By Daniel Sutter

Last week I said that the offshoring of jobs due to high salaries of American workers indicated strength in the economy. High salaries reflect that workers provide significant value to many businesses and give firms a message to use less American labor if possible, which leads to offshoring.

Thousands of Americans who have suffered a decline in their standard of living after losing their jobs to offshoring would likely object to my assessment. Does the failure of many victims of offshoring to move onto other high-paying jobs refute my point? Not necessarily, but their struggles highlight some labor market complications which require an elaboration of my story.

Let’s first look at some numbers. The Bureau of Labor Statistics has surveyed of workers who lose their jobs since 1984, with the most recent survey in 2012. The most relevant results concern displaced long tenured workers, individuals who lost jobs after being with an employer for at least three years. Six million long term workers lost their jobs between 2009 and 2011. How were they doing as of 2012?

The bad news was that almost half of the displaced workers were not employed. About one million were no longer seeking work. Some of these one million workers were near retirement and decided to not seek out a new job. Yet others surely gave up looking for a job or went on disability. The unemployment rate for displaced long term workers, which excludes those not seeking work, was just under 33%, clearly a problematic level.

A more favorable picture emerges from the three million displaced workers who previously were employed full time. Almost 80% of these individuals were employed again full time in 2012, with another 14% working part time. Almost half of those with new full time jobs were making as much or more than previously, including 350,000 who had increased their earnings by over 20%. High salaries reflect demand by employers, so not surprisingly many people found new high paying jobs.

Why have the others not done so well? A number of factors have contributed, beginning with geography. While workers with certain skills may be in high demand, the jobs may not be in the communities hit by offshoring. Economists sometimes ignore this, or simply assume people will relocate to jobs. But moving is costly, and the cost exceeds packing up the house; the cost of moving away from friends and family must be included. Some people will not want to move across the state, much less the country, even for a high paying job. And a person who has moved before may be unwilling to do so now.

One limiting factor in many job searches is a spouse with a high paying job who cannot easily relocate. Many long tenured, part time workers could well have been in these circumstances. Only 20% of previously part time workers were working in 2012, likely due to a geographically limited search.

New technology periodically either phases out certain types of jobs or allows them to be offshored. Workers must then learn new skills that are currently in demand. Competing for a dwindling number of jobs requiring the old skills is often an alternative to investing in new skills. The value of investing in new skills will depend in part on how long one intends to work. Less than 25% of displaced long term workers over 65 were employed in 2012, because the need to retrain makes retirement more attractive.

Economists like to say that absent government interference, markets allocate resources to their most highly valued uses. But labor is supplied by real people with families and community ties and at different points in their careers. These “resources” have other goals which render conclusions from aggregate statistics problematic. We might be tempted to use average earnings to evaluate the market response to offshoring, but taking a high paying job away from family and friends would make some people worse off. Economists sometimes ignore these complications, but real markets actually manage the complexity of personal circumstances exceedingly well, balancing the needs of employers with the preferences of workers.

 

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel Johnson Center for Political Economy at Troy University. Respond to him at dsutter@troy.edu and like the Johnson Center on Facebook.