THOUGHTS OF THE MONTH
(October 2003)

  1. The unprecedented transfer of the white collar jobs from the North America to the developing countries is getting pace. The experts claim that this will not hurt the economy. In support of their view, they refer to the outsourcing of manufacturing jobs abroad in the 1970s and 1980s. Did it make America poorer ? - they question. Not at all ! Conversely, it became richer ! The same will happen this time, they claim.

    Such a superficial extrapolation of the past into the future demonstrates the lack of understanding of the underlying processes on the part of the experts. Indeed, the people who lost jobs due to the outsourcing abroad in the previous decades, were mostly re-trained for higher paid jobs, including the white collar jobs. For example, many were re-trained for computer jobs. There were even stories reported in the newspapers about water delivery drivers, who after being laid off spent their severance pays on re-training as computer programmers and started making good money !

    No wonder, therefore, that America became richer as a result of such an outsourcing. Nowadays, however, the situation is quite different. Nobody re-trains the laid off workers for the higher paid professions. Because the workers of the highly paid professions themselves are losing jobs. What, re-train software engineers and analysts for lawyers ? Should the government support such an undertaking, there is a chance for America to become even richer as a result of the transfer of the white collar jobs abroad. However, even then there is no guarantee.

  2. Meanwhile, even the impact of the outsourcing of the manufacturing jobs is no longer as clear as it used to be. Why guess whether it will hurt the economy or not ? Model it !

    For example, several days ago Levi Strauss announced that it closes three jeans plants in Ontario and moves them overseas. The same reason: the workers are too expensive here. They hope that this move will raise the profit. Will it ?

    It depends on the scenario. If the laid off workers find the equivalent or better jobs (as was the case in the past), then the jeans sale will not be affected and the profit will indeed rise. But if they do not find the equivalent jobs (which is most likely nowadays), then they will not be able to buy new jeans (or buy them as often as they previously did). Hence, the demand for jeans in America will falter. Not in sizable quantities, of course. Because a few hundred laid off workers is a negligible portion of the entire American population. Nonetheless, if other businesses do the same, their laid off workers will also stop buying jeans (and other goods) as frequently. Since the overall amount of the outsourced jobs overseas is already sizable (as compared to the American population), then the demand for jeans (and other goods) will really falter. The profits will follow suit contrary to the expectations of the executives who initiated the jobs transfer.

    Thus, there is definitely a contradiction between the overall amount of the transferred jobs and the amount of sales. It is not difficult to write down the equations that model the second scenario and simulate them on a computer. The simulation will reveal the limit to the amount of jobs that can be transferred overseas without negatively affecting the profits. The prospective Ph.D. students who are interested in such a research are welcome to apply.