Lecture-Why Is Offshoring Bad for the U.S. Economy? by Janos Gertler

Offshore labor outsourcing (“offshoring”) is a process in which US companies set up overseas production facilities, employing local workers, simultaneously curtailing their production on US soil and laying off part of their US workforce. This is followed by (is intertwined with) rehiring a part of the laid-off workers, usually by other companies, to boost production for domestic consumption and/or export. Offshoring, while increasing corporate profit, also leads to a reduction of consumer prices; under market control, equilibrium pricing may arise resulting in increased domestic consumption while maintaining the level of personal borrowing. We present a mathematical analysis of the effects of these processes. We use an original, though straightforward input-output model of the US economy, calibrated to data from government databases, as a reference, and investigate the effects of offshoring and rehiring by mathematical extrapolation (sensitivity analysis). The main conclusion of the study is that offshoring, while advantageous to companies, is bad for the US economy as a whole, and further amplifies the situation that the country consumes more than it produces. This is still the case if US workers are rehired in the domestic service industries. Offshoring may be beneficial is if it leads to a restructuring of the US economy with a significant increase of exports, exceeding by far the total value of wages paid to workers at US-owned overseas facilities.

Thursday, March 31, 2011  3:00 p.m, Jacobs Believed in Me Auditorium, Featheringill Hall

Janos Gertler was educated in Hungary. He graduated from the Technical University of Budapest, in Electrical Engineering, and then received the Candidate of Science (Ph.D.) and Doctor of Science degrees, in Control Engineering, from The Hungarian Academy of Sciences. For 10 years, he served as Vice Director of a large research institute in Hungary. He came to the US in 1981, and held visiting positions at Case Western Reserve University and the New York Polytechnic University, serving at the latter as Associate Dean of Engineering. He joined George Mason University in Fairfax, VA in 1985 as Professor of Electrical and Computer Engineering.

Dr. Gertler’s research interests have concerned various aspects of computer control and monitoring of engineering processes, including high-level programming, systems identification and, in the past 25 years, fault detection and diagnosis. He is the author of more than 170 papers, and a single-authored book on engineering diagnostics, and was a plenary speaker at nine international conferences. He led a six-year effort with GM’s Research Laboratory and Powertrain Division, aimed at developing system-level on-board diagnostic techniques for automotive engines; the algorithm is now running on several mass-produced GM models. Dr. Gertler is a Fellow of IEEE, Fellow and Advisor of IFAC (International Federation of Automatic Control), a Foreign Member of the Hungarian National Academy of Sciences, and a recipient of the Outstanding Research Faculty Award of the School of Engineering at George Mason. Most recently, he has developed an interest in the mathematical analysis of the effects of offshoring on the US economy.