Outsourcing, obsolescence, and job loss

Sunday evening, one of my readers commented to me about the difference between outsourcing and job loss due to obsolescence (the classic "buggy whip" scenario). I think it was in reference to the article linked to the title. Although there are some differences, there are some important similarities.

In general, people who lose their jobs lose them because their services are no longer worth paying for, in the opinion of the person paying for them.

"Outsourcing", or shipping a job out of the country, happens because an employer believes he can get a bargain by buying the services of someone in another country. Sometimes he's right, and sometimes not. This interpretation of "outsourcing" depends on the fact that we have decided the lines around our country are more significant than lines around other possible groups.

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For example, in California, one of the worries we have is that high tax rates and strict regulations are driving jobs out of the state. In a way, this is also "outsourcing", only to another state. Since zoning laws and other codes vary from city to city, it's reasonable to think of jobs being "outsourced" to other cities. Indeed, when Los Angeles County implements a higher sales tax rate than neighboring counties, it's quite possible some folks will shop for major purchases outside the county.

And when you get right down to it, any time you pay someone to do something for you rather than doing it yourself, you are "outsourcing" that job. You see it as hiring someone, but you could also think of it as outsourcing that job, and paying to someone else money that would have otherwise stayed in your pocket. Instead of (virtually) paying yourself for doing that job, you are now paying someone else. This is an extreme extension of "outsourcing", but it may help show the question isn't as crisp as we might think.

I've seen articles which make the case for keeping money (and jobs) inside of particular communities. Various demographic groups have been urged to keep money inside the community, rather than letting it leak out. Some articles feature statistics on how many hands a dollar will pass through before leaving one community vs. leaving another. The assumption is, the more hands a dollar is traded through before it leaves a particular identifiable group, the richer the group will be.

By this reasoning, a family that charges for everything on an "internal customer" model will be richer than one that doesn't. And a person who moves money from one pocket to another any time he does any little job for himself around the house, yard, or anywhere else, will be richer than one who doesn't.

The fallacy here is that of correlation vs. cause. Money circulating in a community before leaving it does not make a community richer – rich and productive communities attract money to them to pay for goods and services, including money that's already there. A person who lives in a rich and productive community will spend money there because he can find what he wants there. A person who doesn't will have to shop elsewhere.

All "outsourcing" means is someone found a bargain. It seems hard to justify looking for bargains outside your neighborhood, while denying anyone else the right to do so, simply because his neighborhood is bigger.

Laws that require a business to refrain from "outsourcing" are equivalent to laws that require you to shop only in your own neighborhood, even though you can get a better price in the next town, or across a state line. Requiring companies to hire labor in one country, even though it's more expensive, is like requiring you to patronize the barber or auto mechanic in your neighborhood, even though you can get a better deal in another town. (And I "outsource" my veterinary services to Glendale, from Tujunga. I've been using that vet for years, and I'm not inclined to stop now without a compelling reason.)

It's the end of the work day, so I'll talk about obsolescence in another post.