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Sunday, July 03, 2005

The Outsourcing Debate Continues

The Economist has an article on outsourcing and the OECD has its global employment outlook (links from New Economist). Mckinsey has its consultants reports, and on-and-on the debate rumbles. I think the jury is still out on whether high value jobs will move off-shore in sufficient quantities to change the employment profile in OECD societies (and hence the net worth of those societies). I tend to be more with Samuelson than Bhagwati on the mid term picture. Of course the issue, as with so many questions in economics the issue turns on timing.

So while the jury remains out, all we are left with is anecdotal evidence, which is why a couple of articles in today's NYT caught my eye:

In the last three years, profits at the seven largest companies in Silicon Valley by market value have increased by an average of more than 500 percent while Santa Clara County employment has declined to 767,600, from 787,200. During the previous economic recovery, between 1995 and 1997, the county, which is the heart of Silicon Valley, added more than 82,800 jobs.

Changes in technology and business strategy are raising fundamental questions about the future of the valley, the nation's high technology heartland. In part, the change is driven by the very automation that Silicon Valley has largely made possible, allowing companies to create more value with fewer workers.

Some economists are wondering if a larger transformation is at work - accelerating a trend in which the region's big employers keep a brain trust of creative people and engineers here but hire workers for lower-level tasks elsewhere.

"What has changed is that Silicon Valley has continued to move up the value chain," said AnnaLee Saxenian, dean of the School of Information Management and Systems and professor of city and regional planning at the University of California, Berkeley.

This last point, about moving up the value chain, is significant and revealing. OECD economies need to have a bigger percentage of 'up the value chain' activities in their employment profile if they are to maintain their 'relative worth'. But these activities need to create increasing employment in terms of absolute numbers. This is what it seems isn't happening in Silicon Valley. Long term having increasing numbers of realtors won't be the same thing.

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