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Last Updated: Wednesday, 24 March, 2004, 08:17 GMT
American job security dogs US election
By Stephen Evans
BBC North America Business Correspondent

Angry US steelworkers
American steel workers feel let down by the government

On the campaign trails, one thing is now a shrill given: America is under threat; jobs are disappearing to China and India - and Something Must Be Done.

Democrats agitate for laws barring companies that "outsource" from getting government contracts at home.

Republicans accuse Democrats of protectionism.

Both sides know it's a hot issue in the "Battleground States" which will determine who'll be the next tenant of the White House.


But as the fog of election campaign descends, and claim clashes with counter-claim, we might remember that the United States is actually a big proponent of what it decries elsewhere: When other countries "out-source" work, they often send it to America, whether it be financial and legal advice or architectural design or the writing of software.

Chinese man rides his bicycle past Matrix cinema poster
Do Chinese workers benefit from US exports?
When the British authorities wanted engineers to build the Jubilee Line on the London Underground, they "out-sourced" the work to Bechtel in San Francisco.

And when the authorities in New York wanted architects to design a new World Trade Centre, they contemplated "out-sourcing" the work to London or Tokyo before choosing Berlin.

It's the way of a vibrant economic world.


According to the US Commerce Department, American companies "exported" (sold to foreign buyers - "out-sourced") services worth $131bn in 2003.

That compares with "imports" of such services of $77bn.

In other words, America is more used by other countries for out-sourcing services than it uses other countries to do its work abroad. Of course, these figures only allude to services.

They don't show the movement of manufacturing from America abroad, particularly to China.

Last week, figures put the trade deficit with China in 2003 ($124 billion) as the highest deficit it's had with any country ever.

Not hiring

The figures fed the political debate over whether "American jobs are being exported" so causing a "jobless recovery".

As an argument, it plays well politically: The American economy is growing fast but the benefits aren't coming to American workers but to Chinese ones.

Toys made in China
Made in China: Are US jobs being exported?
They're hiring in Beijing but not in Birmingham, Alabama.

It is not, though, quite like that.

The real explanation for the failure of the recovery to turn into a hiring fare is more to do with American innovation.


Productivity in the United States is soaring, currently rising at a scorching rate of about 5% a year.

Output per worker is rising fast and employment is not.

It seems that some of the technological innovations of the late 90s are finally bearing fruit - or at least profits.

Furthermore, the automation of the 80s and 90s transformed manufacturing, but the new machines are transforming services, whether it be in automated banks or self-check-out in supermarkets or e-tickets for planes.

Structural change

That, combined with relentless competitive pressure, means American companies are turning the increased output into profits not wage costs.

The figures tell the story:

The big losers of jobs last year were manufacturing, certainly, but then department stores, telecommunications and hotels (not always the industries which had been out-sourced) also suffered.

Employment rose most for temporary workers and in health-care and restaurants.

One estimate, by Forrester Research, reckons that of nearly three million American jobs that have vanished in the last three years, nearly nine-tenths of them went because of factors other than out-sourcing.

US expansion

Of course, the relationship between productivity growth or out-sourcing and employment creation is not a simple one.

US steel worker
The big losers of jobs last year were manufacturing
It does not follow that faster innovation or a rush to set up call centres in India cuts American employment in the long run.

The pattern of the past is that innovation at home raises profits at home and then investment and employment at home.

And there is now some anecdotal evidence of American companies getting Indian companies to do some of the paper-work and finding it so beneficial to their bottom line that they then expand to employ more Americans.

The difficulty is that this process can be painful.

There are Americans who once had good, well-paid jobs that were then done at a fraction of the wage in India.

The pain is real - and the squeals are audible to politicians.


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