International Business Machines Corporation (IBM) recently announced that it plans to move some 4700 programmer jobs to India, China and elsewhere. Many other large service corporations already have moved jobs abroad and plan to relocate more. Severe competitive pressure here and abroad, they tell us, is forcing them either to curtail operations or move them overseas. Since 2001, more than 2.5 million American jobs have vanished; the number of those that found their way abroad is a matter of hot dispute.
Media commentators and newscasters loudly lament the outsourcing of jobs, offering popular explanations of labor exploitation, employer greed and disloyalty. Many politicians of both parties who build their careers on placating, appeasing, and bribing the public echo these explanations. Motivated by the ideology of social conflict and government welfare, they would seek to prevent the loss of jobs by way of legislation, regulation, taxation, and other coercion. They also would challenge foreign countries that are attracting American business and threaten them with punitive tariffs and other restrictions. Their chief villain usually is China which is urged to revalue its currency and thus make its labor and products more expensive. If only China, India, South Korea and other Asian countries could be made to increase their costs of production, they would lose their power of attraction.
It is unlikely that the governments of these countries will pay heed to such suggestions in order to placate American critics. Their economies are expanding rapidly and standards of living are rising thanks to an ever widening international division of labor and cooperation. They may even realize that the job-emigration and unemployment problems of the United States are entirely homemade. Although American labor undoubtedly is one of the most productive in the world, thanks to the large amount of capital invested per head of the population, its costs are raised continually by all levels of government. Even the most productive labor in the world can be rendered uneconomical and unproductive, if its costs are raised to inflict losses on employers. They may have no choice but to replace it with less productive but economical labor.
Economists observing the American labor market are saddened especially by two sets of Federal policies which subject highly productive American labor to competitive disadvantage. One springs from monetary policy that generates huge trade deficits, that is, that causes imports to exceed exports by half a trillion dollars a year. With interest rates at extreme lows, last seen in World War II, American capital eagerly goes abroad in search of market returns. And American consumers joyfully welcome the products made by American capital and know-how abroad.
The other set of policies continually raises the costs of labor. Both political parties never tire of adding new labor fringes which are welcome benefits to employees and smarting costs to employers. U.S. Congress recently added some $400 billion Medicare costs some of which will fall on employers. Medicare costs merely are a small fraction of total cost mandates which actually may double labor costs in many labor markets. Obviously, it is total costs, not just take-home pay, that affect the demand for labor.
Most Americans are unaware of the ever rising fringe-cost mandates and their effects on labor markets. There is the precursor of all, Social Security, which presently adds 6.2 percent to contract pay. Medicare adds 1.45 percent, Federal Unemployment Insurance 0.8 percent of the first $7,000, State Unemployment Insurance between one and twelve percent-–depending on the unemployment claim history of the employer, Worker's Compensation Insurance which varies greatly according to the risk class of the employee. Moreover, most employers are expected to provide health insurance, sick pay, maternity leave, paid personal days, pensions, and even subsidies in the purchase of company stock. Health-care costs are soaring as are the costs of old-age pensions due to an aging population and rapidly rising number of retirees.
Benefit mandates in turn engender indirect labor costs which at times may exceed the former. Litigious employees and their labor unions are ever ready to exact more benefits in sympathetic courts of law; litigious customers may seek to reap rich rewards from corporations facing product liabilities created by government agencies. Large corporations urgently need staffs of expensive defense attorneys; small companies have no choice but to submit to the edicts of swarms of inspectors and regulators.
A study by the National Association of Manufacturers (NAM) arrived at similar conclusions. It found that a suffocating burden of federal taxation and regulation is driving American manufacturing jobs abroad. Three particular charges, according to NAM, highlight the plight: (1) excessive corporate taxation, (2) soaring costs of health and pension benefits, and (3) soaring compliance costs for regulatory mandates. The growing exodus of American jobs seems to support the study.
Legislators and regulators who are guided by ideologies of employer greed and labor exploitation are susceptible to related doctrines of international discord and conflict of interest. They are likely to favor not only a multitude of labor laws and regulations but also protective tariffs, imports, and stringent trade controls. They are liable to heap more laws on the pile of old laws and hasten the exodus of American jobs.