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Immigration, Labor Markets, and Globalization

September 30, 2011

Employment-based immigration law and regulations represent a nation’s policy on protectionism with respect to its labor market.

The current Economist magazine has a special report on the world economy which includes an article on the issue of offshoring. The article points out the fact that offshoring is not a new phenomenon. In fact, businesses have sought lower labor and manufacturing costs ever since the industrial revolution of the 1760s.

The cotton industry in Britain was in the vanguard of that transformation [caused by the industrial revolution] but soon faced competition—first from New England, then from America’s South. The mills have largely disappeared and the spinning and weaving jobs replaced by better-paid ones. As the division of global labour becomes ever more fine-grained, small tasks rather than whole industries move abroad.

Two Princeton economists, Alan Blinder and Alan Krueger, conducted a study in 2009 which determined that potentially 25% of U.S. jobs are “offshorable,” including

[a]ny service job that can be delivered down a wire without any diminution in quality . . . That means high-paying jobs in accountancy, financial analysis or computer programming are at risk. Jobs that involve face-to-face contact or require the worker to be present are safer: think of taxi drivers, plumbers, police officers or janitors. Mr Blinder makes a distinction between personal and impersonal services. Only the latter are offshorable. A contract lawyer or radiologist is vulnerable to offshoring; a divorce lawyer or family doctor isn’t.

Some would argue that the solution is to restrict immigration or enact trade barriers to prevent this change, but, in fact a recent report from the Council on Foreign Relations argues that “expanded trade is vital for U.S. economic growth and job creation.”  The report calls for a commitment to global engagement by the United States and recommends

The Obama administration should launch a National Investment Initiative, as a complement to the president’s National Export Initiative, which would make it a national objective—as it is in most other countries—to attract and retain investment. This means federal, not just state-led, efforts to court foreign investors, an overhaul of our uncompetitive corporate tax regime, a strategy to bring in investment from China and other developing economies, and steps to encourage high-skilled immigration and ease business travel into the U.S.

The Obama Administration is likely to address issues about the effect of globalization on the U.S. labor market as the President has nominated Alan Krueger, the Princeton researcher, to head the White House Council of Economic Advisers. Bloomberg Businessweek described his work as “focuse[d] on labor markets and how policies affect people.”


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