One report, from Forrester Research, a technology consulting firm in Cambridge, Massachusetts, suggested that between now and 2015 about 3.3 million white-collar positions will shift abroad Outsourcing of manufacturing jobs is also on the rise. According to Economy. com, a research firm based in West Chester, Pennsylvania, taking service industries and manufacturing together, the number of jobs moving overseas will reach six hundred thousand a year by 2010. Predictions of this nature should be regarded as educated guesswork but they illustrate that concern about outsourcing isn't a passing fad-a situation that at least some mainstream economists are willing to acknowledge A huge, new swatch of our jobs will become vulnerable to foreign competition over the next few years Berkeley's J. Bradford DeLong and Stephen S Cohen wrote in an article that DeLong recently posted on his Web site. This new set of potentially tradeable jobs are in many cases held by people who are not accustomed to layoffs. Often, they are high-paying clean, good jobs. Some are the best jobs. The people who hold them are quite convinced that they are on top-that they have these jobs and that these jobs are Some economists privately acknowledge that the arguments about outsourcing are nuanced, but they fear that any weakening of support for free trade could do untold damage to the economy. During the great Depression, Congress introduced the infamous Smoot-Hawley Tariff Act, which raised duties on a range of foreign goods. Other countries retaliated and the subsequent downturn in international trade intensified the slump. The economists are right when they say protectionism isnt the answer to outsourcing. But they need to get beyond pat slogans about free trade John Kerry has at least tried to address the issue. His outsourcing plan, which was largely drawn up by Jason Furman, a young economist who was formerly one of Mankiw's students at Harvard, would revoke tax breaks for companies that shift production overseas and redistribute some of the extra revenue in the form of subsidies to firms that expand hiring in the United States. Politically, this proposal is an astute response to popular concern about outsourcing. Practically it is unlikely to have much impact. All too often, the cost reductions that firms enjoy by moving jobs abroad are so large that hitting them with a tax increase wouldn t make much difference to their calculations And employment subsidies often end benefitting workers who would have been hired anyway There is another issue, which hasnt been addressed At the moment the outsourcing debate is focussed on jobs and employment security. Soon, it will revolve around wages and benefits as well. Ultimately, it is Federal Reserve and Congress utilize monetary and fiscal policies effectively to keep up spending, thethe he level of demand in the economy, not trade policy that dictates the pace of job creation. As long as the economy should eventually create enough jobs of some sort to occupy most people who want to work. But what sort of pay will they command? A long-established theorem of international economics-the "factor- price equalization theorem"-states that when two countries start out with similar technology and skills but different wage rates, trade between them will reduce wages in the high-paying country and increase iges in the low-paying country until, eventually workers in both places end up earning the same amount Until now, most American workers have been able to escape this pincer movement but as countries like China and India fulfill their potential this may change. More and more American workers will be forced to compete with poorly paid labor in the developing world, and the downward pressure on American wages could become irresistible. In the nineteen-seventies, when Asian manufacturers targeted their American rivals, Japanese wages were about half of American wages, and the resultant competition was one reason that workers' earnings stagnated for a generation. Today, workers in India earn between a fifth and a tenth as much as their American counterparts. On the one hand economists will say that the gains from trade will thereby be that much greater for the economy as a whole, DeLong and Cohen write. On the other hand, the potential downward pressure on loser workers in rich countries will be that much greater as well Some industries that compete internationally, such as pharmaceuticals and avionics, have succeeded despite paying their workers high wages, because the United States has maintained an edge in science and technology. But the ongoing transfer of knowledge and expertise to developing countries, as well as changing attitudes toward business and entrepreneurship in those societies, means American leadership can no longer be taken for grantedOne report, from Forrester Research, a technology consulting firm in Cambridge, Massachusetts, suggested that between now and 2015 about 3.3 million white-collar positions will shift abroad. Outsourcing of manufacturing jobs is also on the rise. According to Economy.com, a research firm based in West Chester, Pennsylvania, taking service industries and manufacturing together, the number of jobs moving overseas will reach six hundred thousand a year by 2010. Predictions of this nature should be regarded as educated guesswork, but they illustrate that concern about outsourcing isn't a passing fad-a situation that at least some mainstream economists are willing to acknowledge. "A huge, new swatch of our jobs will become vulnerable to foreign competition over the next few years," Berkeley's J. Bradford DeLong and Stephen S. Cohen wrote in an article that DeLong recently posted on his Web site. "This new set of potentially tradeable jobs are in many cases held by people who are not accustomed to layoffs. Often, they are high-paying, clean, good jobs. Some are the best jobs. The people who hold them are quite convinced that they are on top-that they have these jobs and that these jobs are well-paying-because they are the best people who deserve to have them; they are smart and industrious." Some economists privately acknowledge that the arguments about outsourcing are nuanced, but they fear that any weakening of support for free trade could do untold damage to the economy. During the Great Depression, Congress introduced the infamous Smoot-Hawley Tariff Act, which raised duties on a range of foreign goods. Other countries retaliated, and the subsequent downturn in international trade intensified the slump. The economists are right when they say protectionism isn't the answer to outsourcing. But they need to get beyond pat slogans about free trade. John Kerry has at least tried to address the issue. His outsourcing plan, which was largely drawn up by Jason Furman, a young economist who was formerly one of Mankiw's students at Harvard, would revoke tax breaks for companies that shift production overseas and redistribute some of the extra revenue in the form of subsidies to firms that expand hiring in the United States. Politically, this proposal is an astute response to popular concern about outsourcing. Practically, it is unlikely to have much impact. All too often, the cost reductions that firms enjoy by moving jobs abroad are so large that hitting them with a tax increase wouldn't make much difference to their calculations. And employment subsidies often end up benefitting workers who would have been hired anyway. There is another issue, which hasn't been addressed. At the moment, the outsourcing debate is focussed on jobs and employment security. Soon, it will revolve around wages and benefits as well. Ultimately, it is the level of demand in the economy, not trade policy, that dictates the pace of job creation. As long as the Federal Reserve and Congress utilize monetary and fiscal policies effectively to keep up spending, the economy should eventually create enough jobs of some sort to occupy most people who want to work. But what sort of pay will they command? A long-established theorem of international economics-the "factor￾price equalization theorem"-states that when two countries start out with similar technology and skills but different wage rates, trade between them will reduce wages in the high-paying country and increase wages in the low-paying country until, eventually, workers in both places end up earning the same amount. Until now, most American workers have been able to escape this pincer movement, but as countries like China and India fulfill their potential this may change. More and more American workers will be forced to compete with poorly paid labor in the developing world, and the downward pressure on American wages could become irresistible. In the nineteen-seventies, when Asian manufacturers targeted their American rivals, Japanese wages were about half of American wages, and the resultant competition was one reason that workers' earnings stagnated for a generation. Today, workers in India earn between a fifth and a tenth as much as their American counterparts. "On the one hand, economists will say that the gains from trade will thereby be that much greater for the economy as a whole," DeLong and Cohen write. "On the other hand, the potential downward pressure on loser workers in rich countries will be that much greater as well." Some industries that compete internationally, such as pharmaceuticals and avionics, have succeeded despite paying their workers high wages, because the United States has maintained an edge in science and technology. But the ongoing transfer of knowledge and expertise to developing countries, as well as changing attitudes toward business and entrepreneurship in those societies, means American leadership can no longer be taken for granted