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Education may not be the answer
Greenspan, Bush say education is the best response to offshore outsourcing. They may be wrong.
February 23, 2004: 3:34 PM EST
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Alan Greenspan and President Bush believe the best response to the movement of U.S. jobs offshore is the same thing it's always been: educating U.S. workers so they can get better-paying jobs.

But some people losing jobs overseas are already highly educated, and some economists doubt education will fully ease the pain -- American workers may have to learn to live with lower wages, or policy makers may have to come up with other ideas.

After several decades in which U.S. manufacturing jobs moved overseas steadily, white-collar jobs -- including information technology, customer service, accounting and more -- have begun to flow offshore in recent years as well, as multinational companies take advantage of a cheaper, ever-more-skilled, global labor force.

These trends, along with technological advancements, have helped keep the U.S. job market in its longest slump since World War II. Though the economy has grown for nine straight quarters, there are still 2.3 million fewer workers on non-farm payrolls than at the beginning of the 2001 recession.

The sluggishness of the labor market has heightened consumer anxiety, kept wage growth slow and put political pressure on President Bush, who is running for re-election in November.

In his State of the Union address in January, Bush suggested the solution was to better educate the U.S. work force, and he proposed giving money to community colleges for this purpose, among other initiatives.

In a speech on Friday and in his semi-annual Congressional testimony earlier last week, Federal Reserve Chairman Greenspan put his influential stamp of approval on these ideas, saying education has been the key to labor-market transitions in the past -- first from agriculture to the Industrial Age, then from the factory floor to the Information Age.

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"The capacity of workers, after being displaced, to find a new job that will eventually provide nearly comparable pay most often depends on the general knowledge of the worker and the ability of that individual to learn new skills," Greenspan said.

Greenspan and many other economists say they firmly believe there will be new jobs eventually, even if it's nearly impossible right now to predict what those new jobs will be.

Only if workers are well-educated, these economists believe, will they be able to jump into these new jobs when they materialize.

"What we do know is that the system manages to work -- we've been dealing with import penetration in this country for over three decades," said UBS chief economist Maury Harris. "Over that period of time, the unemployment rate has had its ups and downs, but there's been no trend increase in unemployment."

Harris said a high level of patent applications suggest new jobs are on the way, and census statistics show more Americans have higher levels of education than ever before.

"I think we're probably more adaptable now than we were in the past," Harris said. "Education is the key to that -- it makes you flexible."

It may already be helping -- according to the latest Labor Department data, among people 25 years of age or older, the unemployment rate for people with at least some college is just 3.7 percent, while the rate for people with a high school degree or less is 5.9 percent.

Too much supply, not enough demand

Not all economists think the answer is that simple, however. For one thing, it's not as if the foreign workers taking U.S. jobs are uneducated -- many of them not only speak English, but are also just as skilled as the U.S. workers they're replacing.

What's more, the current movement of jobs offshore is more dramatic than usual, thanks to the quickened pace of globalization and new technologies that make international communication easier than ever.


The opening of societies such as China and India, with large populations that value education and have lower living costs -- the New York Times on Sunday profiled a customer-service representative living in Bangalore, India, who was able to pay rent, have a cell phone, make frequent visits to night clubs, buy new clothes and send money to her parents, all on a salary of just $400 a month -- has tapped a rich vein of new workers.

If the global economy does not grow fast enough to raise the level of demand to match that vast new supply of workers, some economists worry, then the price of labor -- wages and salaries -- will certainly fall, with or without education.

"There are so many low-paid people who are educated that education is simply not the answer," said Robert Brusca, chief economist at Native American Securities in New York. "The answer is, you will be unemployed if this is not stopped."

Brusca believes that, for the foreseeable future, the most reliable source of jobs for U.S. workers will be in services that cannot be moved offshore, such as health care, plumbing and automobile repair.

Though nurses, plumbers and auto mechanics can make a great deal of money, the generally high wages of the late 1990s -- when a tech-investment bubble was accompanied by a tech-hiring bubble, some economists believe -- might simply be unattainable.

"Do you have to be reeducated? Maybe not -- maybe you just need to accept a lower wage rate," said Paul Kasriel, chief economist at Northern Trust in Chicago.

Layoffs and Downsizing

Kasriel doubts the implications of this pay slowdown are too worrisome in the long run. He believes global economic growth has been slow mostly because post-bubble imbalances are still working themselves out, and that eventually workers in Bangalore, Beijing and Bucharest will get richer and want to buy more stuff, increasing global demand and pushing wages higher.

"At some point we will have equalization, where an employer will be indifferent between hiring someone in Bangalore or Chicago," Kasriel said -- though he admitted that could be a long time coming.

The fear among some bearish economists is that, while the world waits for that equalization to take place, labor-market sluggishness in high-wage, developed countries such as the United States could keep global demand anemic, threatening the global economic recovery.

"To the extent that hiring in high-wage, developed economies continues to lag, the sustainability of any impetus to private consumption can be drawn into serious question," Morgan Stanley chief economist Stephen Roach wrote in a research note to clients on Monday.  Top of page

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