An Economic Analysis of Outsourcing Essay

A major type of unemployment that is hurt most by outsourcing is factory labor and manufacturing. The reason why factory labor and manufacturing jobs are outsourced is because labor laws in the United States are tougher than the countries where the jobs currently are. Where the jobs are now labor is cheap and just as good as labor in the United States. One example of outsourcing is when a company has a factory in the U.S. that pays it’s workers $23.32 an hour plus benefits closes that factory and moves to China where the pay is $1.36 an hour without benefits.

Supporters argue that outsourcing has a minimal effect on job losses, and has increased economic growth in some cases. In actuality, outsourcing has decreased the domestic economy by decimating job opportunities and lowering wages. Steven Pearlstein, economics columnist for the Washington post reaffirmed arguments that outsourcing has decreased employment availability and stability of the economy by saying “There are growing numbers of people who think that what started as a sensible, globalized extension of sending some work outside a firm to specialized companies may in fact be creating long-term structural unemployment in the United States, hollowing out entire industries”. (Pearlstein 3) The IT industry has been especially affected by outsourcing, with many jobs moving overseas to India and Bangladesh, leaving employees in the United States without a job, unable to compete with lower wage offerings. Supporters of outsourcing argue that this business strategy increases everyone’s productivity, raising everyone’s income, and boosting economic growth. Many such studies tend to focus on large multinational corporations, for which the data and anecdotes are more readily available. And indeed, during the 1990s, the data seemed to show that for every one job added abroad, companies added almost two new

to be completed by countries who pay their employees as little as 10% of the average earnings in America. Although this is happening in many professions, it is extremely noticeable in engineering with the managers of these large companies hoping to save a net cost of 70 percent (Ron Hira). This strategy, which is commonly known as offshoring, has been increasing in popularity exponentially and there have been many debates as to whether this method of production is a benefit, or a burden. It is uncertain what the overall effect of offshoring will have on the American economy but the workers, namely engineers, should begin adapting.

Many businesses in United States manufacture their product overseas. This involves manufacturing products outside United States where the labor cost is cheaper. Because of cheap labor, it is often more economical for a U.S. company to manufacture overseas and pay the shipping costs than to manufacture in the United States. For a company, the savings may be substantial. However, there are negative impacts on U.S. employment, as many jobs in the United States are being outsourced and replaced by overseas positions. The manufacturers outsource production projects to save time, money or resources. The manufacturing is outsourced so as to remain competitive and maintain a steady work flow. Without outsourcing, manufacturing costs could escalate to the point at which no product would sell and all employees would have no work. Outsourcing comes

Outsourcing emerged on the financial arena during the 1980s and has since then been spreading. Outsourcing production was furthered with the process of globalization which provided a new component leading to the strengthening of resources, skill and labor specializations across the world. The process of outsourcing is using the skill and abilities of a third-party to accommodate society on the foundation of labor. As stated earlier, it was during the 1980s that the process kicked off mainly due to the efforts of corporations when they began to hire labor forces across the world. Even though outsourcing has come out from its developing stages, there are still following effects on the US economy.

The phenomenon has created major suffering for many American and as this outsourcing continues to spread, Americans will demand action (R. Hira 2008, p-95). The book also adds that scholars Ralph Goory and William Baumol have shown that even when the basic model of the economics are used trade does not make both the trading partners better off. The trading in one country will have a negative impact while trading in other country will have a positive impact. The country with negative impact will definitely affect its economy. United States economy being the world’s largest economy; historically, it has maintained a stable GDP growth, a low unemployment rate, a high level of research and capital investment funded by both national, and because of increasing saving rates, increasingly by foreign investors. But offshore outsourcing has increased the unemployment rate dramatically in the decade. And so the economy worsened day by day.

