By Arnold Kling
It’s the topic du jour. Here is Dan Pink’s story for Wired.
A century ago, 40 percent of Americans worked on farms. Today, the farm sector employs about 3 percent of our workforce. But our agriculture economy still outproduces all but two countries. Fifty years ago, most of the US labor force worked in factories. Today, only about 14 percent is in manufacturing. But we’ve still got the largest manufacturing economy in the world – worth about $1.9 trillion in 2002. We’ve seen this movie before – and it’s always had a happy ending. The only difference this time is that the protagonists are forging pixels instead of steel. And accountants, financial analysts, and other number crunchers, prepare for your close-up. Your jobs are next.
Clay Risen in The New Republic writes,
there is no statistical evidence pointing to the massive employment drain activists call the “coring out” of America’s best jobs. In fact, recent studies show that the opposite is true: While offshoring may displace some workers in the short term, in the medium and long terms it represents a net benefit for both domestic businesses and their workers.
Finally, Economic Times of India has construed my recent article as predicting that Indian software programmers will soon be earning American wages.
If Kling is right, then it’s easy to see where the bad news for Indian techies is: without a salary differential, why will anyone want to outsource to India in the first place?
I don’t think the Times quite gets the concept of equilibrium. Let’s just say that there is some wage, probably higher than what Indians receive now but probably a bit below American wages, at which there will be an equilibrium level of outsourcing. Even adjusting for productivity differentials, the Indian wage will remain below American wages because dealing with programmers overseas is not perfectly costless.
For Discussion. How long will it take for Indian wages in computer programming to reach equilibrium levels?