By now we're all hip to outsourcing's ways: a local economic fixture moves thousands of miles away just to improve its bottom line. Los Angeles has been hit by another high profile case of outsourcing, and in this case, the economic fixture sold Lakers tickets and jerseys. Still, Shaquille O'Neal's move to the Miami Heat teaches us more about the realities of outsourcing than a thousand campaign stump speeches.
Whether you're an NBA star or a CEO, outsourcing is indeed about keeping more money in your pocket. And since living in Miami is about 17 percent cheaper than living in Los Angeles, Shaq can improve his finances even while making the same salary. The demographic resource Sperling's BestPlaces comes up with that figure, noting for instance, that compared to LA, Miami has a lower sales tax and no state or local income tax. State policy also socks it to LA. According to the Tax Foundation, California has the nation's second worst business tax climate, while Florida has one of the best.
Of course, the calculation athletes and CEOs make isn't all about tax rates. LA's size shows that many businesses have already decided to call it home, and this often gives other businesses an incentive to favor headquartering in the City of Angles. If you're in the film industry, it's better to be where the action is than stuck in the sticks. And if Shaq ever itches to supplement his income by returning to acting (perhaps to reprise his role as the "rappin' genie with attitude" in Kazaam II), it would be easier to do in LA than Miami.
LA's huge market also makes endorsements sweeter, and the city offers glitz and excitement like few other cities can.
So big cities like LA may think that the momentum of their past cachet will carry them to future success. (No need to fret about taxes and regulations when you still have Kobe.) But as other regions become more economically and culturally exciting (Miami's even got a possibly pregnant J-Lo), economic policy becomes more important. Salary caps have limited what owners will pay, so players have become increasingly savvy about tax rates. And tax rates are a big reason why Shaq's $28 million dollar salary in Miami would feel like $23 million in LA. Similar number crunching has prompted many businesses to flee LA and California.
And don't let the presidential campaign fool you. This very American economic tug-o-war is more representative of outsourcing than John Kerry's wails about "Benedict Arnold CEOs" who ship jobs to foreign lands. A recent Labor Department report points out that outsourcing within our borders is more common than the much more publicized, offshore version. The report analyses mass layoffs from January to March and finds that "in more than seven out of 10 cases, the work activities were reassigned to places elsewhere in the U.S."
In other words, usually those who take our jobs are the same people who take our pro athletes—other Americans. Like other nations, America's cities and states compete for capital and jobs all the time, and many well-established business hubs are now feeling the heat.
An Inc. magazine analysis finds that—although South Florida did well—the places that attract jobs best aren't the perennially hip cities, but less fabulous locales like Southern New Jersey and Riverside, which was recently mocked into changing its area code. A New York luxury fabric manufacturer recently moved to South Carolina for the same reasons companies move to South Asia. "You have lower overhead, lower taxes, lower occupancy costs, lower labor costs, lower everything," gushes the CEO.
Some may find domestic outsourcing more palatable, but to an outsourced worker, whether the job goes across the nation or across the world, it is just as lost. (Although outsourcing, like trade or technological advancement, ends up creating more jobs than it destroys.)
Some jobs leave town because the natural evolution of the market allows them to be done somewhere else, while others get chased out by costly regulations. So should politicians scorn job-moving CEOs or the laws that drive up the cost of doing business? The dozens of anti-outsourcing proposals percolating in our state and federal legislatures provide us with the predictably bleak answer.