In response to the article on “Outsourcing Jobs: The Myths and Realities” by Martin N. Baily and Dian Farrell, it surprised me to learn there could be positive effects to the American economy as a direct result of outsourcing jobs overseas.
Typically, I have read mostly about the unsatisfactory results that are given attention in the daily headlines. Jobs sent overseas means less jobs here at home; where does this leave the common American worker in the wake of this economic shift? After reading this article, I’m having a difficult time accepting there can be a positive effect to this transition. Since the emergence of outsourcing or offshoring, in the 1990’s, corporations have been implementing the allocation of resources in increasing numbers.
In the beginning of this article, it details how much U.S. companies are saving by shipping white-collar jobs overseas. “For every dollar of corporate spending that moves offshore, American businesses save 58 cents. Companies can reinvest the savings in new business opportunities, pay additional dividends to shareholders, or both. Moreover, because wages are lower in the relevant foreign labor markets, companies can hire more (as well as better-qualified) workers to do the same job, and spend more on supervision and training (Baily and Farell, 2010).”

This, in theory, sounds like a win-win situation, for both the U.S. and foreign economy where the jobs are being created in. U.S. Companies cut costs, and countries, like India, employ workers willing and able to work as call-center agent, medical technicians and software programmers. Examining this on the micro level though yields different results as more and more Americans are finding themselves out of work. It is estimated that nearly 40 million jobs are in danger of being offshored and most of those are in the engineering and science fields. The fact that American workers will be negatively impacted cannot be ignored and even supporters of offshoring agree many people will experience losses in salaries and jobs. (Hira, 2009)
The article goes on to explain that the U.S. economy will benefit in other ways as well. For instance, Indian companies that the supply workers will also import goods, such as HP computers and telecommunications equipment, for the employees. As well, the average Indian worker employed by outsourcing firms will buy more imported goods because they are now affordable and desirable. Baily and Farrell (2010) quote “exports from the United States to India stood at $5 billion in 2003, up from $3.7 billion in 2000” This, again, in theory sounds too good to be true. The U.S. economy improves due to cost savings of cheaper salaries, and benefits from selling goods to the foreign country as well? The problem is, do we really benefit in the long run? Ron Hira (2009) disagrees. He contends that “when a country outsources what it is good at, building up the capabilities of the country it trades with, it can be worse off. …By doing so America is undercutting its technological and economic future” I tend to agree with Ron Hira (2009) in this regard. If we displace millions of American workers, and shift our technological capabilities to foreign countries, it will be a detriment to our standing in the global economy in the years to come. There is no guarantee that cutting costs now will provide a more sound economic advantage in 5, 10, 20 or even 50 years.
According to Baily and Farrell’s research (2010), it’s stated that 3.4 million-business jobs for U.S. firms will be performed overseas. This may seem like a large number with detrimental consequences to American workers, but taken in the larger perspective, it is just a small piece of the job picture. Compared to the mass layoffs by corporate mergers and acquisitions, the percentage of jobs shipped overseas pails in comparison. They state at the peak of economic standing in 1999, 1.5 million people lost their jobs due to corporate restructuring. In their opinion, countries with flexible markets can wave this storm and come out ahead of the game. Again, I tend to disagree with the optimistic outlook. Accordingly, they state most workers tend to find replacement jobs within 6 months of being laid off, whether it be from a corporate restructuring or a job sent overseas. This figure doesn’t seem to correlate with the average unemployed American being out of work for a year or more and our unemployment rate at nearly 10% as of 2010.
It seems to me that investing in areas at home, in our immediate tangible view is not only a more logical investment strategy, but can directly impact the employment market now and in the foreseeable future. There is no guarantee that outsourcing jobs to India will benefit both countries, or even be a benefit to the U.S. at all. Paul Samuelson stated that free trade could produce a gain in one country and benefit that country alone, while permanently disabling the other country by reducing the profits from trade. (Miller 2010) If we sell ourselves short by moving jobs, goods and services oversees, what is left for ourselves to enjoy and thrive from?