It may come as a surprise to some, but our government--specifically the US Department of Labor's Bureau of Labor Statistics (BLS)--continues to rather grossly understate the extent of our country's corporate offshoring/international outsourcing of manufacturing. In fact, it's a known/accepted fact in Washington D.C. that both our Gross Domestic Product (GDP) calculations and our worker productivity numbers are significantly and regularly overstated. It's common knowledge that with a more accurate accounting of what portions of our manufacturing sector's goods are actually produced outside of our country's borders, both our GDP and our worker productivity statistics would not be as strong as they are today, nor as they have appeared in the last couple of decades.
Based upon an op-ed post in this Saturday's NY Times (SEE: "
Trading Away Productivity"), as well an article which appeared in that paper on November 9, 2009 (SEE:"
Economists Seek to Fix a Defect in Data That Overstates the Nation's Vigor"), the reality is--according to multiple sources both inside and outside of Washington--that our government's numbers on labor productivity and GDP are both consistently overstated and, in fact, mask escalating offshore labor outsourcing, in general.
I have already posted diaries on the manufacturing portion of this issue, including this one right HERE, among others. However, concurrent with my read of Saturday's op-ed article, linked above, I'm just becoming aware of the government's labor productivity overstatements for the first time.
As we peruse the two articles blockquoted below, the problem's fairly simple to explain: labor hours, as defined by our government, only count worker hours in America; additionally, component goods/parts of products manufactured outside our country's borders, but assembled and manufactured in the U.S., are very poorly--if at all--incorporated into current Gross Domestic Product statistical calculations.
Put another (very simple) way, if a company offshores a portion of its work that it needs to have done to produce "product x"--and if "product x" required 100 hours of labor per unit in the U.S. prior to a portion of its work being offshored--then any reduction in U.S. worker hours created by that offshoring effort is usually/frequently reported as an "improvement" in U.S. worker productivity, when nothing could be farther from the truth.
On offshored/outsourced labor...
Trading Away Productivity
By ALAN TONELSON and KEVIN L. KEARNS
New York Times
March 6, 2010
...there's a problem: labor productivity figures, which are calculated by the Labor Department, count only worker hours in America, even though American-owned factories and labs have been steadily transplanted overseas, and foreign workers have contributed significantly to the final products counted in productivity measures.
The result is an apparent drop in the number of worker hours required to produce goods -- and thus increased productivity. But actually, the total number of worker hours does not necessarily change.
This oversight is no secret: as Labor Department officials acknowledged at a 2004 conference, their statistical methods deem any reduction in the work that goes into creating a specific unit of output, whatever the cause, to be a productivity gain.
On offshored/outsourced parts manufacturing...
Economists Seek to Fix a Defect in Data That Overstates the Nation's Vigor
By LOUIS UCHITELLE
New York Times
November 9, 2009
The fundamental shortcoming is in the way imports are accounted for. A carburetor bought for $50 in China as a component of an American-made car, for example, more often than not shows up in the statistics as if it were the American-made version valued at, say, $100. The failure to distinguish adequately between what is made in America and what is made abroad falsely inflates the gross domestic product, which sums up all value added within the country.
American workers lose their jobs when carburetors they once made are imported instead. The federal data notices the decline in employment but fails to revalue the carburetors or even pinpoint that they are foreign-made. Because it seems as if $100 carburetors are being produced but fewer workers are needed to do so, productivity falsely rises -- in the national statistics.
"We don't have the data collection structure to capture what is happening in a real time way, or what is being traded and how it is affecting workers," said Susan Houseman, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich., who has done pioneering research in the field. "We have no idea how to measure the occupations being offshored or what is being inshored."
Obviously, as the article notes, "The statistical distortions can be significant." It may also account--and this is, more than likely, an understatement, IMHO--for a potentially false, overstated reading in many measurements that have been presented to the public relating to wage inequality and the so-called "improved productivity" gap within our labor force, as manufacturing and services output dramatically (and supposedly) "increases" while overall available (jobs) employment declines at a record clip.
"What we are measuring as productivity gains may in fact be changes in trade," said William Alterman, assistant commissioner for international prices at the Bureau of Labor Statistics.
So, what's our government doing to shed more light on the issue?
Citing cost-cutting measures, according to an article in this past Wednesday's WaPo, the feds are shutting down the office in the Bureau of Labor Statistics that researches and reports on all of this international activity: "Obama administration plans to close International Labor Comparisons office."
Obama administration plans to close International Labor Comparisons office
By Alec MacGillis
Washington Post Staff Writer
Wednesday, March 3, 2010
Like a scorekeeper for the world, a tiny unit within the Bureau of Labor Statistics tracks globalization's winners and losers, and the results are not always pretty for the United States. Manufacturing jobs here, for example, have fallen faster since 1979 than in Canada, Germany or Japan. Compensation for those jobs dropped here in 2008 but jumped in South Korea and Australia.
The article informs us that the next fiscal year's budget would "...eliminate the International Labor Comparisons office and transfer its 16 economists to expand the bureau's work tracking inflation and occupational trends. The White House says the cut, estimated to save $2 million, is one of many difficult decisions the president was forced to make to control spending."
The defenders argue that, given the need to succeed in a global economy, it makes little sense to shut down the office that measures how the country stacks up. There are other sources of foreign data, such as the Organization for Economic Cooperation and Development and the International Labor Organization, but none does as much as the BLS unit to vet and adjust numbers for apple-to-apple comparisons on productivity, unemployment and wage levels, supporters say.
--SNIP--
(Said) Georgetown University economist Robert Bednarzik, who spent 10 years at the BLS and has started a petition drive to save the unit. "But they've picked the worst possible time to try and get rid of it -- when we're all in this together."
-SNIP--
Skeptics of free-trade policies criticize the closure for other reasons -- the unit's data, they argue, show just how harsh globalization is for the American worker...
So, at this point it may be said that we are told to look right, when in fact we should be looking left. U.S. manufacturing is not quite as booming as the MSM and the BLS would have us believe--at least as it relates to "productivity" and the U.S. labor market. And, despite commentary from others to the contrary, it would appear to be quite self-evident that it's rather absurd to say offshoring of labor by U.S. corporations is only nominally affecting these stats when outsourcing efforts outside of our borders are not even being appropriately included in the metrics to create our government's productivity and GDP stats, in the first place.
IMHO, it's also an affront to the 30 (plus/minus) million folks suffering in today's U.S. job market. Yes, it sure looks like a rerun to me: a.) corporations based in the U.S. don't want to shed the spotlight on their outsourcing activities; and, b.) our government is more than happy to support that opacity.
Been there, done that.