The Long Term Effects of Outsourcing on the US Economy
The impact of outsourcing in the US economy has evoked extensive emotions to many, especially from presidential candidates and labor groups who criticized its practice. But economists and chief executives defend it as a natural succession of the economy.
In today’s fast paced economy, it’s not new that outsourcing chased cheap labor costs around the globe for decade. But in recent years, the effort has move stealthily into higher mechanism and income brackets, and it shows no signs of slowing down.
As a concept it is not new. Companies have chased cheap labor around the globe for decades, making cars in Mexico, plastic toys in Taiwan and shirts in Malaysia. The latest outcry is fueled by the fact that some service professionals, once insulated from outsourcing, are watching their jobs head overseas during a largely jobless recovery. It is unclear how many accounting, engineering, technical support and other professional jobs have moved offshore in recent years
According to research data, more than 400,000 U.S. jobs had moved abroad and the total is estimated to hit 3.3 million by 2015. That’s just above 200,000 jobs lost every year to global outsourcing. Many government agencies outsource as part of their work in order to save millions of dollars, which helps US economy and helps federal spending. The theory here is that paying people less for work means that these companies have the ability to produce things cheaper and will be able to transfer these savings to their consumers back in the U.S. Cheaper rates means more consumers buying the products. One example is that of the early 90s, when the price of personal computers dipped because the U.S. chip manufacturers outsourced this offshore and thus reduced chip prices anywhere between 10 to 30 percent. There are a number of reasons why outsourcing occurs; corporations are under constant pressure from their investors to increase profits. Going from $9.00 an hour for tech workers to 27 cents an hour for labor, has provoked corporations to overlook other costs associated with outsourcing. Bonuses are defined at the year’s end and that is long term enough for these corporations. U.S. investors, shareholders and American consumers derive the benefits of outsourcing, although sometimes at the expense of American wage earners.
Another reason why outsourcing still evolves is that more and more companies are viewing the world as a global marketplace, and sometimes requires building factories within outsourced countries in order to sell products, wherein manufacturing companies also don’t want to be left behind. Almost everything in this world is moving to outsource.
Another supportive argument is that outsourcing jobs to other less developed countries helps those countries economically and helps increase trade for US products. It also gives those countries the ability to pay back their debts to the U.S.
Experts believe that the greatest saving potential comes from outsourcing simple assembly work or services. Since there is not much capital involved, except for training people in other countries and payments for displaced U.S. workers, there is no other major investment. It is no secret that American technology companies in recent years have benefited from sending work to lower-cost operations overseas. From printer assembly in Taiwan to microprocessor manufacturing in Malaysia, the cost advantages of outsourcing have been on the top of the list for many corporate executives. About 30 percent of Intel's microprocessors are now built overseas, primarily in Ireland and Israel. Four of the six manufacturing facilities operated by Dell Computer are outside the United States.
The positive impact of outsourcing in different parts of the world today was tremendously huge. However, the effect of outsourcing in the US economy is negative; it has created high figures of unemployment .The US’s growing unemployment rate is related to this outsourcing trend. One figure from Forrester’s Research shows that at least 40% of Fortune 1,000 companies are sending US jobs overseas. The proponents of outsourcing argue that the outsourced workers will be able to find job replacements through retraining. However, according to a report by the McKinsey Global Institute, 31% of workers who lost their jobs never found employment. As Americans lose their jobs to cheaper overseas labor, their spending must reduce to minimum level of surviving. This, in turn, will reduce sales and services in domestic market, thereby affect other peoples incomes. By outsourcing, companies are able to reduce cost of products, but who could afford to buy them? Outsourcing also raises Government Spending. When many people lose their jobs as a result of outsourcing, there are fewer payroll tax receipts and fewer contributions to Social Security and Medicare. Government revenues mainly depend on income and sale tax. Reduction in these payments will force the government to add to outgoing payments for unemployment benefits which of course will result in increasing government spending. , it would have been better for America’s economy if those moneys were used for educational, healthcare or other funding. Outsourcing in away contributed to the present United States economic crisis since it has swept many jobs out of the country.