On Thursday, Nov. 15, the Levitt Speaker Series brought economist Catherine Mann to Hamilton to speak about information technology and globalization. Mann outlined the promises and perils surrounding globalization in the information technology sector, and proposed new investments in training to allow the U.S. to continue to compete in an increasingly open economy.
Mann, a senior fellow at the Peterson Institute for International Economics, professor of economics at Brandeis University and former assistant director of the International Finance Division at the Federal Reserve Board of Governors, first spoke about the "fear factor" surrounding globalization. She displayed excerpts from Business Week that asked provocatively "Is Your Job Next?" and CNN anchor Lou Dobbs's criticism of globalization that led 2004 Democratic presidential candidate John Kerry to decry "Benedict Arnold Corporations" that outsource jobs from the U.S. economy. Mann questioned whether such fears of globalization are "representative" of the current trade system, and used trade statistics to suggest that the U.S. information technology (IT) sector has actually benefited from globalization.
The onset of IT, referring to Internet services and achievements in computing, increases opportunities for variation in products and "commoditization" of tasks. For example, where an economist might formerly have downloaded a dataset, analyzed it painstakingly and then written a report, a modern economist can simply download data directly into a spreadsheet that does all the mathematical work and then upload the result into a template for presentation. The result, Mann says, is that tasks that "used to require a unique set of skills" are now capable of being performed by anyone (including workers in foreign countries). These changes from technology have a myriad of effects on the economy; they encourage fragmentation in the business sector as firms adapt to serve more narrow markets, they cause "churn" in the labor force in which people are forced to change jobs more frequently, and they revive the debate about whether to leave the economy alone or regulate it more strongly. As an economist, Mann said that she could not provide answers about the political aspects to this debate, which is a question of "political balance," but could provide data to illustrate the way the economy is currently progressing.
Because investment in IT is an elastic good (in other words, as prices drop by a certain amount, demand for technology increases by more than the result of the price drop), Mann stated that the reduction in prices from free trade encourages the expansion of technology. She displayed data suggesting that the price declines from globalized technology markets has reduced the prices of IT by 10-30 perecnt, resulting in a savings of about $250 billion to the U.S. This technology in turn accounted for about half of the productivity growth at the end of the 20th century.
The reason firms invest in IT, Mann said, is that "the network between the producer and supplier" is simplified by technology, thus reducing costs to the firm. One of the sectors that most benefit from these networks are service sector jobs, because they show greater reduction in costs from increased technological investment when compared to manufacturing. Technological investment also increases productivity of firms, as Mann showed in a graph of the relationships between productivity of economic sectors and technological spending in that sector. The sectors that benefit most in productivity are those that have already established networks, such as banks and financial services companies (which networked through the financial system before the onset of the Internet). On the other hand, health services and construction companies lag behind other sectors in benefits from technology, primarily because these sectors include firms of may different sizes (who may have difficulty acquiring capital to invest in technology), lack clear ways to network and have complex or regulated relationships with consumers. Thus, IT has different impact on different industries.
Mann next addressed the concerns that the U. S. is importing high quantities of IT goods, reducing the U.S. share of world markets. She displayed trade data to show that while more personal computer equipment is now manufactured outside of the U.S. relative to 2001, causing a trade deficit in IT, the U.S. also exports semiconductors (the "brains" of a computer) at a greater rate, meaning that the U.S. still controls the computer market.
However, globalization has led to a movement of service jobs across numerous sectors to other countries, because the "codification" of information (such as the use of standardized software products) has made it easy for jobs to be performed by workers overseas. Mann listed "education, finance, insurance, medical, business and professional services, legal, architecture, information services, accounting [and] engineering" professions as among those that have been increasingly exported outside the U. S., with a 4 percent increase in percentage of these jobs exported from 1992 to 2005. She indicated that she expects productivity growth to come about as a result of this outsourcing, much like productivity grew by outsourcing computer manufacturing.
Mann next discussed the "perils" of globalization. First, she pointed to data showing that workers in jobs that are easily outsourced earn a wage premium of 8 to 12 percent. While this helps compensate the workers for their insecurity, it also means that high-wage jobs will be lost disproportionately as a result of outsourcing. This in turn contributes to increased sensitivity of the IT sector to business cycles; whereas IT workers before the dot-com boom worked in relatively stable positions, the expansion of technology and skills during the boom exposed them to both cycles of unemployment and cycles of IT investment, hurting their job security.
