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_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
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Upjohn Institute Staff Working Paper 10-166

 

Offshoring and the State of American Manufacturing [30 June 2010]

Susan N. Houseman, Senior Economist,W.E. Upjohn Institute for Employment Research

houseman@upjohn.org

Christopher Kurz, Federal Reserve Board

Paul Lengermann, Federal Reserve Board

Benjamin Mandel, Federal Reserve Board

http://www.upjohninst.org/publications/wp/10166wp.html

or

http://www.upjohninst.org/publications/wp/10-166.pdf

[full-text, 36 pages]

 

[excerpt]

Developing economies have become the new, low-cost suppliers of a wide range of

products purchased by consumers and used as intermediate inputs by producers, with China—

now the largest exporter to the United States—accounting for about a third of the growth in

commodity imports over the last decade. The rapid growth of offshoring—defined as the

substitution of imported for domestically produced goods and services—contributed to a

ballooning trade deficit and sparked a contentious debate over its impact on the U.S.

manufacturing sector, which shed 20 percent of its employment, or roughly 3.5 million jobs, from

1997 to 2007. Concerns over employment losses and the trade deficit have prompted a recent

spate of government and private sector proposals to revitalize manufacturing.1

 

Our paper highlights the dramatic growth of offshoring and the structural changes

occurring in manufacturing in the decade prior to the current recession. During this time, more

than 40 percent of imported manufactured goods were used as intermediate inputs, primarily by

domestic manufacturers. Using a growth accounting framework, we examine the contributions to

the growth in real (constant price) domestic shipments in manufacturing from the inputs to

production and from multifactor productivity (MFP). A novel feature of our analysis is that we

distinguish between imported and domestic materials inputs, which enables us to more closely

examine offshoring by manufacturers. We find substantial evidence of offshoring. The

contribution from imported materials to the growth in real manufacturing shipments was larger

than that of any other factor input and was more than twice the contribution from capital. At the

same time, contributions from domestic materials and, reflecting declining employment, labor

were negative.

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Stuart Basefsky                   
Director, IWS News Bureau                
Institute for Workplace Studies 
Cornell/ILR School                        
16 E. 34th Street, 4th Floor             
New York, NY 10016                        
                                   
Telephone: (607) 255-2703                
Fax: (607) 255-9641                       
E-mail: smb6@cornell.edu                  
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