Out of Control Policy Blog

The States and Outsourcing

A fantastic article on offshore outsourcing by TechCentralStation, some highlights:

--Direct corporate investment in India -- generally the target of protectionist rants on tech jobs -- actually declined from 2001 to 2003. As for manufacturing jobs, sure, it's likely that free trade agreements played a part in the loss of jobs in the last five years, but so too did a host of other factors, include exchange rates, changing consumer preferences, upgrades in technology and equipment, the recession, and new federal regulations. Michigan's Mackinac Center for Public Policy, to cite just one example, estimated in 2002 that a federal appeals court ruling favoring procedural matters over hard science in federal environmental regulatory policy could cost the state as much as $2.6 billion, or about 10,000 jobs.

--Time and again, when we look at the states attracting and retaining jobs, and we compare them to states losing jobs, we find that the states doing well are those with tax and regulatory schemes most friendly to doing business in the state. It's only when the cost of staying local becomes too burdensome that companies pick up and relocate elsewhere. Perhaps that doesn't surprise you.

--The Cato Institute's Alan Reynolds wrote recently about San Jose, California, a city which recently lost about 120,000 jobs over two years. Reynolds points out despite the debacle in San Jose, the nearby communities of San Diego, Riverside and Orange County actually added almost as many jobs over the same span of time.

San Jose was one of the first jurisdictions in the area to implement a so-called "living wage" ordinance, mandating that business contracting with the city pay their lowest-paid workers around $11 per hour, more than double the federal minimum wage. Of course, a living wage law in and of itself won't wipe out 120,000 tech jobs, but it's certainly indicative of the sort of "progressive" anti-corporate sentiment that might cause local businesses to pick up and spill out into friendlier communities.

--Protectionists often bring up Ohio as the prototype of a hard-working, breadbasket state whose manufacturing sector has fallen victim to free trade. But Ohio's also a case study in how a state government hostile to business pushes jobs to more hospitable locales. You've read the numbers above. But additionally, in the last few years, Ohio legislators have begun to feel the hangover caused by big spending habits fomented back in the freewheeling 1990s. As of 2003, the state faced a $720 million deficit. Ohio governor Bob Taft has promised to shrink the deficit not with cuts in state spending, but with new taxes, tax hikes, and new fees, as well as rollbacks of promised tax breaks. Taft's tax happy policy earned the Republican condemnation from the Club for Growth's Steve Moore, who called him one of the "worst governors in America." The Buckeye Institute, an Ohio free market think tank, reports that Ohio's aggressive pro-labor policies cost the state jobs even during the relatively strong economic period from 1982-1998. Zeroing in on the effect of mandatory union memberships on state economies, the Institute emphasizes that during that sixteen year period, states that mandated union membership in the manufacturing sector lost a net 996,000 jobs, while "right to work states" gained 493,000.


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