Outsourcing Distribution

Noam Scheiber worries that Freakonomics is ruining economics — people are finding cute methodological tricks to answer cute questions instead of doing slow, difficult work on the the big issues. Certainly, I wish I didn’t need to read things like Brad DeLong saying “Global outsourcing seems to me at least as likely to improve as to worsen the distribution of income.” We’re talking here about the fabled offshore outsources of IT and other kinds of professional work. I, not an economist, can see two takes here. One says that unlike with earlier phases of trade, this new phase involves jobs with higher-than-average salaries. Thus, while trade has in the past tended to expand the pie at the expense of mostly working class Americans the future of trade will tend to expand the pie at the expense of mostly professional class Americans. The older scenario was a mixed bag, while the second scenario is much more positive.

On the other hand, I can also imagine it being the case that the opening of very large global labor markets plus a techology-driven massive increase in the scope of things that can be traded will simply lead to a structural increase in the income share that goes to capital. Thus, the distributional consequences would be bad. Not being an economist, I have no real idea which of these stories is right. But I sure would like to know! I’d like to think economists are working on understanding this issue better instead of working on funny results about baby names.