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The increased transfer of U.S. service sector jobs to overseas workers has raised concerns that “offshoring” has caused a surge in the displacement of U.S. workers and was largely to blame for the sluggish recovery of the labor market following the 2001 recession.

But Federal Reserve Bank of New York economists who have studied the matter found no evidence to support these claims. In U.S. Jobs Gained and Lost through Trade: A Net Measure, authors Erica Groshen, Bart Hobijn and Margaret McConnell measure not only the jobs lost to imports but also the jobs created through the production of U.S. exports.

The economists caution that their study is limited in scope: while it recognizes that jobs are created through the production of U.S. exports, it does not address trade’s broader benefits in raising wealth.

They point out that trade allows countries to specialize in the production of particular goods or services. Specialization makes trading partners richer because each exchanges goods it produces efficiently for goods that its partners can produce at lower cost.

In one form of specialization, countries concentrate on a particular phase of a product cycle. Since the U.S. has the highest rate of international patenting per capita in the world, it can be thought of as specializing in product innovation, the first phase of the cycle. Once a product matures, however, the U.S. can lose some comparative advantage in producing that good. Highly-skilled U.S. workers may not be cost-competitive when it comes to routine production of commodities. So when a product becomes a commodity, its production may move overseas.

Competition among producers works to lower the price of the commodity, raising the purchasing power (wealth) of consumers and thus their demand not only for that good but for others. This process is the source of new jobs for the U.S. workers displaced when jobs go overseas. As wealth increases and demand grows, workers find employment elsewhere in the economy, some moving on to the design and creation of the next new product. Seen in this way, the FRBNY economists write, the country’s ability to continue sending jobs overseas may be, at least in part, a sign of its ongoing success in innovation.

Find out how you can use PIERS trade data to verify (or disprove) conventional wisdom – and sharpen your strategic planning: log on to www.piers.com/piersproducts/, or call +1 800 952 3839, ext. 7128.

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