While outsourcing may be beneficial to some of the companies partaking in it, the general consensus is that it ultimately proves to be harmful to the American workforce. The act of outsourcing and shifting many company call centers and technical support teams, or “low skill service jobs,” to foreign countries reduces jobs for those that could truly benefit from them within our own country. The unemployment rate has dramatically increased, and continues to rise, compared to what it has been in years past; yet there are numerous companies which still insist on handing over these “low skill service jobs” to people in other countries such as India. The most obvious and logical reason for outsourcing is reducing costs; people are working for

The debate over outsourcing in the U.S. is controversial among citizens and economists alike. There are many economists who believe that outsourcing is the next, most logical step in a free market economy (Mankiw & Swage, 2006). These economists believe that the market shifts according to supply and demand. An inherent feature of a free market economy is the free competition of goods and services where the goods and/or services go where the demand is the greatest. According to this view, there is a high demand for labor at a reduced cost and there is an almost endless supply of cheap labor overseas. An example of this would be that a call center attendant would be paid anywhere between twenty and twenty-five thousand dollars a year in compensation whereas the same worker in China would be paid approximately five thousand dollars in compensation per year (Mankiw & Swage, 2006). As anyone can see, there is a large difference between U.S. compensation and overseas compensation. These

     The exporting of American jobs is an issue that is important and will become increasingly so as more and more white collar jobs are shipped overseas. American companies in the past few decades have been sending American jobs overseas paying residents of other countries pennies on the dollar what they had paid American workers to do. This saves the companies millions of dollars on labor costs but costs Americans precious jobs.

Outsourcing is a method used by many corporations in which their products are manufactured in foreign countries often for cheaper labor.This method method of productions has it’s pros and cons.

In today’s society, outsourcing has become a very critical and controversial issue to companies and other countries. Outsourcing is known as offshoring as an organization’s use of an outside organization for a broad set of services. As technology continues to grow and advance more, outsourcing becomes more popular. Many American white collar jobs are being taken over by foreign countries around the world. Almost every occupation or career in the United States has some effect of the outsourcing. As a result, many Americans become unemployed and financially challenged; being that outsourcing can increase the United States unemployment rate. Employees who live in the US rather keep jobs in the country to create more opportunities. On the other hand, few stakeholders

China is one of our biggest labor competitors. The reason many US companies go to China for outsourcing is again, because of their workforce’s willingness to operate at low costs. Michael Zimmerman describes this as a disparity in worker “tolerance”. Where the low wages found in China are “far lower than U.S.

The American Outsourcing Case is a compilation of factual information for the purpose of provoking debates. The authors present both the pros and cons of outsourcing, and avoid inserting their personal bias. The case clearly defines outsourcing and then focuses on outlining its existence in China, Mexico, and India. The evolution and U.S. involvement in the Maquiladoras of Mexico is described first. The implementation of NAFTA and the creation of Maquiladoras were major catalysts in the growth of free trade between the U.S. and Mexico. China, in an attempt to attract foreign investors, created Special Economic Areas, which designated geographic zones that were enabled to operate under their own laws. With great tax benefits

Labor is one of the largest and in certain sectors the most expensive component in the production of goods. Outsourcing acknowledges the labor cost to produce a particular product is cheaper if the manufacturer were to produce the same product in-house where the cost per unit is significantly higher. Stable labor costs are important for long-term revenue projections to be relied upon by managers because they are a precursor of where a company is trending financially. It is this efficiency-in-scale that confirms the benefit of the division of labor memorialized by Adam Smith. As a result of the wage disparity between the costs of American workers versus Chinese workers, hundreds of U.S. based firms relocated all or part of their operations to China, taking advantage of the inexpensive labor market and the many cost-saving incentives offered by the Chinese government.

In the past decade the topic of outsourcing has become a heavily debated subject on if it is ethically correct to outsourcing jobs to foreign countries. Outsourcing has become more and more an option for many companies and not just an economic fad. The decision to outsource is a difficult one for any company to make because there are many advantages and disadvantages to consider. The decision to outsource affects many people, communities, and industries so if a corporation decides to outsource they must consider how it will affect human dignity, the common good of the economy, and subsidiary.