After falling by 2.8 million jobs since early 2001, employment has risen
by 240,000 jobs since August. That gain, less than some expected, has not
resolved whether the nation is suffering cyclical losses or permanent job
Last month, The International Herald Tribune convened a roundtable at the
Algonquin Hotel in
The participants were Josh Bivens, an economist
with the Economic Policy Institute, a nonprofit research group in Washington
that receives a third of its financing from labor unions; Diana Farrell, the
director of the McKinsey Global Institute, which is McKinsey & Company's
internal economics research group; Edmund Harriss,
the portfolio manager of the Guinness Atkinson China and Hong Kong fund and
the Guinness Atkinson Asia Focus fund; M. Eric Johnson, director of Tuck's Glassmeyer/McNamee Center for Digital Strategies at the
Tuck School of Business, Dartmouth College; and, via conference call from
Singapore, Stephen S. Roach, managing director and chief economist of
Q. How big an issue is job migration?
MR. ROACH Offshore outsourcing is a huge deal. We do not
have a data series called jobs lost to offshore outsourcing, but 23 months
into the recovery, private sector jobs are running nearly seven million
workers below the norm of the typical hiring cycle. Something new is going
MS. FARRELL This is a big deal in the sense that we see
something structural happening. But I would react to the notion that it is a
big deal we should try to stop or recognize as anything other than the
economic process of change. I think the bigger deal is the fact that we are
going to have very serious curtailment of the working age population.
MR. BIVENS I'm curious about Steve's assertion that
outsourcing can explain the sluggish employment situation. If you just look
at slow growth plus fast productivity, you've got the sluggish labor market
MR. ROACH A pickup in productivity does not have to be
accompanied by sluggish employment. There are countless examples, like the
1960's and again the 1990's, of rapid productivity growth accompanied by
The point is that the relationship between aggregate demand and employment
growth looks to me as if it has broken down. That breakdown reflects not just
the rapid growth and maturation of outsourcing platforms in places like
MR. BIVENS How much of the insecurity that people think
is caused by service sector outsourcing is in fact just the business cycle as
usual? Every time there's a recession people want to
blame it on some underlying structural factor, when sometimes recessions are
just recessions, shortfalls in demand that work themselves out.
MR. ROACH Over the September to November period,
employment has turned up, but many of those jobs came from the temporary
hiring industry. These are service jobs, contingent workers without benefits
and significantly lower pay scales. We're getting the G.D.P. growth, and by
now any recovery in the past would be flashing green on the hiring front.
This one isn't. With all due respect, I don't know what you guys are talking
about. This is a profoundly different relationship between hiring and the
business cycle. And I think these jobs are, by in large, lost forever.
Q. Who wins in offshoring and
MS. FARRELL There is an assumption by protectionists that
these jobs are going somewhere else, and all this money has been pocketed by C.E.O.'s
who take it home. A little more sophisticated version is: It's being pocketed
by companies in the form of profits. One step further and you say those
profits are either going to go as returns to the investors in those
companies, or they're going to go into new investment by those companies.
Those savings enable me, if I am an investor, to consume more and therefore
contribute to job recreation, and if I am a company, to re-invest and create
jobs. That's important because I agree that we are migrating jobs away, some
of which will never return, nor should they.
MR. BIVENS Within nations, trade tends to redistribute a
lot of income. The gains get pretty concentrated in the pockets of capital
owners. The people who lose out are the blue-collar workers. Now you've got
this class of white-collar workers who are much more insecure about their job
prospects, and their labor market bargaining power is being undermined. It
doesn't mean we need walls all around the economy, but it does mean we need
to get really serious about making sure all these gains are distributed.
MR. HARRISS Look at what's gone on in
Q. One key piece of the win-win theory seems to be that
displaced workers do find new jobs. What does history teach us about how well
displaced manufacturing workers have been reintegrated into the work force?
MR. BIVENS The best research on what happens to people
displaced from manufacturing is that they eventually find a new job, but they
take an average wage cut of 13 to 14 percent. The people who are hit hardest
are older workers. Also, it's not just the worker who is directly displaced
from a sector that is hurt by international trade, it is also every other
worker in the economy who has a similar skills profile.
Q. For labor, is outsourcing a race to the bottom?
MR. ROACH It's a race to the bottom if we spend all our
energy trying to protect existing sources of job creation, as the politicians
in the U.S. Congress are inclined to do. The problem is that globalization is
growing asymmetrically, so initially it creates more supply than demand.
We're living through that asymmetry right now, and that has caused a
potentially dangerous political backlash. The Chinese, for example, are
reluctant to transform their habits from savers to consumers because they're
losing jobs through the reform of their own economy, and they don't have
social security or retirement. Over time there is a rising tide. But the
political process is not that patient.
Q. If protectionism is the wrong answer, explain how the
market will solve this. Does government need to intervene at all?
MR. ROACH This is classic election-year posturing by a
Congress that is basically responsible for the problem itself and doesn't
want to admit it. We have trade deficits with
MR. JOHNSON It's all about innovation and productivity.
As long as we maintain those two engines, we'll continue to have a very high
standard of living. Out in the Bay Area there are plenty of folks who would
love to create a little bit of protectionism around their I.T. jobs, but we
are far better off letting a lot of those jobs go. Low-skill jobs like coding
are moving offshore and what's left in their place
are more advanced project management jobs.
MS. FARRELL We will require different services, medical
devices, all kinds of things to support an aging population. Fifteen years
ago, you would not have been able to fathom many of the jobs that exist
MR. HARRISS There is not much new radical innovation in
Asia of the kind we're looking at to create jobs in the U.S. Apart from a
very few exceptions, what Asia does well is take the latest innovations and
production techniques, invest in the most recent equipment and then bring in
their powerful advantages in low-cost labor, and start to produce. For the
most part, the benefits to
Q. What happens when
MR. ROACH China for all practical purposes has an
infinite supply of labor: 400 million in its urban population and another 900
million in the rural area. The average wage of a Chinese worker is still 2.5
to 3 percent of the counterpart in the developed world. Those are disparities
that will be around for a long time.
MS. FARRELL You are still talking about a pretty
significant critical mass of people who are now entering consumption level
incomes: $7,000 to $10,000 G.D.P. per capita. Car sales in
Q. What do you see in the future?
MR. BIVENS Globalization is good at increasing the
productive capacity of the world, but to make sure there are enough jobs for
everybody, you need demand to keep pace with that increase in supply. That's
where globalization presents a real challenge. Government's big roles in the
future are to make sure global demand matches supply, and to provide social
insurance schemes to make sure the living standards of the workers being left
behind aren't sacrificed on the altar of global progress.
MR. ROACH In the future there are two roads. One is to
look backward and hang on to what we think we're entitled to. The other is to
recognize what has made