Outsourcing, Offshoring, and Productivity Measurement in Manufacturing

I discuss reasons why manufacturing productivity statistics should be interpreted with caution in light of the recent growth of domestic and foreign outsourcing and offshoring. First, outsourcing and offshoring are poorly measured in U.S. statistics, and poor measurement may impart a significant bias to manufacturing and, where offshoring is involved, aggregate productivity statistics. Second, companies often outsource or offshore work to take advantage of cheap (relative to their output) labor, and such cost savings are counted as productivity gains, even in multifactor productivity calculations. This fact has potentially important implications for the interpretation of productivity statistics. Whether, for instance, productivity growth derives from a better-educated, more efficient U.S. workforce, from investment in capital equipment in U.S. establishments, or from the use of cheap foreign labor affects how productivity gains are distributed among workers and firms in the short term and undoubtedly matters for U.S. industrial competitiveness and living standards in the long term. Although it is impossible to fully assess the impact that mismeasurement and cost savings from outsourcing and offshoring have had on measured productivity growth in manufacturing, I point to several pieces of evidence that suggest it is significant, and I argue that these issues warrant serious attention. I am grateful to Katharine Abraham, Mike Harper, Peter Meyer, Anne Polivka, Ken Ryder, Larry Summers, Lisa Usher, Robert Yuskavage, and seminar participants at the Federal Reserve Bank– Chicago for comments on an earlier draft of this paper, and to Mary Streitweisser and James Franklin for supplying detailed information on the construction of BEA's input-output estimates and their use in productivity calculations. Lillian Vesic-Petroic provided excellent research assistance. Any remaining errors as well as the views expressed in this piece are my own.offshoring, productivity, manufacturing, outsourcing, measurement, houseman

Job Growth and the Quality of Jobs in the U.S. Economy

During the 1980's employment grew rapidly in the United States, prompting many analysts to label the U.S. economy the great American job machine. But while aggregate employment increased rapidly during the 1980's, many did not benefit from the expansion. Among less educated prime-age males, unemployment rates rose and labor force participation rates declined sharply. Moreover, although job growth was high, many argued that the quality of American jobs as measured by wages, benefits, and job security deteriorated. The decline of jobs in the high-paying manufacturing sector and the growth of jobs in the low-paying services sector, the growth in part-time and temporary employment, and the general decline in real wages among less-educated, less-skilled workers have been presented as evidence of an erosion in job quality. The issue of job growth and job quality in the American economy has sparked extensive debate among policymakers and academics over the last decade. The aim of this paper is to critically examine the evidence on job growth and on wages and other indicators of job quality in the U.S. economy during the 1980's and 1990's. To place the American experience in perspective, selected comparisons are made to the experiences in other industrialized countries. The paper is divided into three main sections. In section 1, I look at employment growth in the United States during the 1980's and 1990's. I examine whether and to what extent employment growth was greater in the United States than in other industrialized countries and whether strong employment growth in the United States signaled a healthy economy. I compare the employment performance of the U.S. economy during the 1980's with that in other industrialized countries, and study the factors underlying the cross-country differences in employment growth: differences in the growth of the working age population, differences in the growth in labor force participation, and differences in the growth in unemployment. I also examine differences in the employment experiences across groups of workers defined by gender, education, and age within the United States. In addition, the relation between employment growth, productivity growth, and growth in per capita GDP in the United States and other industrialized countries during the 1980's is explored. Finally, trends in employment growth in the United States during the 1990's are discussed. In sections 2 and 3 of the paper, I examine whether and in what sense there is any evidence that the quality of jobs in the United States has declined. The literature pertaining to trends in the quality of jobs in the U.S. economy falls into at least two main categories: (1) studies of the wage, benefits, and job security characteristics of new jobs created; and (2) studies of trends in real wages, benefits, and earnings inequality. The latter deals with trends in new as well as existing jobs. In section 2 of the paper, I review evidence from several studies on the wage distribution of occupations and industries in which new employment was created during the 1980's and 1990's. I also look at trends in the growth of involuntary part-time employment and temporary employment, which are characterized by low wages, few benefits, and little job security. In section 3 of the paper, I present evidence on trends in wages and benefits across groups of workers and the growth of wage inequality in the United States during the 1980's and 1990's. I review evidence concerning the causes of the decline in real wages among less-educated workers and the growth in wage inequality in the United States. I also review evidence from studies of trends in real wages and wage inequality in other industrialized countries and discuss why trends abroad typically have differed from those in the United States. In section 4, I summarize the evidence on job growth and the quality of jobs in the United States during the 1980's and 1990's and discuss the implications for U.S. policy.job, growth, quality, expansion, Houseman

Temporary Agency Employment as a Way out of Poverty?

