Complaints about US job losses overblown

PUBLISHED : Wednesday, 02 May, 2007, 12:00am
UPDATED : Wednesday, 02 May, 2007, 12:00am

Politicians in the United States and Europe complain that millions of developed world jobs are being stolen by China and India. They are wrong.

The image of migrant workers hunched over assembly lines in Shenzhen factories, toiling 16 hours a day for a bare pittance, is a fixture in the western debate about Asia's economic rise. So is the figure of the Indian technology graduate labouring through the night in a cavernous Bangalore call centre for a fraction of the US or European minimum wage.

The belief that millions of developed country jobs are being lost as cynical corporations shift production to low-wage Asian economies is so powerful it is causing a growing political backlash, especially in the US.

Citing China's 'sweatshop production', US senator Byron Dorgan is sponsoring a bill before Congress that would strip China of its permanent normal trade relations status awarded in 1999. 'Americans cannot and should not be asked to compete under these circumstances,' he protests.

Certainly labour costs in developing Asia are lower than in the west. A 2006 study for the US Bureau of Labour Statistics estimated that in 2004 the average hourly compensation cost for manufacturing workers in China was 5.50 yuan, or 67 US cents. That is just 3 per cent of the cost of employing a factory worker in the US.

But it is far less clear that large numbers of US or European jobs are being lost as a result, or that their businesses are suffering.

In 2004 and 2005, nearly a million American workers found themselves out of work as a result of mass lay-offs. Most of these lost their jobs because of rising individual productivity, run of the mill restructuring, or corporate bankruptcy.

According to research by Jacob Kirkegaard for the Peterson Institute of International Economics, only about 4 per cent lost their jobs because the work was shifted to other countries; roughly 38,000 workers in two years. In the context of an economy currently creating jobs at the rate of 180,000 a month, the losses to foreign countries appear negligible.

Mr Kirkegaard comes up with a similar result from looking at the European data. And in the case of at least one country - Denmark - he concludes that losing jobs to foreign countries is beneficial. It tends to be the low-skilled work which is relocated offshore. The losses are more than offset by the creation of higher margin, better paid jobs at home.

It is likely this is what is happening in the US. Despite the protests about unbeatable competition from Chinese factories, US manufacturing earnings are mushrooming.

According to the Department of Commerce, American manufacturers made record profits of US$481 billion last year, up 20 per cent from 2005.

And despite all the complaints about jobs lost to Asia, unemployment among both manufacturing and information service workers in the US has fallen steeply in recent years (see charts), threatening an incipient labour shortage.

As Mr Kirkegaard concludes: 'The heated public and political debate on the issue has been vastly overblown.'