J. Scott Applewhite / AP
President Barack Obama gives his State of the Union address on Capitol Hill in Washington Tuesday.
President Obama decried the outsourcing of jobs to foreign lands in the State of the Union last night while Steve Jobs' widow looked on. Clearly, the administration wanted Apple represented as an example of American ingenuity and success.
One problem, though: Apple is a big American jobs outsourcer, with the bulk of its manufacturing now being done in China.
This is Obama's insourcing conundrum. He has long talked about bringing jobs back to the United States, even reportedly sparring with the late Jobs about the issue. Globalization, however, has become a mainstay for U.S. companies, with many finding it profitable to pink-slip American workers in exchange for cheap labor abroad.
Can Obama break corporate America’s outsourcing habit by removing tax incentives for companies who take jobs abroad, or rewarding those who bring jobs back home?
The president thinks so.
“It’s time to stop rewarding businesses that ship jobs overseas, and start rewarding companies that create jobs right here in America,” he said last night. “Send me these tax reforms, and I’ll sign them right away.”
Whether there’s enough political will to get such legislation passed during an election year is unclear given ongoing congressional gridlock. What is clear, however, is that even if Obama wanted to put an end to tax breaks for offshoring employers, or upped incentives for U.S. job creators, the employment picture won’t brighten overnight.
“I think that there is an embryonic trend here,” said Jared Bernstein, the former chief economist and economic adviser to Vice President Joe Biden, and a member of President Obama’s economic team. “There are multinational firms that overdid it on outsourcing, so some producers might respond to tax incentives or disincentives, but I don’t expect anything big to happen quickly.”
Indeed, the impact of outsourcing on the U.S. job market took time to reverberate, starting first with manufacturing more than 30 years ago and extending in the last decade to service jobs.
One study by The Hackett Group shows the loss of 1.35 million back-office jobs in corporate finance, IT, HR and procurement, thanks to offshoring of jobs, along with automation, since 2000. The company estimates that jobs will continue to be lost due to outsourcing at the rate of about 112,000 jobs per year from now through 2014.
"In total, these losses mean that by 2014 there will be only about half as many jobs in these areas in the U.S. as there were in 2000,” the research found.
On the manufacturing side, outsourcing led to the loss of 406,000 jobs in 2004, compared with 204,000 in 2001, according to an extensive report conducted by labor researchers at Cornell University and the University of Massachusetts-Amherst in 2004, the most recent data available.
“When manufacturing was devastated, workers were supposed to be saved by white-collar jobs,” explained Kate Bronfenbrenner, director of labor education research at Cornell's School of Industrial and Labor Relations and co-author of the study. “But now those jobs are leaving. Then you’re left with unskilled, low-wage, retail and distribution jobs.”
Bronfenbrenner said Obama’s plan to curb outsourcing resonates with the American people, and she’s hopeful his policies will indeed bring back good-paying jobs. But, she added, “I know it’s an uphill battle.”
Others believe the country should just let the globalization chips fall where they may.
“You can’t fight it,” maintained Michel Janssen, The Hackett Group’s chief research officer.
“Politicians can try to legislate business but they can’t, the law of economics is what rules in the end,” he said. “Apple is a good example. They found the best manufacturing capability in China, while most of innovation comes from U.S. They are going to do what they need to do to be competitive.”
Even if Obama did provide tax incentives to employers to bring back jobs, he continued, the incentives would likely not be big enough to offset the savings companies now get from low-cost labor in places like China and India. “A starting MBA in India makes $5,000 to $10,000 a year,” he pointed out.
The end of the outsourcing game will come, he added, when the standard of living goes up in India and China, and wages continue to decline in the United States, to the point where it makes economic sense for employers to again employ American worker. “Still another 20 years before that happens,” Janssen surmised.