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World: In The U.S. And Europe, Panic As Jobs Flow Overseas (Part 1)

  • Mark Baker

U.S. and Western European companies continue to move jobs to lower-wage countries abroad. "Outsourcing," as the practice is known, has created a public outcry in areas losing jobs -- and a potential bonanza for countries that can capture the jobs that are leaving. In a two-part feature, RFE/RL takes a closer look at outsourcing. Part 1 explains what outsourcing is and why some in the United States and Western Europe see it as a problem. Part 2 looks at which of the poorer countries are gaining -- and which are not.

Prague, 19 May 2004 (RFE/RL) -- Policymakers and the general public in the United States and Western Europe are becoming increasingly alarmed by what they see as a growing number of companies shifting jobs overseas.

"Outsourcing," as the practice is called, has become a hot political topic on both sides of the Atlantic.

In the United States, which by some estimates has lost hundreds of thousands of jobs in the past decade to low-wage countries like Mexico, China, and India, the issue could cost President George W. Bush his job. Bush faces a tough re-election vote in November if the U.S. economic recovery does not soon begin to create more and better-paid jobs.

In Western Europe -- particularly in Germany, where the economy remains mired near recession and unemployment rates are high -- there are fears of economic stagnation and long-term de-industrialization. These fears were heightened on 1 May, when 10 new -- and mostly poorer -- states joined the European Union.

But are the concerns over outsourcing exaggerated?

That's the opinion of Vincent Koen, an economist with the Paris-based Organization for Economic Cooperation and Development (OECD). In a recent phone interview with RFE/RL, he said outsourcing is nothing new.

"'Offshoring' -- or 'outsourcing' -- of jobs has been a problem, a long-standing problem, in OECD countries. In the '60s and '70s, more blue-collar manufacturing jobs were migrating to Japan. Then in '80s and the '90s, they were going to Southeast Asia and Latin America. And more recently, they've been seen as going to China and India," Koen said.

Koen's group monitors the economies of the world's most highly developed economies -- including the United States and most of Europe.

He said the problem with properly assessing outsourcing is that it is difficult to find reliable data on the subject. Statistics on things like job creation and overseas investment are readily available, but there are few good estimates of how many jobs are transferred abroad each year.

The Brussels-based Centre for European Policy Studies -- a policy institute that monitors economic trends -- was planning to issue a report on the subject, but apparently canceled the project for lack of data.

Information that is available is often of the anecdotal -- and emotional -- variety. In the United States, newspapers are filled with accounts of jobless people in formerly industrialized areas like the Midwest. States there lost industrial jobs first, and more recently service-sectors jobs -- such as telemarketing and payroll processing -- as these were shifted abroad.

In Europe, the media have highlighted concern over the recent expansion of the European Union to include several formerly communist states. In countries like Slovakia, Poland, and the Baltic states, wages are well below the EU average. Every day appears to bring new reports of well-known European companies that are shifting jobs abroad to save money. Even in the new member states, concern is growing that as wages rise, jobs will be outsourced further east -- to Ukraine or Romania.

The trade unions are especially concerned. They stand to lose the most from any shift in investment eastward.

AP quoted researcher Andrew Watt at the Brussels-based European Trade Union Institute as saying the unions see the danger as twofold: the outflow of jobs and capital, combined with an inflow of cheap labor from the East. Such concerns have led many older EU member states to place temporary limitations on the mobility of workers from new members.
"For the OECD countries that see these jobs leave, there are benefits in the form of new jobs that are created at home replacing the jobs that leave." -- Vincent Koen, OECD economist


Koen said this focus on the dangers of outsourcing may be unwarranted. He said the number of jobs outsourced each year is still relatively small when compared to the number of jobs created each year. And, he suggested, even for countries that lose jobs, the net benefits of outsourcing are positive.

"For the OECD countries that see these jobs leave, there are benefits in the form of new jobs that are created at home replacing the jobs that leave. Firms make more money -- increase their profits -- on the items that are henceforth produced abroad, and that money is reinvested and creates new jobs. And consumers also benefit a lot. I mean we pay a lot less for these goods and services that are produced overseas at lower costs. And that has to be factored in," Koen said.

Regardless of the pluses and minuses, almost everyone agrees that outsourcing over time cannot be prevented. Companies can always be expected to search for ways to lower costs.

(Part 2 of this feature looks at how developing countries have succeeded in capturing the outsourced jobs.)
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