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Project Syndicate: The Return of Overseas Jobs to America Is a Myth

By    |   Friday, 25 July 2014 02:16 PM

The celebrated return of American manufacturing jobs from overseas, or "onshoring," as Washington policy makers like to call it. is really just a myth, according to a pair of Boston economists.

Federico Diez, an economist at the Federal Reserve Bank of Boston, and Gita Gopinath, a professor of economics at Harvard University, argue in a column for Project Syndicate that the jobs homecoming amounts to a misunderstanding of data.

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They conceded Apple has established new plants in Texas and Arizona, and that General Electric plans to move production of its washing machines and refrigerators to Kentucky, both instances where those companies previously relied on facilities in emerging markets.

“While labor costs have increased in developing countries, they have remained relatively stable in the U.S.,” they wrote. In fact, when exchange rates are taken into account, they said U.S. manufacturing unit labor costs depreciated by 30 percent since 2001, suggesting an erosion in emerging markets’ low-cost advantages.

Meanwhile, America’s share of global world manufacturing exports, which fell by 4.5 percent from 2000 to 2008, has since stabilized.

“Upon closer inspection, however, the data for 1999-2012 present little evidence of significant onshoring of U.S. manufacturing,” said Diez and Gopinath. “For starters, the share of U.S. domestic demand for manufactures that is met by imports has shown no sign of reversal. In fact, the offshoring of manufacturing increased by 9 percent.”

They used data from Haver Analytics, the U.S. Census and the Bureau of Economic Analysis to reach their conclusions.

One bright spot in their analysis was the effect of a sharp rise in U.S. production of shale gas.

“Industries with large energy requirements, like chemical manufacturing, have experienced a much smaller increase in import share than less energy-intensive industries like computers and electronic products. This suggests that energy-intensive sectors are more likely to experience onshoring.”

Diez and Gopinath conclude there is no definitive evidence that U.S. jobs sent overseas have yet begun to return in a meaningful way.

“Of course, given that the increase in emerging economies’ labor costs and the decline in American energy prices are recent developments, import shares could begin to decline in a few years. But, with that outcome far from certain, the U.S. cannot rely on a rapid increase in manufacturing competitiveness to underpin its economic recovery.”

The Boston economists did not address what impact, if any, U.S. corporate taxes may be having on “onshoring” of former America jobs. The U.S. has the highest corporate tax rate, at 35 percent, in the developed world.

An analysis in The Economist said that restricting companies from moving abroad to escape high taxes, as President Obama is proposing, is no substitute for tax reform.

“Economic refugees have traditionally lined up to get into America. Lately, they have been lining up to leave,” The Economist said. “The motive is simple: corporate taxes are lower in Ireland, Britain and, for that matter, almost everywhere else than they are in America.”

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The celebrated return of American manufacturing jobs from overseas, or onshoring, as Washington policy makers like to call it. is really just a myth, according to a pair of Boston economists.
jobs, overseas, myth, economists
508
2014-16-25
Friday, 25 July 2014 02:16 PM
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