Companies Should Be Penalized For Exporting Jobs


In a recent editorial, Michael Riordan of The New York Times argued American companies should be punished for exporting jobs to other countries.  

He suggests that companies which export high-paying American jobs should face some sort of penalty for doing so, particularly if the company in question gets a lot of its business from contracting with the federal government.  The example he gives is Carrier Air and its parent company, United Technologies, whose executives recently made the decision to move a plant from Indianapolis to Mexico.

Riordan is correct.  Something needs to be done about this practice, and establishment politicians on both the Democratic and Republican sides have been all too eager philosophically to support outsourcing good-paying jobs in the past due to the alleged efficiency increases and lower prices for consumer products which come with globalization.

There will inevitably be critics who argue imposing penalties for outsourcing high-paying jobs will cripple American companies' chances to gain a cost advantage over competitors in a global marketplace, as American labor is naturally more expensive than labor in Mexico or China.

Likewise and continuing in this line of thought, there will be others who argue that even if outsourcing is ultimately bad for the American worker, it is good for the American consumer and it is not the government's place to penalize companies which engage in these practices; that should all be up to the consumer.  A response piece to Riordan by Forbes' Tim Worstall argues as much.

The problem with these arguments is that they rest on a late 20th-century philosophy which states that the entire purpose for a company's existence is to provide value for shareholders/owners, even if doing so has a negative effect on the company's employees and customers.  There are many who cannot fathom any other reason why someone would even start a business.

And yet, as Riordan notes, United Technologies was not so good at extracting maximum value for its shareholders until recently.  The company has kept high-paying aerospace manufacturing jobs in high-tax Connecticut, for example, and in 2015 boasted, "We are committed to improving the quality of life everywhere we do business." The decision to move operations in Indianapolis to Mexico may be portentous, but many Carrier suppliers have already shifted operations there due to economic incentives -- cheaper labor being by far the main one.

Since the U.S. does not want to start a trade war with its trading partners like China and Mexico, it needs to find another way to change incentives so high-paying jobs can stay in the U.S.  President Obama's recent announcement of a crackdown on corporate tax inversions in the wake of the release of the Panama Papers suggests a political moment for action on this issue may be opening up, and the U.S. should take advantage of it.

Ultimately, while the argument that penalizing companies for exporting high-paying jobs will put these companies at a cost disadvantage needs to be taken seriously, it also needs to be carefully scrutinized.  

We live in a global economy where everything is connected, which means the effect of the disappearance of thousands of high-paying jobs which used to sustain middle-class lifestyles is going to be felt eventually -- even by those who have not lost their jobs.

Click here for the opposing view on this topic.

Sources: The New York Times, Portland Press Herald / Photo Credit: Jimmy LWH/Flickr

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