Blogging has been very light lately, but I wanted to make a couple of quick points about outsourcing.

Oddly enough, the topic of outsourcing seems to be correlated with the electoral calendar.  Academics are quick to point out that the public (and media) often conflate “outsourcing” with “offshoring”.  Fair enough.  But for the sake of brevity let me just focus on “offshore outsourcing”.

Rather than rehash the same simple debates, I though I would point out a few great pieces on outsourcing by academics.  While most of the studies suggest that outsourcing is either a pretty minor issue, or that it has net benefits, there is some nuance in these studies.

A good starting point on the politics of outsourcing is Dan Drezner’s piece and Greg Mankiw’s (long and gated) take on the inside politics of outsourcing.  Some of you may remember that Mankiw basically lost his job as a Bush economic advisor due to some positive comments about outsourcing.  Matt Yglesias has some commentary on the recent Obama-Romney back and forth on outsourcing.  Here is one piece.

What does the academic literature say about outsourcing?  One classic research design is to examine outsourcing at the firm level.  What types of firms outsource?  Do they increase or decrease employment?  In a 2009 American Economic Review piece, Desai, Foley and Hines find that greater expansion abroad by us firms was associated with greater investment and employment at home.   See here for an ungated version.

Ann Harrison and Margaret McMillian have a couple of interesting projects on the topic, and have different findings from the Desai et al piece.  They find that while outsourcing to rich countries can lead to employment creation at home, outsourcing to developing countries has a negative impact on domestic.  For a very readable summary of the previous literature and some new evidence, see this paper.

While I have no doubt that the current debate is driven by politics, it doesn’t mean we can’t use this as an opportunity to have a serious debate on the topic.  My personal take is that outsourcing has a pretty modest impact on US workers (positive or negative) and that any policy interventions to limit outsourcing would most likely have greater negative consequences than they would generate benefits.  For example, I’ve brought up Ted Moran’s work in previous posts.  Moran finds that countries that used “domestic content requirements” or requirements on hiring local workers often coupled these policies with tax incentives or policies to help protect these firms from competition (trade protection).  The net benefits for society were negative, despite the positive ring of using local suppliers and hiring local workers.

The work of Moran was based on the evidence of foreign firms entering into to new markets.  I think there is more limited evidence on how governments can create jobs by harnessing the potential benefits or mitigating the negatives of outsourcing.