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January 22, 2004,
9:24 a.m.
Which Wage Are We Going?
If low-pay jobs are leaving, high-pay ones are staying.
Monday's lead story in the Wall Street Journal referred to IBM's plans to shift thousands of "high-paying" programming jobs overseas by 2006. In a perverse way, the headline might have heartened syndicated columnist Paul Craig Roberts, who wrote in the previous day's Washington Times about an economic rebound that, because of the end of world socialism, along with "outsourcing, offshore production and Internet hires ... is creating jobs for foreigners, not Americans."
For some time now, Roberts, one of the visionaries behind Ronald Reagan's supply-side revolution, has been writing ominously about the movement of jobs to low-wage countries. Sunday's column almost predicted Monday's Journal headline as Roberts lamented daily news stories detailing the movement of jobs offshore to places like India and China, "where skills equal to those of American(s) can be purchased at a fraction of U.S. wages and salaries."
Despite centuries of evidence that what is occurring is unambiguously positive for the U.S. economy, Roberts says things are different this time — that the "global mobility of capital" and "excess labor" in places like India and China make irrelevant the traditional economic gains that result from comparative advantage. While it's hard to disagree with an economic eminence Roberts's caliber, it seems that his very reasoning, in this case, is the undoing of the central point of his argument.
Indeed, Roberts acknowledges that even while a new day has seemingly dawned, the law of supply and demand still plays a central role in setting wages. In his words, capitalism "works by finding the lowest cost."
If the above law remains true, and if companies are moving jobs offshore in search of lower wages, by Roberts's own reasoning this must be occurring because wages here are in fact rising — rising because there is market demand in the U.S. for workers to perform jobs that are better and higher paid.
Roberts clearly disagrees. And reversing the supply/demand logic of his argument implies that there must now be a glut of capable workers in the U.S. fighting for a diminishing number of jobs. But overseas wages have always been lower than U.S. wages. So, for Roberts's assertion to be correct, a massive number of once U.S.-based jobs would have already left the country for less-expensive shores.
Arguing against this, Cato Institute senior fellow Alan Reynolds cited the Labor Department's household employment survey in a recent op-ed piece. Happily, the above scenario has not come to pass: Reynolds wrote that "138,479,000 people said they had a job in December, up from 137,300,000 in March — an increase of nearly 1.2 million jobs in just nine months."
Computer-related jobs? According to Reynolds there were roughly 2.6 million of them in 1999 at an average wage of $26.41 an hour. This compared to 2.77 million in 2002 at an average wage of $29.63 an hour. While there are no official numbers for 2003 yet, Victoria Murphy and Quentin Hardy wrote in the December 8 Forbes ("Woo-Hoo!") that "workers are job-hopping again" in Silicon Valley. Hardly a sign of too much labor chasing too few jobs in a sector supposedly hit hard by "right-sourcing."
Returning to Roberts's not-so-sanguine assessment of the U.S. job picture, he need only revisit the very supply/demand concepts that he presently cites as evidence of eminent economic decline for the United States.
After all, it's not as though U.S. companies just discovered the value of moving work to low-wage countries. Right-sourcing long predates the end of world socialism and the rise of the Internet. Roberts needs to remember that companies move jobs overseas not to escape falling domestic wages, but to avoid paying rising ones here.
Instead of lamenting stories about domestic jobs moving to India and China, Roberts and other economists should celebrate the good economic news: U.S. workers are migrating to better jobs and higher wages. In other words, we could reverse this job-loss "phenomenon," but in doing so we would be lowering the very standard of living that Roberts claims to want to preserve.
John Tamny is a writer in Washington, D.C. He can be contacted at jtamny@yahoo.com.