October 21, 2004    Volume 11, No. 19

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Shifting Production And Services To Foreign Locations Costs United States Hundreds Of Thousands of Jobs

The United States is losing far more manufacturing jobs to low-cost countries than official government statistics currently indicate, according to research conducted for the U.S.-China Economic and Security Review Commission. In the first quarter of 2004, researchers from Cornell University and the University of Massachusetts Amherst tallied 48,417 jobs that were leaving the United States directly for Mexico (23,396), China (8,895), India (5,511) and other Latin American (4,419) and Asian (2,933) countries.

The tally represents an "incredible escalation" of production shifts, says Kate Bronfenbrenner, director of labor education research at the New York State School of Industrial and Labor Relations at Cornell University.

Bronfenbrenner's team of researchers monitored the job losses by tracking them from newspaper articles and various public data sources and disclosures. They estimate that their figure represents only one-quarter the total number of jobs directly lost to foreign outsourcing of production and services. They predict the loss of 406,000 jobs this year to offshore outsourcing. This number is double the figure from 2001, the last time similar research was conducted.

The shift of jobs overseas is expected to continue growing, perhaps at an accelerated pace, according to the research. Most of the jobs being lost (83 percent) are in the manufacturing sector, despite the recent media focus on the outsourcing of white-collar jobs.

"Part of what we captured in our research is the fact that the imperfection of our [research] methods have increased even more because more and more companies are hiding what they are doing," Bronfenbrenner said in an interview. "If the government isn't going to make people report it, soon it's going to be impossible to track." Bronfenbrenner used a labor-intensive method of tracking the job shifts by conducting searches of international, national and regional newspapers. A team of nine researchers also monitored trade journals like Plant Closing News and Fair Disclosure Wire. They conducted searches on Lexis Nexis; tracked Web sites such as openoutsource.com; sifted through company records, SEC filings and investor conference call transcripts; and analyzed government data from Trade Adjustment Assistance (TAA) filings and the Workers Adjustment Retraining Notification notices.

Researchers located an average of 500 articles per day about the issue of outsourcing, but only about five described specific job shifts to foreign countries.

"Our research is the only empirical work that allows scholars and policymakers the information needed to understand these global trends," says the report titled: "The Changing Nature of Corporate Global Restructuring: The Impact of Production Shifts on Jobs in the U.S., China and Around the Globe."

Bronfenbrenner estimates that research was able to capture about one-third of job shifts to India and China and two-thirds to Mexico. "But how are you going to capture all of the back office work and R&D?" she asks. "What companies are doing is double-stage outsourcing: they outsource to an outsourcing firm in the U.S. and then they outsource it overseas."

Researchers found that the "overwhelming majority" of the job shifts during the first quarter of 2004 were from large publicly held multinational companies such as IBM, Texas Instruments, Accenture, Robert Bosch, Electrolux, Earthlink and Whirlpool. Almost 75 percent of the companies shifting production from the U.S. to China and Mexico are publicly held U.S.-based multinationals. Eighty-three percent of the companies moving production to Latin America were publicly held companies.

A great majority of the facilities being closed in the country are not being reopened in one place overseas. Much of the work is going both to "nearshore" facilities such as in Mexico, and offshore facilities elsewhere. "That is making it harder to track where they are going because it's a global phenomenon," Bronfenbrenner explains. "Everybody is covering all of their bases in case there is a weather disaster, a SARS epidemic or wars. Capital is shifting faster to multiple destinations. It's more and more diffuse."

Even within countries to where jobs are moving, there are shifts taking place. In both India and China, jobs are now headed to cheaper rural areas, and some companies are beginning to move from China to Vietnam, looking for even lower costs.

"Multinationals have been emboldened to literally do whatever they want at the expense of communities and workers," says Bronfenbrenner.

