Earlier I wrote about the difference between US workers and foreign workers, and I mentioned that the investment in US workers in terms of education and capital investment makes them simply too expensive for certain types of work. Yes, there are other factors, such as OSHA, unions and so on that distort this somewhat, but in general, jobs are outsourced because they are too expensive when performed with US labor, and so are only economically viable when the company uses workers whose cost is minimal, because they have little invested in them in terms of education or capital investment. As I said in a reply to a comment, we can use only US labor for manually labor intensive manufacture, but do we want to buy plain white t-shirts at $100 each?

However, inevitably, when I bring this up in conversation, people express doubt about my claims. They look at the least skilled US jobs and question my claims that there is a huge disparity in capital and education between a US worker and one in the third world. But the problem is not my statement, but that people do not truly understand capital investment, and do not realize how little exists in many countries to which jobs are sent.

For example, our workers have some access to health care. Even if they currently do not have access to a doctor, their childhood series of inoculations represents a considerable investment which prevents them from seeing large periods of downtime due to illness. That is a capital investment in labor which gives us a more consistent, reliable labor pool, and one which is built into the cost of labor. Similarly, even if they do not have a car, workers have access to some form of transportation, allowing them to work more hours as they do not spend hours in transit. True, transport exists in most nations, but thanks to our infrastructure and quality of vehicles, ours is more reliable and results in less wasted time. Similarly, poor as our education may be, at least it is likely most workers will have minimal literacy, basic math skills, and so on. Maybe poor skills, but more than can be expected in several of the poorer nations to which our work is often exported.

And that is the problem in these debates. People often do not think of capital investment properly. They look at one aspect, say that Indian workers are generally as well educated as American workers, and argue that there is no difference between India and the US. But that ignores the massive capital infrastructure that exists in the US and not in India. We can see this clearly in the cost of living of each nation, if nothing else. Were the two nations identical, the cost of living and many other aspects would be the same. That they are not suggests that India, as with the even more impoverished nation, enjoys a competitive advantage, because within its niche, its labor is cheaper because of less having been invested in a combination of education and infrastructure. And we can see this is true. India may be receiving labor intensive service jobs, such as collections, tech support and so on, but we are not exporting programming jobs or engineering tasks to India. Again, the US is retaining the jobs for which high cost labor is appropriate and taking those jobs which are labor intensive and thus too costly inside the US.

Granted, this appears to be bad news for those in the US who did not pursue education ardently, or who are unable, for whatever reason, to learn, but that is true in every nation. Anyone, in any nation, who falls below the normal education for that nation will be employed in the most marginal positions, and may have to change jobs frequently as a lack of skills means that one can be easily replaced. It is not India which is causing uneducated Americans to lose jobs, it is their lack of education. And, in fact, they still are not losing jobs, simply being forced to change jobs. Thanks to massive capital investment, those lacking education still enjoy a higher standard of living than they would elsewhere, and, thanks to costs cut by exporting jobs, they can get more for whatever they do earn due to lower costs. Yes, when we ship labor intensive jobs overseas, they do have to change careers, but, fortunately for them, most low education jobs require little special training, so shifting careers is easier at the bottom of the economic spectrum than at the top. And with our infrastructure, capital investment, and so on, jobs are plentiful*, meaning that they should have little difficulty finding alternate employment**.

So, in short, though it is popular to denounce "sending jobs to India and China", in reality we are sending labor intensive tasks to India and China, freeing American labor to perform more productive tasks at home. It is not a zero sum game. There is always more work, more unsatisfied wants, and those can now be filled. In other words, when India does one of our jobs, we can now do something that was not being done before. Outsourcing creates opportunities, it does not close them.

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* Of course, if the government tries to inflate us into wealth, and that inflationary bubble then bursts, we will likely find ourselves with fewer job opportunities than normal. However, that is not a normal economic situation but the outcome of government attempts to manipulate the market. Under normal circumstance jobs are not in short supply.

** There is some difficulty in changing jobs within unionized fields, as there are artificial barriers to entry and to changing jobs, as well as artificial unemployment created by mandatory union membership and the overpricing of union labor. However, as union jobs usually are usually at least semiskilled, if not skilled, positions, they are not the jobs which are being shipped overseas to unskilled labor. Admittedly, some union jobs do go offshore to avoid the inflated costs of union labor, but that could be solved simply by reducing the most absurd union demands. Unions have only themselves to blame for any problems in unionized fields. Just as I would be to blame for my unemployment if I refused to accept anything less than $100 and hour while my labor was really worth $50 and hour.

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POSTSCRIPT

I plan to write a very short follow up post expanding on my final paragraph. It should be posted later today.