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Locker Associates is a New York City based business-consulting firm that specializes in enhancing the competitiveness of businesses and industries on behalf of corporate, union and government clients.  By combining expert business and financial analysis with a sensitivity to labor issues, the firm is uniquely qualified to help clients manage change by:

Over the last nineteen years, the firm has directed over 200 projects spanning manufacturing, transportation, distribution and mining industries.  Typical projects involve in-depth analysis of a firm's market, financial and operating performance on behalf of a cooperative labor-management effort.  Locker Associates also publishes a widely read steel newsletter called Steel Industry Update (see intro below), that circulates extensively throughout the steel industry.

To its credit, BusinessWeek recently reopened the debate on the impact of imports and offshor-ing on the U.S. economy. According to BusinessWeek, shifting production overseas has inflicted worse damage on the U.S. economy than the numbers show. In fact, if this is true, the apparent growth in U.S. manufacturing has been substantially overstated in recent years, which means productivity gains and overall economic growth have been overstated as well. Most importantly, it may also help explain why wage growth for most American workers has been so weak.

The BusinessWeek analysis is based on the work of Susan N. Houseman, an economist who has identified a crucial problem with government statistics. Houseman discovered that import price data, published by the Bureau of Labor Statistics, does not capture the drop in price that occurs when a domestic manufacturer shifts production overseas and imports the finished goods. This is important because the import price data is used in calculating real GDP growth and productivity, among other measures. So if “real” import growth is understated then domestic production growth is overestimated. BW labels this “phantom GDP” and it estimates that this statistical error overstates U.S. GDP by $66 billion since 2003. Adjusting for this $66 billion eliminates 40% of the gains in manufacturing output during this same period.

Although the actual size of phantom GDP could be larger or smaller than BW’s estimates, it is clear that we have not accurately accounted for the impact of offshoring on the economy. The new numbers could force a reassessment of productivity and wages as well as the true performance of the economy. For example, some economists now think that at least half of U.S. productivity growth has resulted from glob-alization, not more efficient domestic production. Phantom GDP could also help explain why pay for American workers has generally remained stagnant as their companies grow ever more efficient. Often times, U.S. employees’ wages are tied to plant or domestic performance. Therefore they are unable to share in the cost savings and productivity improvements that are occurring overseas. Meanwhile, company ex-ecutives, whose compensation is generally tied to overall profits, reap the full benefits of such improvements.
In terms of trade policy, the new numbers suggest that the U.S. may...

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