Many of the multinational companies moving their production out of the United States intend to sell their products back into the country. Amerock closed its Rockford, Ill., cabinet and window manufacturing plant after 75 years in operation and laid off 450 workers. The company's new facilities in China and Mexico will ship products to U.S. customers. "This is true for a wide variety of products that will be produced in China to sell back to the U.S. market by companies such as Carrier Corp. (air conditioners), Werner Co. (ladders for Home Depot), Union Tools Inc. (lawn and garden tools) and Remington Products Co. (electric shavers)," says the report.

The original research in 2001 found the production of American "staple" products such as Etch-A-Sketch and Converse shoes was headed offshore. This trend continues, with plant closings in the first quarter of this year for such well known all-American products such as Bic pens and shavers, Radio Flyer wagons, John Deere cotton pickers and K2 snow shoes. Levi Strauss closed its last U.S. factory on January 8. "In only two decades the company had gone from 63 factories in the U.S. to none," says the report. Researchers found that Wall Street wasn't mourning the loss. Walter Loeb, a retail analyst in New York, was quoted by CNN as saying, "Investors are not very sentimental these days."

The Midwest is being hardest hit by the outsourcing trend, accounting for 48 (or 27 percent) of the 255 production shifts uncovered between January and March. The Southeast lost 46 factories (26 percent of the total), followed by the Northeast with 37 factories (21 percent). More than 90 percent of the shifts in the Midwest were in the manufacturing sector, accounting for the loss of 18,934 jobs. The average number of jobs lost per incident in the Midwest was 637.

Illinois lost the most jobs (7,555), "the overwhelming majority of which went to Mexico," says the study. Michigan ranked second with a loss of 5,283 jobs. North Carolina lost the most number of jobs to China: 839.

Bronfenbrenner was surprised by how high the numbers continue to be for Mexico. In its research, the team found numerous Trade Adjustment Assistance cases where the government investigated and confirmed the loss of up to 500 jobs. But researchers could not find any coverage of the events in local newspapers. "It's like it's old news," Bronfenbrenner says. "Losing jobs to Mexico is not a story any more and nobody talks about it."

The job shifts are impacting virtually every industrial sector.

Shutting down U.S. operations has left local economic development agencies in dire straits, the study found. Sykes Corp., which in January began laying off 1,800 America workers providing call services to big companies like Microsoft, was given a $3.5-million tax package to open an office in Milton-Freewater, Ore. Now that the company is leaving, the town "faces [a] $2.6-million debt to pay and no employer to keep the economy afloat," says the report.

Other companies running into problems with OSHA regulations have also bailed out of the United States. AXT Inc. is closing its gallium arsenide wafer facility in Fremont, Calif., and is shifting production to China. The plant was cited for dozens of violations for exposing employees to up to 31 times the amount of arsenic allowed. "Now AXT will be able to expose Chinese workers to the same toxic chemicals without fear of OSHA investigations or media exposÚs," says the report.

Bronfenbrenner recommends that the federal government start tracking such shifts. No such data gathering program has been initiated. The recent Bureau of Labor Statistics (BLS) estimate from its Mass Layoff data series that 4,633 private sector workers lost their jobs due to global outsourcing from January to March of this year "grossly underestimates the total number of jobs lost," says the report.

The research also found 31 shifts of jobs from the United States to India, up from only one to India during the same period in 2001.

"These data remind us that it is not a story of good jobs being stolen from U.S. workers by low-wage workers in Latin America and Asia, especially China, with whom U.S. workers can never hope to compete," the report concludes. "Instead, it is a story of the world's largest multinational corporations buying and selling companies and pieces of companies, opening and closing plants, downsizing and expanding operations and shifting employment from one community to another, all around the world. With no particular loyalty to country, industry, community or product, what our data suggest is that this global race to the bottom is driven by several unifying factors: the search for ever cheaper production costs, accessibility to expanding global markets and the flexibility that comes from diverse supply chains in an ever more volatile global economic and political climate."

The 88-page report is located at http://www.uscc.gov/ researchreports/2004/cornell_u_mass_report.pdf.

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