Offshoring and U.S. Labor Markets Margaret M. McConnell Research and Market Analysis Group, Federal Reserve Bank of New York Prepared for Services Offshoring: What Do the Data Tell Us? Brookings Institution June 22, 2004 The views expressed in this presentation are those of the author and do not necessarily reflect the views of the Federal Reserve Bank of New York or the Federal Reserve System
What Do We Want to Know? For this discussion, we refers to monetary policymakers Why are monetary policymakers interested in offshoring?
Job losses continued for 2 years after NBER trough 10 9 8 7 6 5 4 3 2 1 0 Private Nonfarm Payrolls % Change from NBER Trough Average Early 1990s 10 9 8 7 6 5 4 3 2 1 0-1 Recent -2-2 -12-8 -4 0 4 8 12 16 20 24 28 32 36 40 Source: Bureau of Labor Statistics; Author s calculations. -1
Cyclical vs. Structural Fluctuations Monetary policy needs to distinguish cyclical from structural movements in labor market React to cyclical Don t react to structural Boils down to needing an accurate estimate of trend payroll growth and/or the natural rate of unemployment
What are Structural Factors? Literature offers no clear definition Demand: Outsourcing/Offshoring, overall international trade patterns, technology, workplace practices, growth of temporary help sector, etc Supply: participation rates fluctuate for secular reasons as well as cyclical
The Recent (Lack of) Recovery New York Fed study released in August 2003 pointed to important role for structural change (Groshen and Potter, August 2003) Recent Chicago Fed study (Aaronson, Rissman and Sullivan, 2004:Q2) did not find evidence of extra sectoral reallocation in current period Both studies use macro data (industry level)
The Recent (Lack of) Recovery McConnell and Tracy (2004) use micro data in addition to macro, to examine phenomenon such as: Industry mobility rates Geographic mobility rates Role of demographic factors Preliminary findings suggest that structural factors were not likely to have been very important in recent episode
Where Does Offshoring Fit In? Has received much attention in recent period But, do we want to think of this as something different from international trade in goods and services? Can this account for sluggishness of recent recovery? No. (Groshen, Hobijn and McConnell (2004))
50 Trends in net exports 1996 Dollars (billions) 1996 Dollars (billions) 50 25 0-25 -50-75 -100-125 -150 Services net exports Nondurable manufacturing net exports Durable manufacturing net exports 25 0-25 -50-75 -100-125 -150 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: Bureau of Economic Analysis
Thousands of jobs US jobs embodied in net imports Thousands of jobs 4000 4000 3000 3000 2000 Durable manufacturing net imports 2000 1000 0 Nondurable mfg net imports 1000 0-1000 Total net imports -1000-2000 Services net imports -2000-3000 -3000 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: BLS, BEA etc...and author s calculations
2 1.5 1 0.5 0-0.5-1 -1.5 2 1.5 1 0.5 0-0.5-1 -1.5 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Percent US equivalent jobs in net imports as a share of payroll employment Source: Authors calculations Percent
Beyond the Jobless Recovery... Data efforts that help researchers identify structural factors are crucial to distinguishing trend from cycle in the aggregate labor market Unfortunately, data collection/survey design is unlikely to be well ahead of the phenomenon we re trying to capture...
Where Would More Detail Help? Mass Layoff Survey moves in right direction Why was the decision made? Labor costs, tax rates, etc? What activities are being outsourced? What industries are being outsourced to? (does it vary depending on whether work is moved abroad or stays here?) Is it productive (ex post)?
Where Would More Detail Help? Linking firm and household behavior seems crucial to identification of long-term trends Identify underlying source of fluctuations (cyclical vs. structural) Potential to gain better understanding of factors behind productivity growth (and hence better forecasts?) More easily identify trends in and reasons behind participation/self-employment decisions
Where Would More Detail Help? Design data/surveys to get better read on service sector Hours, compensation, output?
Where Would More Detail Help? Understanding flexibility of labor markets: What role do contingent workers play? (In a sense, use of temps is just outsourcing?) What activities are being done by these workers? Are they the same ones that often get outsourced?