Impact Of Offshoring On The American Economy

Organized labor has lost many jobs to the practice of outsourcing. A large percentage of these jobs are the manufacturing positions that helped

By 2004, more than 80 percent of U.S. executive boardrooms will have discussed offshore sourcing, and more than 40 percent of U.S. enterprises will have completed some type of pilot or will be sourcing IT (information technology) services. In fact, some of the biggest firms in the United States have been seriously discussing outsourcing recently. One of these companies being IBM, the world's biggest computer maker, discussed saving about $168 million beginning in 2006 by moving thousands of programming jobs overseas, according to internal information provided. U.S. businesses, battered by the recent three year bear market in stocks and an economy struggling to find its footing, have already developed a taste for super cheap labor in developing countries, where workers are increasingly better trained especially if they've spent significant time working in the United States on temporary visas. The impact of overseas outsourcing could be significant; many economists doubt the trend is big enough yet to disrupt the broader U.S. economy. Imports of business services account for less than 1/20 of 1 percent of gross domestic product, the broadest measure of the nation's economy. At the least, it's not doing much to end the longest U.S. labor-market slump since World War II. More than 9.3 million people are

Further, they point out that even more educated highly trained workers with higher-value jobs such as software engineers, accountants, radiologists, and journalists in the developed world The increased safety net costs of the unemployed may be absorbed by the government (taxpayers) in the high-cost country or by the company doing the offshoring. And when it comes to health and safety requirements it is based upon the company they work and job they do. All of the companies now are recommended the safety measures of their workers. The choice of offshoring destination is often made according to cultural concerns.

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

“Without warning, they left us broke, sealed out, and jobless” (Edwards). These are the words from Gregg Davis, a former Oshawa workman, after he received notice his job was being relocated to Nashville, Tennessee. Gregg Davis worked for IQT Solutions, a call-center company based in Oshawa, Ontario. Along with 600 other people, Gregg Davis was left jobless after his job was outsourced to Nashville, Tennessee in a desperate attempt to save the company money. Today, thousands of American workers are also waking up to the stunning situation of unemployment as the result of their jobs being outsourced to foreign countries. This outsourcing phenomenon has been fueled by the recent trends in globalization, with the hope to cut cost and

Arguably the most notable change has been in terms of lost employment for Americans. Between 1994 and 2002, 897,000 American jobs were outsourced to Mexico (Hufbauer and Schott). This was 400,000 more jobs than the highest projected estimates. This outsourcing disproportionately affects our least educated members of the workforce who hold make up 43 percent of our jobs. 53 percent of the members of this demographic have been displaced. However, the effects are harder felt in some states such as North Carolina and Arkansas where 80 percent of blue collar workers have been affected in one manner or another (Hufbauer and Schott).

The main goal of a business is to break even, spending about the amount as profits gained, or gain a net profit and expand. While expanding is expensive, companies will attempt to outsource jobs to different countries for a cheaper cost . Outsourcing is an issue for multiple unemployed and employed Americans, where the businesses could be supporting families by creating jobs for those who need them. Flatworld solutions, a company made to help businesses outsource jobs, would argue, “You can get your job done at a lower cost and at better quality as well” (Flatworld). It does lower the cost,

“Outsourcing refers to the practice of contracting workers outside of a company or business for work duties or services previously performed by company employees or “in-house”. This practice is also often referred to as offshoring due to the increasingly prevalent use of “non-U.S.” service providers for these outsourced duties. However, strictly speaking, outsourcing can and does refer to the use of contracted labor provided by individuals outside of an organization, but still within the U.S.; whereas when these same services are provided outside the U.S., it is both outsourcing and offshoring.”

America has always been the leader in science and innovation. It has the best universities and research labs. Many successful entrepreneurs have been raised from this nation. Thus, it has to take benefit from these significant comparative advantages to generate new pools of jobs for its people. As I mentioned in the introduction, we should let history to be our guide to plan for future. Toward the end of the last century Japan was getting ahead of U.S. in most aspects of technology and industry including in automotive and home appliance industries. Most economists at that time predicted that in near future Japan’s economy would pass America’s economy, but this did not happen. Thanks to Americans innovation and ingenuity, the Internet was born in U.S.A which became the prevalent technology of the future and revived the U.S economy. Today, America is in need of such innovations. The world is in shortage of energy and the oil and natural gas resources are running out. Therefore, the price of energy will definitely increase. I believe that the capability of storing and using alternative and renewable energies in day to day life can be the next big discovery that is very likely to revitalize the economy and to create a new generation of jobs. Thus, emphasizing on research on alternative energies can be a feasible strategy to maintain a healthy workforce in the mist of outsourcing.

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.

What are the true reasons that companies are doing business around the world and outsourcing American jobs to other countries? Mainly, American jobs such as Accountants, Technicians and Programmers are losing their Jobs because of globalization. Most of American jobs are outsource to countries such as China or India, therefore, before this taken place Americans had more of a better stable career path or even more jobs to choose from eventually, times have changes very rapidly due to companies moving American jobs overseas. As stated by many politicans, executives, prominent corporate executives and academics “have argued that we have no choice, that with globalization it’s critical to tap the lower costs and unique skills of labor abroad to

Outsourcing is the process of “hiring foreign workers to do a particular task, as opposed to hiring indigenous workers” (fee.org). Although it may seem like a favorable business approach, it only provides a gain out to large corporations. Since outsourcing is assembled around extensive cooperation’s, it steals from the “mom&pap” stores.

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.

According to Mr. Robert C. Feenstra, an economy professor from University of California, Davis, when the company off-shores its production, most of the time, it will off-shore the least technical part because of both its concern about piracy of intellectual property and the low technological level of its offshore partners. However, when it has benefited from this relocation and starts to consider further off-shoring its production, it now has to move the part with the currently lowest technological requirement. But this requirement is higher than that of the part which is already off-shored, leading to the relative increase in the demand for skilled labor in developing countries and thus, increasing their relative wage rates (Figure 1). At the same time, this benefit may be partly offset by the popularization of education and the high incentive, i.e. higher wages, to become skilled labor, which will increase its supply and thus, decrease its wage rates. Luckily for them, the net effect is still positive, probably because the rapid growth of production offshoring outpaces the growth of skilled labor.

Green, Aaron. (2007, September 17). “Part 1: Offshoring basics: definitions, benefits, and challenges.” Retrieved from www.boston.com/jobs/on_staffing/091707.shtml