Offshoring

Also from the Economist

According to a new study from the McKinsey Global Institute, every dollar of corporate spending shifted offshore by an American firm—mostly, now, to India—generates $1.13 in new wealth for America's economy. However, when a German firm moves a euro to a cheaper place to buy services, its home economy is on average 20 cents worse off...

The biggest difference emerges when workers who have been fired in the offshoring process look for new work. In America, McKinsey estimates that around 70% of workers ousted in favour of offshore alternatives find new work within six months. In Germany, however, the re-employment rate is only around 40%. The reason? Above all, Germany's thicket of labour laws, which discourages firms from hiring workers who may prove a hard-to-shed liability. Admittedly, these same laws—which are increasingly under fire (see article)—also make it harder for German fims to shed workers to take advantage of efficiency-enhancing offshoring. The lesson: offshoring may be an easy target for politicians, but if they have flexible labour markets it may actually be a good thing, not just for big firms, but for everyone.