Tuesday, May 17, 2011

Your Job Counts on Account of the Way It Is Counted

Interesting. Our boy LeBron points out that the way we count matters, and that "offshoring" may overcount the portion of value created in the U.S. (And this in reference to an article he cites. Nice.)

I have taken the other side, claiming that the way we count dramatically UNDERCOUNTS how much value is created in the U.S. Sure, the "jobs" may be offshored, but they are a tiny part of the value of the product, and what is being done overseas is easy, repetitive, and cheap, not something U.S. workers need to do. Our other boy, Mark Perry, writes it up for the iPhone. Here's the value pie chart:

Who is right? I find the Houseman, et al., article pretty persuasive. So, I am, as usual, confused. It can't be that we BOTH overcount and undercount, can it?

(UPDATE: Meant to say that the title is stolen from the evil "May the Schwartz Be With You!")

(UPDATE II: LG and JN had an interesting exchange. Here is my own view: we might well want to soften the blow. Globalization helps all of us a little, but hurts a few of us a lot. Why not smooth out a little?)

9 comments:

Gerardo said...

Not clear. Yes. Yes.

Chinese shoes

http://people.hofstra.edu/geotrans/eng/ch5en/appl5en/costs_shoe_China.html

iPod

http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/iPodmargin.html

Good stuff.

Juris Naturalist said...

You are right. See this paper by Kramer: http://escholarship.org/uc/item/1770046n;jsessionid=980A2B4C32C12C50A2197F3CF45FD619

Only 5% of value added is generated in China, and a good portion of that is captured by the Taiwanese firm which owns the manufacturing plant in China. But in trade numbers China gets the full price of the iPod counted as exports to the US. Thus trade deficit (not that it matters...) numbers about China are vastly overstated.
As you have stated before, China is a bubble.

little guy said...

OK, so you've convinced me that unskilled labor is a small part of the cost of a high-tech gadget. Seems pretty likely, 'cuz when I look at the US income distribution, unskilled labor seems to get a small share of total income.

I'm missing the part where this picture shows how low or moderately skilled workers in the US aren't being made worse off by outsourcing. I can easily see, OTOH, why the incomes of Stanford elec. engineering grads are rising.

Anonymous said...

I don't think the goal of this picture is to tell you that, little guy.

little guy said...

OK, then, Anonymouse, please enlighten me.

Juris Naturalist said...

Low skilled workers are made worse off. But there are fewer of them, and there is high demand in the service sector. In the meantime, even low skilled workers are made better off by lower prices. Not quite a wash, but not as big a deal as most people make it, unless you are one of those low skilled workers of course who didn't bother to prepare for your next career but decided to drink beer instead.
Nathanael Snow

little guy said...

Thanks, Juris, for your clear exposition. Clearly the people who are fascinated by the point that free trade is beneficial on balance and the people who are bothered by its effects on the distribution of income are just talking past each other.

The poor cannot afford bread? Then let them buy iPhones. If they're not too drunk, anyway.

Mungowitz said...

Little Guy, your question is important. I added my own view on it in the main post. Thanks for commenting. Mike

Juris Naturalist said...

Okay, so smoothing it out is a good idea. Trade Adjustment Assistance programs have had some success. I am advocating an attitude change which suggests textile workers in NC might have been practicing their typing skills in their off time. Creative destruction happens, and those who are preparing for it will fare better than those who don't.
And as for the whole, "drinking beer" bit, I shouldn't have gone there. Bad form.
NS