge” ; “Meeting
the Offshoring Challenge”. www.ppionline.org
16