Study Confirms: Offshoring Sucks

According to a new report, ever since Bill Clinton granted permanent normal trade relations to China, the U.S has lost over 64,000 manufacturing firms and at least 5.8 million manufacturing jobs.

The main reason why America is still experiencing mass unemployment going into 2015 is because, for decades, our economy has transformed from a manufacturing economy (with good paying union jobs) into a service economy (with low paying "right to work" jobs) — mostly because of outsourcing and offshoring. Congress has passed trade agreements and wrote a tax code that actually encourages this.

To make matters even worse, the government plans to redefine manufacturing that would artificially boost GDP and artificially lower the trade deficit, by reclassifying foreign made products made by American companies — such as Apple's iPhones that are manufactured in China.

Betty Sutton (former U.S. Representative for Ohio's 13th congressional district ), by using data from the Bureau of Labor Statistics, had found that there were 398,887 private manufacturing establishments of all sizes in the United States during the first quarter of 2001. By the end of 2010 however, the number of factories had declined to 342,647, a loss of 56,190 facilities. Over a period of those 10 years, that worked out to be an average yearly loss of 5,619 factories.

Since 2010, however, that number has fallen even further — from 342,647 in 2010 to 334,800 by the end of 2012 — for an additional loss of 7,847 more manufacturers in two years alone. That's over 64,000 lost manufacturers just since Bill Clinton signed into law the U.S.- China Relations Act of 2000, which granted permanent normal trade relations status to the People's Republic of China.

Betty Sutton had noted that many big companies have not created jobs in the U.S. — but instead, they’ve taken many of their jobs to countries with the cheapest labor, the least regulations and the fewest labor rights. "This flies in the face of the Republicans’ concern that taxes on the rich means fewer jobs," she said. As the Wall Street Journal had reported in 2012, "Thirty-five big U.S.-based multinational companies added jobs much faster than other U.S. employers in the past two years, but nearly three-fourths of those jobs were overseas."

When jobs are offshored, Americans also lose the multiplier effect — especially in manufacturing. As factories get "smarter" and more advanced, the multiplier increases significantly. In some advanced manufacturing sectors, such as electronic computer manufacturing, the multiplier effect can be as high as 16-to-1 (meaning that every manufacturing job could support 15 other jobs).

After recently surpassing Japan as the world's 2nd largest economy, China is now on target to overtake the U.S. to be the world's largest economy in just a few years. And it's not over yet. A study shows that almost 1/3 of all current domestic jobs are still prone to being outsourced or offshored.

From a recent study by Vox in September 2014: The rise of China and the future of US manufacturing: 

China’s impact has been strong, and employment in US manufacturing is unlikely to recover ... The scale of the employment decline is indeed stunning. In 2000, 17.3 million US workers were employed in manufacturing ... By 2010, employment had dropped to 11.5 million workers, a 33% decrease from 2000 ... China’s share in US manufacturing imports has expanded in concert with its global presence, rising from 5% in 1991 to 11% in 2001 before leaping to 23% in 2011 ... For many US manufacturing firms, intensifying import competition from China means a reduction in demand for the goods they produce and a corresponding contraction in the number of workers they employ ... Actual US manufacturing employment declined by 5.8 million workers from 1999 to 2011 ... When manufacturing contracts, workers who have lost their jobs or suffered declines in their earnings subsequently reduce their spending on goods and services. The contraction in demand is multiplied throughout the economy ... workers who exit manufacturing may take up jobs in the service sector or elsewhere in the economy ...  The jobs in apparel, furniture, shoes, and other wage-sensitive products that the United States has lost to China are unlikely to return. Even as China’s labor costs rise, the factories that produce these goods are more likely to relocate to Bangladesh, Vietnam, or other countries rising in China’s wake than to reappear on US shores. Further, China’s impact on US manufacturing is far from complete. During the 2000s, the country rapidly expanded into the assembly of laptops and cell-phones, with production occurring increasingly under Chinese brands ... If the trend toward the automation of routine jobs in manufacturing continues, the application of new technologies is likely to do much more to boost growth in value added than to expand employment on the factory floor.

The National Center for Education Statistics shows that we've had over 16 million high school graduates from the end of the Great Recession in 2009 to the present in 2014 (excluding college grads and dropouts).

