Tuesday, September 19, 2006

TNR on Outsourcing

A blog reader asks me about an article in the new issue of The New Republic, in which Clay Risen reports that he has read my paper with Phillip Swagel (published version) on offshore outsourcing.

Risen concludes that "ultimately, Mankiw and others are right--we really are better off, in the long run, with freer trade." But he calls us "cynical" for wanting to frame the issue in terms that non-economists can more easily understand. Risen's preferred solution is an expansion in the generosity of the social safety net: more generous unemployment insurance, wage insurance for displaced workers, more spending on worker retraining, and national health insurance.

Unfortunately, he throws out these ideas as cliches without addressing the hard tradeoffs they entail. Higher unemployment-insurance benefits may reduce risk but they affect the search effort of the unemployed and increase unemployment. Wage insurance raises a question of equity: Does someone who loses a high-wage job and takes a low-wage job deserve greater government benefits than a low-wage worker who never had a high-wage job? Worker retraining programs should pass a cost-benefit test, and the evidence, at least for older workers, is not encouraging. National health insurance raises a whole host of difficult issues that health economists debate and that have little to do with offshore outsourcing. Whatever you think about national health insurance, the outsourcing of some call centers to India probably shouldn't change your mind.

So, overall, I was not impressed by Risen's piece. But at least he spelled my name right.