Ed Leamer on Outsourcing and Globalization

Flatness Metaphor

Ed Leamer challenges the flatness metaphor popularized by Thomas Friedman, arguing that it oversimplifies global job competition. He explains that while some manufacturing jobs are indeed footloose and can be outsourced, many jobs are deeply rooted in local relationships and are not easily contestable by foreign workers. Leamer emphasizes that countries like the U.S. have adapted by focusing on industries less vulnerable to such competition, forming partnerships rather than direct competition with countries like China 1.

Geography, whether it's flat or otherwise, doesn't create that kind of outcome. It creates special relationships between the buyers and sellers who happen to live in the same neighborhood, and that limits the contestability.

This perspective suggests that the fear of widespread job loss due to globalization is overstated.

   

Tech's Dual Impact

Technology's role in transforming work is profound, shifting tasks from creative to mundane as they become standardized and computerized. Ed Leamer highlights that while technology can enhance productivity, it also poses challenges by making certain skills obsolete. He uses the analogy of a computer being both a forklift, which equalizes productivity, and a microphone, which amplifies talent, to illustrate the dual impact of technology on labor markets 2 3.

A forklift makes them enormously more productive and also eliminates the genetic differences between them. A microphone is a very different kind of innovation because it differentially benefits the people with a natural talent.

This dual nature raises questions about whether future productivity gains will benefit all workers equally.

   

Market Dynamics

Global market dynamics influence job security, with Ed Leamer questioning the extent of job offshoreability. He critiques studies suggesting high numbers of offshoreable jobs, arguing that many roles are rooted in relationships rather than market forces. Leamer notes that while market forces do affect wages, most jobs are not directly contestable by foreign labor due to the unique skills and relationships involved 4 5.

Most people's jobs are based on long term relationships between the supplier, between the employer and employee. And thus the extent of contestability is really pretty minimal for most of us.

This perspective underscores the complexity of global labor markets and the importance of relational dynamics.