A new study from the respected economic forecasting firm, Global Insight, found that the total number of jobs lost to IT outsourcing last year was only 104,000. This amounts to just 2.8 percent of IT jobs in the U.S. A much larger number were lost due to unrelated factors, including the collapse of the dot-com boom in 2000, the recession, and rising productivity.
The most important finding of the Global Insight study is that the cost savings from outsourcing don't just flow into higher corporate profits. They contribute significantly to higher output in the U.S., which leads to job increases elsewhere in the economy. The study estimates that the gross domestic product was $34 billion higher last year because of outsourcing and that this created over 90,000 net new jobs. These figures will continue to rise in future years. By 2008, GDP will be $124 billion higher and the number of new jobs created by outsourcing will rise to 317,000.
It's important to recognize that these new jobs are almost entirely outside IT. According to Global Insight, the largest beneficiary is construction, which will gain 75,757 net new jobs due to outsourcing. Other industrial gainers are transportation and utilities (63,513), education and health services (47,260), and wholesale trade (43,359).
Additional benefits of outsourcing are lower inflation, lower interest rates and higher real wages, which flow to all Americans. Global Insight gets these results because it looks at the ripple effects of outsourcing throughout the entire U.S. economy and not just on IT, as other studies often do.
Federal Reserve Governor Ben Bernanke also emphasizes the broader economic benefits of trade and outsourcing. The narrow focus on jobs tends to be misleading, he says, because much of the payoff accrues to consumers in the form of lower prices. Moreover, careful economic analysis has shown no relationship between jobs and trade in the aggregate. "There is little basis for blaming the recent poor employment performance on import competition," Bernanke concludes.
Faced with the reality that there was nothing they could do about outsourcing even if they wanted to, Republicans are slowly going on the offensive. Greg Mankiw was once again allowed to speak publicly. His colleague on the CEA, Kristin Forbes, made a forceful defense of free trade. And Treasury Secretary John Snow even spoke out in defense of outsourcing. It may not be enough to reverse the tide of public opinion, but it's a start.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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