AEM-ECON%202300%20Lecture%208%20-%20Spring%202011

AEM-ECON%202300%20Lecture%208%20-%20Spring%202011 - Lecture...

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1 of Lecture 8 Professor David Lee AEM/ECON 2300 T.F. Siems: Beyond the Outsourcing Angst (Ch. 6) Outsourcing is nothing new; part of a process of pursuing comparative advantage, greater production efficiencies and taking advantage of globalization opportunities Outsourcing today now applies to a wider set of occupations: businesses can break apart activities and redistribute them to knowledge workers all over the world, via digital technologies and telecommunications DRL note : also called “disintegration of production” (Feenstra) and “trade in tasks” (Grossman and Rossi-Hansberg) Job creation > job destruction in the long-run. U.S. should strive to create jobs in most complex and rewarding tasks, taking advantage of technology, skills, etc. Siems says U.S. should maintain a flexible labor market. Protectionist legislation – – is bound to fail (just as it has in automobiles, steel and textiles) – hurts healthy economic evolution and shifting resources to best uses – short-circuits productivity gains achievable, which lead to higher incomes
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2 of Lecture 8 Professor David Lee AEM/ECON 2300 A. Blinder: Outsourcing: The Next Industrial Revolution? (Ch. 7) Shift to information sector is the “third Industrial Revolution” U.S. hasn’t (and won’t) lose all agricultural, manufacturing or services jobs, nor will we lose all information sector jobs – but as incomes rise, we demand more tradable goods, more services, and more electronically deliverable services Forms of work which are deliverable electronically are among the most susceptible to outsourcing – traditional distinctions between highly skilled and unskilled don’t hold! Susceptible : radiologists, call center operators, computer programming, accountants, financial services Not susceptible : taxi drivers, police officers, salespeople, divorce lawyers, internists, janitors, crane operators, hair stylists, health care aides “Baumol’s Disease” – productivity growth impossible or undesirable for many personal services industries; thus their prices will rise (relatively) over time, but since these jobs can’t be outsourced, demand for these jobs will increase, and real wages may decline -- exception: “luxury services”
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3 of Lecture 8 Professor David Lee AEM/ECON 2300 A. Blinder: Outsourcing: The Next Industrial Revolution? (Ch. 7) Key distinction between: “personal services” tied to place and/or to face-to-face contact : restaurant waiter, personal physician, police officer, lobbyist, child care worker, nurse, psychotherapist “impersonal services” which can be tradable : phone operator, reservation clerk, (some) financial services, tax accountant, computer programmer, editor Range of offshorable U.S. jobs: 3.3 million (Forrester Research); 11% (14m) of jobs (McKinsey, UC-Berkeley studies), 28-42 million (Blinder) What to do? U.S. has a more flexible labor market than Europe and can adapt thru:
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This note was uploaded on 03/27/2011 for the course AEM 2300 taught by Professor Lee,d.r. during the Spring '06 term at Cornell University (Engineering School).

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AEM-ECON%202300%20Lecture%208%20-%20Spring%202011 - Lecture...

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