Comment

30 September 2004

UBS downplays outsourcing

U.S. companies sending jobs overseas aren’t having a big impact on the total job market.

Dow Jones Newswires reported that between 2001 and 2003 increased outsourcing didn’t have much effect on overall jobs or wages, even though individual workers felt the hit. This suggests that investors shouldn’t worry even though the trend of turning to foreign workers may continue.

“We are not very concerned about there being any particularly negative economic consequences of likely higher future outsourcing,” said UBS chief economist Maury Harris.

Foreign workers have become a political concern as well as an economic issue this year as the presidential election approaches and growth has slowed. Elected officials often blame outsourcing for lost manufacturing jobs, or even potential losses, when seeking business for their districts.

For example, the battle over who will build a new presidential helicopter has homed in on which competitor has the best U.S. production credentials. Sikorsky Aircraft Corp. has tried to position itself as the all-American candidate, saying rival Lockheed Martin Corp. will be using a helicopter designed by Italian firm AgustaWestland, part of Finmeccanica.

But Lockheed Martin says much of its team’s work will take place in Texas. Meanwhile, it notes that Sikorsky and its parent firm, United Technologies Corp., have production facilities in China.

Both campaigns have drawn Congressional members to support their cause. Eventually, the heated debate prompted the Pentagon to postpone making a decision until December, after the election.

In the new UBS study, Harris said the U.S. economy adds new jobs in some areas even as it loses them in others. His study estimated only about 400,000 job cuts annually are due to foreign outsourcing, out of about 21 million unemployment claims each year.

Further, he finds that about 50% of displaced workers tend to find new jobs within five weeks, and most within six months, although many take substantial pay cuts. He said outsourcing can bring some positive broad effects to the overall economy by boosting global savings.