During that same period of time, the Social Security Administration shows we've had an additional 5.7 million retirees, including as many as 1.4 million of who may have been forced into early retirements because they couldn't find jobs. (And during that time we've also had an additional 1.4 million disabled workers in payment status for monthly benefits.)

Since the Great Recession ended, we've had over 11 million additional working-age people who are "not in the labor force" — many who are most likely "discouraged workers" who gave up looking for non-existent jobs and are no longer counted as "unemployed". Of those, there are currently over 6.3 million working-age Americans not counted in the unemployment rate and who are "not in the labor force" but also want a job — and many are disabled or retired (If they're over 50, employers won't hire them).

And we still have 9.6 million people who are still in the labor force and are still counted as "unemployed" and supposedly still want a job. Some will only get 12 weeks of unemployment benefits, some will get as many as 26 weeks (the maximum now) — depending on which state they live. But most will become "long-term unemployed" after 26 weeks before eventually being classified as "discouraged workers" — and then they will no longer be counted as part of the labor force either.

5.8 million good-paying manufacturing jobs (and their multiplier effect) would sure come in handy today. Since it's unlikely that manufacturing will be coming back to the US, the best we can hope for going forward is that more workers in the service industries (e.g. fast food, retail and home care workers, etc.) will unionize for better wages — that is, until those jobs are replaced by machines or robots. But at least they can never be offshored.

Oddly, the Fed, the CBO, the BLS and our economists have been pulling out their hair trying to determine why the labor force participation rate has been in a long and steady decline since April of 2000. Some say it's because the Baby Boomers are retiring (although the first Boomer didn't retire until 2008 at the age of 62). Some say it's because people are going on disability (even though it's only a proportionate number of people in the labor force who receive SSD). Some say it's because too many people prefer to go on the government dole. But very few say it's because the job creators have offshored too many jobs — and that it's because "we lack jobs" for everyone who wants one. That's why they call discouraged workers "discouraged" — because they can't find a job.



Robert Reich makes a good case...

"Conservatives believe the economy functions better if the rich have more money and everyone else has less. But they’re wrong. It’s just the opposite. The real job creators are not CEOs or corporations or wealthy investors. The job creators are members of America’s vast middle class and the poor, whose purchases cause businesses to expand and invest. America’s wealthy are richer than they’ve ever been. Big corporations are sitting on more cash they know what to do with. Corporate profits are at record levels. CEO pay continues to soar. Corporations aren’t expanding production or investing in research and development. Instead, they’re using their money to buy back their shares of stock. Consumers don’t have enough money to buy. The median household’s income continues to drop. Adjusted for inflation, it’s 11 percent below its level in 2000. One factor here has been a sharp decline in union membership. Another structural change is the drop in the minimum wage. Today it’s well below where it was in 1979."

(1979 was also when unionization peaked in the U.S.)

sure does, welcome back Bud!

Since we've been down it seems the powers that be want to make it seem like all is good, the economy has recovered and people are fine. Hardly the truth. Now the evidence is pouring in offshore outsourcing does what it implies, it ruins lives. Jobs are shipped abroad and we import poverty.

Overly simplistic

The decline of manufacturing jobs is far more than a China issue.

Wood construction materials -- in permanent decline.
Wood furniture -- hit by housing downturn + outsourced to lower-cost markets than China.
Glass, clay, cement, concrete, lime, gypsum -- hit by housing downturn.
Primary metals -- hit by housing downturn + outsourcing.
Structural metal products -- hit by housing/commercial construction downturn.
Valves and fittings -- hit by industrial downturn.
Ammunition and ordnance -- less war.
Industrial machinery -- hit by industrial and commercial/retail downturn, except oil/gas.
Computers and electronics -- in permanent decline, outsourced to lower-cost markets.
Household appliances -- consumer/housing downturn + outsourcing.
Transportation equipment -- still in recovery.
Office furniture and fixtures -- demand still weak + outsourcing.
Food manufacturing and processing -- automation + some outsourcing.
Textiles and apparel -- permanent decline, heavily outsourced to places beyond China.
Paper making, paper products and printing/publishing -- permanent decline.
Chemicals -- many enduring sources of downward pressure.