This instability has disproportionally fallen on low-level IT workers, such as laborers in call centers, who have seen a 30 percent reduction in U.S. industry size since 1999. Mid-level workers, such as computer repair personal, have done better, while high-level jobs have seen a 19 percent growth in number of workers. However, high-level computer programmers are an exception to this trend, with their industry size falling by 19.5 percent from 1999 to 2006. Mann attributed this to increased "codification"; because programming tasks are now more automated and do not require unique skills, they're more easily outsourced to other countries.
Mann then commented on H1B visa, which allow firms in the U.S. to bring in technological workers from abroad. By comparing wages of H1B workers at companies based in foreign countries and companies based in the U.S., she showed that the United States companies tended to recruit more unique (and highly-paid) individuals. Mann sees this as problematic, because it means that foreign companies investing in the United States are not bringing in high quality labor.
Having examined these perils, Mann proposed some policies to solve the three issues of unstable churn in the labor force, skills that lose their usefulness in a changing economy and "skill depreciation" caused by the rapid change of technological progress so that individuals' skills become out of date quickly. To deal with churn, she advocates programs that make it easier for U.S. workers to move from job to job, including portable systems of health insurance. Providing wage insurance to allow workers to retool their skills could help workers displaced by globalization.
Finally, to combat skill depreciation, she proposed a "human capital investment tax credit" in which employers in the U. S. would be given a tax refund to send their workers back to educational institutions to improve their skills. This would help reduce the current problems in labor training, including disincentives for firms to train their workers (since firms that spend money to perform training may see their trainees hired by a competitor that does no such training) and the inability of workers to chose the correct training because they cannot see the big picture of the IT economy. Such a program would cost $25-50 billion by 2010, the money going to corporations who then spend it on universities. She admits that this program focuses on a relatively small segment of the economy, mainly higher-income IT workers, but suggests that keeping these jobs in the U.S. through better education will raise tax revenues and lead to better outcomes for the country.
By providing investment in education and fixes to the current employment system, Mann believes the United States economy can overcome some of the difficulties of the new globalized economy.
-- by Kye Lippold '10
Mann, a senior fellow at the Peterson Institute for International Economics, professor of economics at Brandeis University and former assistant director of the International Finance Division at the Federal Reserve Board of Governors, first spoke about the "fear factor" surrounding globalization. She displayed excerpts from Business Week that asked provocatively "Is Your Job Next?" and CNN anchor Lou Dobbs's criticism of globalization that led 2004 Democratic presidential candidate John Kerry to decry "Benedict Arnold Corporations" that outsource jobs from the U.S. economy. Mann questioned whether such fears of globalization are "representative" of the current trade system, and used trade statistics to suggest that the U.S. information technology (IT) sector has actually benefited from globalization.
The onset of IT, referring to Internet services and achievements in computing, increases opportunities for variation in products and "commoditization" of tasks. For example, where an economist might formerly have downloaded a dataset, analyzed it painstakingly and then written a report, a modern economist can simply download data directly into a spreadsheet that does all the mathematical work and then upload the result into a template for presentation. The result, Mann says, is that tasks that "used to require a unique set of skills" are now capable of being performed by anyone (including workers in foreign countries). These changes from technology have a myriad of effects on the economy; they encourage fragmentation in the business sector as firms adapt to serve more narrow markets, they cause "churn" in the labor force in which people are forced to change jobs more frequently, and they revive the debate about whether to leave the economy alone or regulate it more strongly. As an economist, Mann said that she could not provide answers about the political aspects to this debate, which is a question of "political balance," but could provide data to illustrate the way the economy is currently progressing.
Because investment in IT is an elastic good (in other words, as prices drop by a certain amount, demand for technology increases by more than the result of the price drop), Mann stated that the reduction in prices from free trade encourages the expansion of technology. She displayed data suggesting that the price declines from globalized technology markets has reduced the prices of IT by 10-30 perecnt, resulting in a savings of about $250 billion to the U.S. This technology in turn accounted for about half of the productivity growth at the end of the 20th century.
