Change in Economic Structure Harmful to U.S. Economy By: Samuel Winegar Submitted to: Dr. S. Ray Barnes 05/05/2015 Thesis Unemployment has been on the rise in the United States in recent years. One of the large contributing factors of this is the change in the structure of the country’s economy. Many jobs, particularly manufacturing and industrial type jobs are being outsourced to other countries. An increase in unemployment due to a change in the economy is structural unemployment. This paper will discuss how structure unemployment is causing harm to the United States economy. Background It is evident that the economy of the United States is changing. The world in which we used to see an economy of all American made products and American services is rapidly disappearing. Many American companies are outsourcing the jobs they have to offer to other countries. These are the very jobs that helped create our economy and help us thrive. James Moreland states “The capitalist market in the United States makes it nearly impossible for any successful company to avoid the lure of cutting American industrial jobs and shipping the work abroad. “Free trade” agreements such as NAFTA and our membership in the WTO have caused the U.S. to be forced to compete with third world countries such as China and Mexico, where wages are often less than $4 an hour.” (Moreland 2014) in his article “The Outsourcing of American Jobs Hurts The Economy on Every Level”. However, with
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
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
Beginning with unemployment in the 2007-2009 recession, U.S. unemployment rates peaked at 10% as well as held 41 consecutive months at rates higher than eight percent (Lazear 1). The U.S. economy plummeted during this time; many attributed the shift to a large decrease in the number of employed workers. To be able to better understand the unemployment issue, we must first examine the form of unemployment faced by the U.S. economy. Many believe that the changes faced by the U.S. labor market
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.
In the third world countries such as Vietnam, China, South Korea and Taiwan, we are provided with an example of cheap labour. These corporations could now achieve the benefit of the United States consumer market8, while keeping their costs extremely low in offshore production. The working conditions in the United States were poor for centuries, often little to nothing was done unless a tragedy occurred to influence worker rights by the public. This was the issue during the Industrial Revolution and in the late 20th century. In the United states, improvements have been made and these conditions have disappeared, with the privilege in some agricultural areas. Companies from the United States have moved a considerable amount of their factories
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.
Because of the greediness of large corporations, most factories producing things used in America are located outside the U.S., taking employment opportunities away from Americans.
As stated in an article from “International Trade Administration,” the high demand for exports from the United States has increased the amount of jobs available. Roughly “6 million jobs were created in 2006” (Ward, 2009) because other countries had a high requests for exports from the U.S. Some countries do not have the supplies or resources to create goods and services that they need. They rely on the U.S. to create what they can’t and buy them. The United States also has the ability and resources to create products faster then other countries.
The United States is currently experiencing a slow recovery from the recession of 2008-09. The current unemployment rate is 7.7%, which is the lowest level since December of 2008 (BLS, 2012). However, this rate is believed to higher than the rate that would occur if the economy was operating at peak efficiency, and it is also believed that there are structural issues still underpinning this performance. For example, the number of Americans who have exited the work force as the result of prolonged unemployment is believed to be higher than usual. In addition, the Congressional Budget Office (CBO, 2012) notes that long-term unemployment of greater than 26 weeks is at a much higher rate than normal, which will have adverse long-run effects on the economy, since workers with long-term unemployment often find their career paths derailed.
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.
While Globalization helped create NAFTA and the negative effects associated with it, globalization has played an even larger role in the transfer of manual labor out of America. Within in recent years, the amount of hard labor jobs has steadily declined in America. Manufacturing jobs have been offshored in
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
Structural unemployment may occur in the short term with the removal of trade barriers. This will have impact on large numbers of workers, as well as their families and local economies. In growth industries workers often will have difficulties to find employment.
In “Will Your Job Be Exported?”, Alan S. Blinder argues the quality and security of jobs in the future, service sectors in America will be determined by how offshorable they are. Blinder starts out the story with a quote by Edmund Burke, “You can never plan the future by the past”. Although he stated we are doing exactly that when it comes to getting the American workforce ready for jobs of the future. Blinder states “demand for labor appears to have shifted toward the college-educated and away from high school graduates and dropouts” (p. 8). According to Lou Dobbs, “Well under one percent of US service jobs have been outsourced.” Eventually offshoring for service sectors will exceed offshoring for manufacturing-sectors for 3 reasons. First simply because there is a greater amount of service jobs than manufacturing jobs in the US and other countries that are well off. Second, service sector offshoring continues to accelerate due to technological advances thus increasing the range of services offshore. And lastly, (e.g. Chinese and Indian) workers with the capability to perform service jobs continue to increase rapidly.
The American labor markets have been severely affected by the increasing outsourcing as this has seen the market to lose a great number of the their services thus making a significant number of the skilled workers to lose their jobs while those who are undergoing their training programs are not sure whether they will secure a job in the country not. That means if they will not find one then they will have to opt to be self employed, jobless or opt to outsource their skills to foreign countries. This has led to more American workers who are trained to look for jobs that they do not fit or that which they are not trained to perform due to lack of job that they are specialized in as the companies have taken the operations to other countries like China and India (Anil, pg. 7). These two countries have taken the big share of the American manufacturing industries that have outsourced their services. Thus the labor market is logged with competent workers who have he required skills but that are contributing nothing or less t the growth of our economy.