Many of these jobs are never coming back. Everything related to construction will recover in time, to some degree. In many industries, American labor costs and productivity are uncompetitive. The only hope in those areas is to reduce production cost enough to gain advantages from proximity and turnaround time (3D printing?).

We can always compete with China

We can always compete with China by mirroring their pay scale and removal of regulations. The problem is liberals think they are protecting workers by clamoring for minimum wages, unions, forced benefits, and regulations, but they are actually destroying jobs. If I owned a business, and Worker A is willing to work for $3 an hour and Worker B insists on receiving $11, I'm going with Worker A every single time, and you would too. I am tired of liberals who refuse to concede this very basic, fundamental economic choice.

As far as the workers themselves, I'm also sick and tired of people who 'don't have enough money to buy', yet go out and borrow anyway, as if they are magically about to get a 12% pay increase next year to pay the bill and the credit card interest. Making ends meet is frequently an excuse - they want a certain lifestyle regardless of how much money they have, and are willing to borrow from the future in their fatalistic striving.

"Conservatives believe the

"Conservatives believe the economy functions better if the rich have more money and everyone else has less."

Ummm... no. Conservatives believe that wealth isn't zero-sum, and the economy functions better when everyone has more of it... or rather, the inverse: when the economy functions better, everyone has more.

You'd only fail to appreciate the conservative position if you, yourself, believed in zero sum economics, and on that bases thought that everyone else did too. But we don't. Sorry.

We believe that wealth is subjectively defined, and thus in a voluntary transaction, both parties believe their situation subjectively improved, resulting in a net gain in wealth, and thereby the zero-sum bounds are broken.

Dallas Fed on Offshoring

(Sept. 2014) Deindustrialization Redeploys Workers to Growing Service Sector

"The decline [in the U.S. industrial sector since 1980] has prompted debate about offshoring—outsourcing operations overseas and trade protection. Displaced workers whose jobs moved to other countries have reason to be concerned ... The U.S. experienced a declining share of agricultural employment, a rise and subsequent decline of industrial employment and, most recently, a rise in service employment. This process is known as 'structural transformation'".

"In China, the share of industrial employment increased from 17 percent in 1978 to 30 percent in 2013 ... Wages in China have risen dramatically and it faces the challenge of transitioning to a service-based economy ... Globalization and international trade allow the U.S. to engage in high-value-added manufacturing and services while importing low-tech goods from emerging economies ... U.S. manufacturing cannot compete with emerging economies’ low labor costs for unskilled workers. Instead, the comparative advantage of the U.S. and advanced economies is in producing high-tech and high-value-added goods and services, which is why these countries’ wages and standards of living are higher."

The Dallas Fed concludes: "Policies that aim at protecting the manufacturing sector in the U.S., such as import tariffs, export subsidies and restrictions on offshoring, ultimately interfere with the process of structural transformation and can reduce long-term growth. Expanding U.S. industrial employment would require an increase in world demand for American manufactured goods, which can be achieved only by reductions in U.S. wages and living standards. Instead, policymakers should acknowledge the importance of a growing service sector and consider focusing resources on compensating displaced manufacturing workers and incentivizing them to acquire skills to engage in higher-value-added activities."

even US IT jobs suck!

Even in high-tech IT jobs that exist in US, qualified Americans have hard time finding one. 80% of them are overtaken by Indians and most of them are not well qualified. They don't play by the rule, hire their relatives, hire their friends, bring them on bulk from INDIA on L1,H1 visa and underpay them. The highly skilled engineers from US universities have hard time getting job where as below average Indian who just lands here gets 2-3 months of training and takes up those jobs via several Indian consulting firms as well as top tech companies via their link. This is really sad situation, US is turning into uncivilized third world country. This has to stop - qualified Americans and talented engineers that come to US who graduate from US universities should get the opportunity. We have no problem where top talents from all over the world get opportunity and contribute this great country! Else those mediocore plane load of people coming every day will eventually turn US tech companies into their villages where rule of law, ethics does not stand chance! They lie, make up their experience, have someone else give their phone interview, cheat on exams, buy their certificates... anything they can do to move ahead of others just like they are used to among 1.5 billions of swarms in their home country!