EconTalk Ed Leamer on Outsourcing and Globalization
Jul 9, 2007
Ed Leamer, UCLA economist and forecasting director, weighs in on outsourcing, trade, and globalization. He challenges the flat-world idea and explains why geography, trust, and relationship-based work limit offshoring. The conversation contrasts codifiable tasks with creative work, explores gravity in trade, and considers how technology and superstar markets reshape labor and opportunity.
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Jobs Are Relationships Not Commodity Markets
- Most labor interactions are relationships, not anonymous markets, so jobs aren't instantly contestable globally.
- Ed Leamer explains employers value trust, local knowledge, and built-up specific human capital that limits direct competition from remote workers.
Trade Still Follows Gravity Over Distance
- Trade follows a gravity pattern: transactions fall with distance even after huge transport and communication cost declines.
- Leamer cites persistent distance elasticities and intense trade among neighboring high-GDP countries like Germany with Austria and France.
Different Trade Models Explain Different Patterns
- Multiple trade models explain different patterns: Ricardian models suit north-south trade, Krugman-style scale and differentiation explain east-west trade.
- Leamer notes economists use Heckscher-Ohlin and economies-of-scale models to match observed similar-country trade.