The reason firms invest in IT, Mann said, is that "the network between the producer and supplier" is simplified by technology, thus reducing costs to the firm. One of the sectors that most benefit from these networks are service sector jobs, because they show greater reduction in costs from increased technological investment when compared to manufacturing. Technological investment also increases productivity of firms, as Mann showed in a graph of the relationships between productivity of economic sectors and technological spending in that sector. The sectors that benefit most in productivity are those that have already established networks, such as banks and financial services companies (which networked through the financial system before the onset of the Internet). On the other hand, health services and construction companies lag behind other sectors in benefits from technology, primarily because these sectors include firms of may different sizes (who may have difficulty acquiring capital to invest in technology), lack clear ways to network and have complex or regulated relationships with consumers. Thus, IT has different impact on different industries.
Mann next addressed the concerns that the U. S. is importing high quantities of IT goods, reducing the U.S. share of world markets. She displayed trade data to show that while more personal computer equipment is now manufactured outside of the U.S. relative to 2001, causing a trade deficit in IT, the U.S. also exports semiconductors (the "brains" of a computer) at a greater rate, meaning that the U.S. still controls the computer market.
However, globalization has led to a movement of service jobs across numerous sectors to other countries, because the "codification" of information (such as the use of standardized software products) has made it easy for jobs to be performed by workers overseas. Mann listed "education, finance, insurance, medical, business and professional services, legal, architecture, information services, accounting [and] engineering" professions as among those that have been increasingly exported outside the U. S., with a 4 percent increase in percentage of these jobs exported from 1992 to 2005. She indicated that she expects productivity growth to come about as a result of this outsourcing, much like productivity grew by outsourcing computer manufacturing.
Mann next discussed the "perils" of globalization. First, she pointed to data showing that workers in jobs that are easily outsourced earn a wage premium of 8 to 12 percent. While this helps compensate the workers for their insecurity, it also means that high-wage jobs will be lost disproportionately as a result of outsourcing. This in turn contributes to increased sensitivity of the IT sector to business cycles; whereas IT workers before the dot-com boom worked in relatively stable positions, the expansion of technology and skills during the boom exposed them to both cycles of unemployment and cycles of IT investment, hurting their job security.
This instability has disproportionally fallen on low-level IT workers, such as laborers in call centers, who have seen a 30 percent reduction in U.S. industry size since 1999. Mid-level workers, such as computer repair personal, have done better, while high-level jobs have seen a 19 percent growth in number of workers. However, high-level computer programmers are an exception to this trend, with their industry size falling by 19.5 percent from 1999 to 2006. Mann attributed this to increased "codification"; because programming tasks are now more automated and do not require unique skills, they're more easily outsourced to other countries.
Mann then commented on H1B visa, which allow firms in the U.S. to bring in technological workers from abroad. By comparing wages of H1B workers at companies based in foreign countries and companies based in the U.S., she showed that the United States companies tended to recruit more unique (and highly-paid) individuals. Mann sees this as problematic, because it means that foreign companies investing in the United States are not bringing in high quality labor.
Having examined these perils, Mann proposed some policies to solve the three issues of unstable churn in the labor force, skills that lose their usefulness in a changing economy and "skill depreciation" caused by the rapid change of technological progress so that individuals' skills become out of date quickly. To deal with churn, she advocates programs that make it easier for U.S. workers to move from job to job, including portable systems of health insurance. Providing wage insurance to allow workers to retool their skills could help workers displaced by globalization.
Finally, to combat skill depreciation, she proposed a "human capital investment tax credit" in which employers in the U. S. would be given a tax refund to send their workers back to educational institutions to improve their skills. This would help reduce the current problems in labor training, including disincentives for firms to train their workers (since firms that spend money to perform training may see their trainees hired by a competitor that does no such training) and the inability of workers to chose the correct training because they cannot see the big picture of the IT economy. Such a program would cost $25-50 billion by 2010, the money going to corporations who then spend it on universities. She admits that this program focuses on a relatively small segment of the economy, mainly higher-income IT workers, but suggests that keeping these jobs in the U.S. through better education will raise tax revenues and lead to better outcomes for the country.
By providing investment in education and fixes to the current employment system, Mann believes the United States economy can overcome some of the difficulties of the new globalized economy.
-- by Kye Lippold '10
