Friday, August 25, 2006

Outsourcing seen boosting wages at home

Two Princeton economists conclude that outsourcing jobs has been accompanied by rising wages for those whose jobs were outsourced, due to increased productivity. Now, the skeptic that I am, I have to take time to read the study (which I haven't even seen) and come to my own, informed conclusions.

But at face value, their findings seem spurious at best. Economically speaking, when the supply of labor increases, the price of labor (wages) goes down). Now, is the opening of our labor market to outsiders an shift in the labor supply curve. Classically speaking, I would say yes.

But is something else going on here? For wages to rise in a market where the supply curve has shifted outward, the demand for labor must have shifted more than the supply. This idea runs counter to what we see in the export market. So is there something else going on?

Is the trade deficit leading us astray? Or is it the global currency markets? It looks like we're spending more for imports than we're getting for exports, but is this really true? Perhaps if the currency markets were truly fluid then we'd see a different picture in the balance of trade?

I don't know. It's been a long time since my college economics days (I majored in economics)...and a lot has changed. One thing is for sure: This study has very interesting conclusions, conclusions that run counter to the prevalent thoughts that abound today.