Wednesday, March 28, 2007

Outsourcing the Service Sector?

. Wednesday, March 28, 2007

It's rare to find respected academic economists voicing public skepticism about the virtues of free trade. Hence, when one does so, as Alan Blinder (Princeton, formerly a Governor on the Federal Reserve Board) has, people notice. An article in today's Wall Street Journal summarizes the evolution of and the reasons for his skepticism.

Blinder, "whose trenchant writing style and phrase-making add to his influence, remains an implacable opponent of tariffs and trade barriers. But now he is saying loudly that a new industrial revolution -- communication technology that allows services to be delivered electronically from afar -- will put as many as 40 million American jobs at risk of being shipped out of the country in the next decade or two. That's more than double the total of workers employed in manufacturing today. The job insecurity those workers face today is "only the tip of a very big iceberg," Mr. Blinder says." Blinder elaborates his views in a recent Foreign Affairs article.

Is he right? I don't know, but 40 million jobs seems high to me--the total US active labor force is 139 million. Hence, 40 million is just shy of 30 percent of total jobs and about half of service sector jobs. One must also recognize that labor is finite, even in India and China; hence, as demand for labor in those countries rises, wages will rise. This will reduce the incentive to outsource.

Update: Greg Mankiw responds to Binder (yes, the same Mankiw that Blinder cites in his Foreign Affairs article).

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