Out of Control Policy Blog

Why US labor markets rock

Well, at least compared to Europe. One side note to the offshoring debate is soem nice analysis by the McKinsey Global Institute of the economic impacts to a national economies from offshoring.

Turns out that for every $1 offshored from the US, the US economy gains $1.12-1.14. This thanks to our flexible and relatively free labor markets. McKinsey's analysis shows the gains are composed of:
--a lot of savings for customers and investors;
--a fair amount of new production from re-deploying labor to other efforts; and
--a bit of gain from imports and increased transfers (insourcing) from the nations to which we offshore.

On the other hand, in Germany for example, restrictive labor markets lead to a very different outcome. McKinsey's analysis shows that for every euro offshored from Germany, the German economy gains only 0.80 euros. Ouch!

Why? According to McKinsey it is due to "the limited ability of German workers to find new jobs. If the rate of re-employment matched that in the U.S. – nearly 70 percent – offshoring would create 1.05 of value for the German economy for every euro of corporate spending offshored."

The US economy is a job creation machine that can swiftly find new productive work for people who's previous jobs are offshored in order to lower costs for consumers. Companies are thus more competitive and able to invest in new products and create new jobs. High profits and low prices increase demand and help curb inflation. Customers save money and use it more old stuff or some new stuff, stimulating innovation and investment, and yet again, more jobs.

It's lovely. We should be rejoicing, not wailing. And focusing our energy instead on how to make labor markets and workers even more flexible so the transitions that every career now entails can be as painless as possible.

Adrian Moore is Vice President, Policy


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