Despite perennial concerns over the loss of U.S. jobs to offshoring, much of the outcry over the practice has died down, with some economists even insisting that offshoring has boosted both productivity and wages at U.S. firms.
Yet it turns out such impressions may be erroneous due to productivity statistics based on flawed data from the Bureau of Labor Statistics. The problem, reports BusinessWeek, is that gains in domestic manufacturing have been overstated -- a problem it calls "phantom GDP."
It estimates that offshoring may have created about $66 billion in phantom GDP gains over the past four years. Accounting for this "phantom" GDP would reduce actual GDP today by about half of 1 percent.
It's "a real problem," says an MIT economist quoted in the article. The scary thing is, no one seems to know just how big of a problem. Another economist mentions "potentially big implications" and says, "I worry about how pervasive this is."
Rather than the 1.8 percent gains in productivity that have been reported over the past three years, BusinessWeek believes the percentage is closer to 1.6 percent, a similar rate to the 1980s. A managing partner at Accenture thinks that as much as half of U.S. productivity gains are due to globalization, though he says he knows of no company or industry that has attempted to calculate a figure.
This would explain, says the article, why American salaries have remained relatively stagnant -- other than those of chief executives, who are rewarded for cost cutting that occurs when work is sent offshore. It also doesn't bode well for the nation's trade imbalance and long-term sustainable growth rate.
One of the economists in the article doesn't think it's a serious issue -- provided that R&D of products and services still occurs in the U.S. before production moves offshore. More companies, however, are exploring sending R&D to other countries.
Despite the confusion over the exact numbers, BusinessWeek points out that the traditional methods that America employs to measure its economic performance have not kept up with the flattening world. It's clear that they need to be re-evaluated.