Apocalypse Soon? Why Alan Blinder Gets it Wrong on Offshoring

In a recent article in Foreign Affairs entitled "Offshoring: The Next Industrial Revolution," noted economist Alan Blinder presented a provocative and disturbing thesis: the offshoring of service sector jobs is not just a routine extension of international trade, but a "third industrial revolution" likely to lead to one of every three American jobs being shipped overseas. Blinder warns that, "We have so far barely seen the tip of the offshoring iceberg, the eventual dimensions of which may be staggering." Even though he claims this revolution will lead to a "massive transition" in the labor market, Blinder puts a good a face on this "coming wave of offshoring," encouraging Americans to get used to their new jobs as divorce lawyers and salespersons, and correctly counseling that it would be a mistake to erect protectionist walls.

When an economist of Alan Blinder's stature (former member of President Clinton's Council of Economic Advisors and Vice Chairman of the Board of Governors of the Federal Reserve) speaks, people listen. Unfortunately, in this case they shouldn't, since Blinder's projections are vastly exaggerated. In overstating the number of jobs likely to be offshored (probably by a factor of 10) Blinder makes three critical errors. First, he overestimates the number of jobs that are tradable. Second, he overestimates the share of those jobs likely to be offshored. And third, he omits the offsetting increase in service sector jobs from expanded exports.

Giving up America's traded sector as Blinder proposes is a strategy for long-term decline. Working to ensure that we win in the international competition for higher paid, traded sector jobs is a strategy for long-term prosperity.