The war of anecdotes

One of the problems in the outsourcing debate is that those who defend the practice lose the war of anecdotes. [What about economic models and statistical evidence?–ed. Then the arguments in favor of outsourcing win hands down. You’d think those pieces of information would be more important for public policy debates, but that’s not the way it works. Between econometric models showing that trade is good for the economy and tangible anecdotes of job losses due to import competition, most citizens go with the anecdotes.] It is easy to point to large multinational corporations laying off American workers because of offshore outsourcing — cue IBM. However, the jobs that are either saved or created from outsourcing seem less impressive. In the case of jobs created, it’s because a healthy share of new hiring takes place among smaller firms, the anecdotes of job creation seem much less convincing — even though there may be more examples of the latter than the former. In the case of jobs saved, the difficulty is that such statements require counterfactual reasoning — “If outsourcing had not occurred, then a greater number of jobs would have been lost.” Counterfactuals are extremely difficult to demonstrate beyond a reasonable doubt. So, in the debates over trade and unemplyment, protectionists have juicy media stories, while those who favor an open economy are often left sputtering. Bruce Bartlett tries to address “anecdote gap” on offshoring with this anecdote:

A Jan. 30 report in the Wall Street Journal illustrates how this works, using the case of a computer mouse manufacturer called Logitech. It sells a wireless mouse called Wanda for about $40 that is assembled in China. Of the $40, China gets only $3. The rest goes to suppliers, many based in America, which make components for the mouse, and to domestic retailers. The biggest component of Logitech’s cost is its marketing department based in Fremont, California, where the staff of 450 Americans makes far more than the 4,000 Chinese who actually manufacture the product. Those 450 Americans, making good wages in California, might not have jobs at all if Logitech wasn’t able to stay competitive by outsourcing some of its costs. Studies have also shown that workers displaced by outsourcing are often retrained for better jobs within the companies doing the outsourcing. Cisco, for example, is a leader in outsourcing, but has not reduced the number of its domestic employees because they have been redeployed into other areas, doing higher value-added work. These jobs often pay better than those that were outsourced. I know that this is no solace to those who have lost jobs due to outsourcing. But the nation as a whole will be worse off if outsourcing is restricted.

UPDATE: More on this over at the Marginal Revolution. And Steve Verdon had a great post from last month that’s worth reading. FINAL UPDATE: I’ve posted more on job growth here.