How many jobs have been lost to offshoring, and can be recovered by reshoring?

Three to five million manufacturing jobs have been lost to trade/offshoring since 1979. Similarly, three to five million can be brought back by reshoring. These conclusions are consistently found by serious researchers on the subject. Inaccurate calculations suggesting the numbers are much smaller have been widely circulated and need to be clearly and soundly refuted. Understating the job losses and potential for reshoring undermines the priority that needs to be placed on making U.S. manufacturing competitive.

Our calculation

The clear, direct means of analysis is via the change in the trade balance. The U.S. trade balance went negative in 1979 and has been negative every year since. The deficit in goods excluding petroleum currently averages about $500 billion/year. Import prices are, on average, about 20% lower than domestic prices. Thus the trade deficit, measured at U.S. price levels is about $600 billion. The 2016 average output per U.S. mfg. employee was $179,000. Thus the number of mfg. jobs lost, measured at the current level of U.S. productivity is 3.35 million. Eliminating the trade deficit by substituting domestic production for imports (reshoring) or exporting more will bring back 3.35 million jobs at current levels of productivity. If productivity rises the number brought back will be proportionately less. Productivity is rising slowly, however, e.g. about 2%/year.

The trade surplus in services reduces the overall trade deficit. Basing the job loss solely on the 2016 manufactured goods trade deficit, excluding petroleum, of $683 billion, the loss rises to 4.6 million manufacturing jobs.

Other views

Michael Hicks of Ball State University has been widely quoted re only 750,000 mfg. jobs lost to offshoring, about 13% of the total, ascribing the rest to automation. Mr. Hicks does not measure the loss from offshoring. Instead he calculates a loss from productivity gains, subtracts from the total loss and defines the rest as due to offshoring. First, it is always better to measure a phenomenon directly than indirectly. Second, the productivity gains he uses are widely overstated. For a detailed refutation, see the bottom of page 5 of ITIF’s: Trade vs. Productivity: "What Caused U.S. Manufacturing’s Decline and How to Revive It."

Other noted analysts who conclude that offshoring is a major cause of job loss include:

1. Robert Scott of EPI estimates that 55% of jobs lost between 2001 and 2013 were due to offshoring to China. Will Kimball and Robert E. Scott, “China Trade, Outsourcing and Jobs” (Economic Policy Institute, December 11, 2014).

2. David Autor of MIT estimates 2.5 million mfg. jobs lost to Chinese imports alone. David H. Autor, David Dorn, and Gordon H. Hanson, “The China Syndrome: Local Labor Market Effects of Import Competition in the United States,” American Economic Review 103, no. 6 (2013): 2121–2168.

HM 3/8/17

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