The high incidence of temporary agency employment among participants in government employment programs has catalyzed debate about whether these jobs help the poor transition into stable employment and out of poverty. We provide direct evidence on this question through analysis of a Michigan welfare-to-work program in which program participants were randomly allocated across service providers (‘contractors') with different job placement practices. We draw on a telephone survey of contractors and on administrative program data linked with wage records data on all participants entering the program over a three-and-a half-year period. Our survey evidence documents a consensus among contractors that temporary help jobs are generally easier for those with weak skills and experience to obtain, but no consensus on whether temporary help jobs confer long-term benefits to participants. Our analysis of the quasi- experimental data introduced in Autor and Houseman (2005) shows that placing participants in either temporary or direct-hire jobs improves their odds of leaving welfare and escaping poverty in the short term. However, we find that only direct-hire placements help reduce welfare dependency over longer time horizons. Our findings raise questions about the incentive structure of many government employment programs that emphasize rapid placement of program participants into jobs and that may inadvertently encourage high placement rates with temporary help agencies.temporary agency, poverty, welfare, welfare-to-work, autor, houseman

Temporary Agency Employment as a Way out of Poverty?

The high incidence of temporary agency employment among participants in government employment programs has catalyzed debate about whether these jobs help the poor transition into stable employment and out of poverty. We provide direct evidence on this question through analysis of a Michigan welfare-to-work program in which program participants were randomly allocated across service providers ('contractors') with different job placement practices. We draw on a telephone survey of contractors and on administrative program data linked with wage records data on all participants entering the program over a three-and-a half-year period. Our survey evidence documents a consensus among contractors that temporary help jobs are generally easier for those with weak skills and experience to obtain, but no consensus on whether temporary help jobs confer long-term benefits to participants. Our analysis of the quasi-experimental data introduced in Autor and Houseman (2005) shows that placing participants in either temporary or direct-hire jobs improves their odds of leaving welfare and escaping poverty in the short term. However, we find that only direct-hire placements help reduce welfare dependency over longer time horizons. Our findings raise questions about the incentive structure of many government employment programs that emphasize rapid placement of program participants into jobs and that may inadvertently encourage high placement rates with temporary help agencies.

Do Temporary-Help Jobs Improve Labor Market Outcomes for Low-Skilled Workers? Evidence from 'Work First'

Temporary-help jobs offer rapid entry into paid employment, but they are typically brief and it is unknown whether they foster longer-term employment. We utilize the unique structure of Detroit's welfare-to-work program to identify the effect of temporary-help jobs on labor market advancement. Exploiting the rotational assignment of welfare clients to numerous nonprofit contractors with differing job placement rates, we find that temporary-help job placements do not improve and may diminish subsequent earnings and employment outcomes among participants. In contrast, job placements with direct-hire employers substantially raise earnings and employment over a seven quarter follow-up period.Temporary-help, welfare to work, job placement, low-skill workers, causal effects

Do temporary jobs help low-skilled workers? : surprising data from Detroit

Because Detroit randomly assigns its welfare-to-work clients to different contractors — some favoring temporary jobs, some not — the researchers were able to uncover surprising data on whether temping helps the disadvantaged build careers.Temporary employees ; Public welfare

Do Temporary Help Jobs Improve Labor Market Outcomes for Low-Skilled Workers? Evidence from 'Work First'

A disproportionate share of low-skilled U.S. workers is employed by temporary-help firms. These firms offer rapid entry into paid employment, but temporary-help jobs are typically brief, and it is unknown whether they foster longer-term employment. We exploit a unique aspect of the city of Detroit’s welfare-to-work program, in which one in five jobs taken is obtained with a temporary-help firm, to identify the effects of temporary-help jobs on the subsequent labor market advancement of low-skilled workers. Welfare participants are assigned on a rotating basis to one of numerous program providers that have substantially different placement rates into temporary-help and regular (‘direct-hire’) jobs but offer otherwise standardized services. This gives rise to variation in job-taking rates that is functionally equivalent to random assignment. Using provider assignments as instrumental variables, we find that temporary-help job placements yield significant short-term earnings gains, but these gains are offset by lower earnings and less frequent employment over the next one to two years. Job placements with direct-hire employers, by contrast, substantially raise earnings over one, two, and three years following placement. The primary observable difference between these types of job placements is their effect on subsequent employment stability. Direct-hire placements roughly double the probability of ongoing employment in each of the first eight quarters following program assignment, while temporary help placements only positively affect the probability of ongoing employment for two quarters and do not facilitate transitions to direct-hire jobs. These results qualify the interpretation of a large experimental literature documenting the benefits of job placement services for labor market outcomes of low-skilled workers. We find that the benefits of job placements derive entirely from direct-hire jobs; placing low-skilled workers in temporary-help jobs is no more effective than providing no job placements at all.