With the presidential race heating up, there have been many issues coming into the political spotlight. One of those economic issues that have come up is the rising trend in sending jobs overseas to low wage countries. This trend, known as outsourcing or “offshoring”, is being lauded by business as a “necessity” as well as meeting with much public resentment. The question being asked on all sides, though, is the same: “Is outsourcing good for Americans and the U.S. economy?” Some economists and Bush officials argue yes, while others, like IT workers and anti-globalists, disagree. To understand the issue, though, it is best to look to the beginnings of the trend as well as the arguments from both sides.
Introduction: What is “Outsourcing”?
Before acquiring its current meaning, outsourcing referred to the practice of turning over non-critical parts of a business to a company that specialized in that activity, such as running a cafeteria or providing janitorial service (Time, “Is Your Job Going Abroad?”). However, companies soon discovered that work could be sent overseas and to Mexico, where wages are one-sixth to one-twelfth as high as the U.S. With this thinking, outsourcing has come to mean moving jobs and business to countries like China, Mexico, and India.
The trend began in the mid 80’s, with jobs in manufacturing and resource industry jobs being shifted to low-wage countries places like Mexico and China, jobs like clothing manufacturing, auto workers, loggers, steel workers, assembly-line workers and other low-tech jobs. There was outcry against the loss of these jobs, but the public soon accepted that those blue-collar jobs were lost. With the boom of the Internet, dotcommers, and Silicon Valley, American industry shifted to jobs revolving around computers and technology. Thousands of new jobs were created thanks to the boom, so the loss of low-tech jobs was balanced out. Former blue-collar workers retrained and began new careers such as programmers. Also during this time, the L-1 and H-1B visa programs were implemented. It allowed U.S. companies to transfer foreign employees from overseas branches or subsidiaries to the United States and then contract them out to replace American workers (The New American, “Trading Away Jobs and Liberty”). Through this program many Chinese engineers and highly educated Indian code writers were imported to help deal with the demand. But as Jyoti Thottam of Time Magazine says, “Silicon Valley soon discovered that it was a lot cheaper to export the work to the same highly educated folks over there. So did Wall Street, which employs an army of accountants, analysts and bankers to pore over documents, do deal analysis and maintain databases.” (Time, “Is Your Job Going Abroad?”).
As the tech industry bubble burst and America sunk into the recession, businesses were forced to take as many cost-cutting measures as possible. Production was slowed and jobs were cut. Many companies chose to outsource their jobs. All kinds of jobs were being sent overseas, like medical technicians, business journalists to interpret companies' financial statements, nanotechnology researchers, software engineers, computer designers, technicians, and electrical engineers. According to a survey by Forrester Research, about one-third of America’s service-industry jobs were outsourced in the last decade. As one company outsourced and gained an advantage, so the next company was forced to outsource in order to stay competitive.
It was the general public belief, though, that the jobs lost to outsourcing would be moved back to the U.S. once the economy recovered. The stock market was strong in 2003 and corporate profits in many industries exceeded expectations. But the jobs have not come back. Outsourcing is increasing, specifically with sending IT jobs to India. It jumped 60% in 2003 compared with the year before (about 140,000 jobs), according to the research magazine Dataquest, as corporations used some of their profits (not to mention tax breaks) to expand overseas hiring. The tempting extreme wage gap and the rise in the global economy has led the companies to continue outsourcing. John McCarthy, author of the Forrester Research landmark study, predicted that 3.3 million jobs would move overseas by 2015.
However, despite these high numbers of jobs have or will be lost, could outsourcing jobs possible be beneficial to American and it’s economy? Are there any positives to outsourcing? Supporters say yes.
The Benefits of Outsourcing
Probably the group who gains the most from outsourcing directly would be the businesses. Outsourcing can provide a significant competitive advantage. For instance, a company in a rapidly evolving market, where its products or services may quickly assume a commodity status, often doesn't have the time to invest in establishing or maintaining a large network infrastructure Outsourcing can enable an organization to free its internal staff from firefighting tasks, enabling them to concentrate on long-term projects (Network Magazine “Network Management-An Outside Job?”).
Another advantage of outsourcing would be its aforementioned savings on costs. According to a survey by the Information Technology Association of America outsourcing dramatically reduces labor costs, allowing companies to sell goods ranging from software to tax-preparation services at lower costs or higher profit margins. (Associated Press, “Outsourcing Tech Jobs A Plus”) Greater profits theoretically allow companies to buy new equipment, build laboratories and conduct scientific experiments — even in expensive Silicon Valley and other U.S. tech hubs. The survey goes on to say that savings from outsourcing also allowed companies to create 90,000 new jobs in 2003, with more than one in 10 of them in Silicon Valley or elsewhere in California, researchers said. The report predicts that in 2008, outsourcing will create 317,000 jobs — 34,000 in California.
The savings on cost of outsourcing also allows the freeing up of money, which makes American companies more efficient. Anything that makes an economy more efficient tends to help in the long run. (Time, “Is Your Job Going Abroad?”) This efficiency provides for investment in more advanced, riskier projects. The result is better, more innovative products. Treasury Secretary John Snow also agrees and adds that it can help make the economy stronger. "It's part of trade," Snow said. "It's one aspect of trade, and there can't be any doubt about the fact that trade makes the economy stronger." (Associated Press, “Snow: Outsourcing Can Help the Economy”)
Catherine L. Mann (an economist at the Institute for International Economics in Washington) argues that over the long run, the globalization of software and computer services will enhance American productivity growth and create new higher-value, higher-paid technical jobs. She says that what's happening now to software and service industries has already happened to hardware, with great economic results.
Though outsourcing may be good for the economy, it is not directly beneficial to the individual workers or all the workers in foreign countries. Outsourcing can actually be bad for the foreign outsourcing workers. The export jobs on the Mexican border and in southeast China are often dangerous and pay below a living wage. Chinese workers' efforts to win improvements are stymied by an official ban on basic union rights, while in Mexico repression of independent unions in the export factories is unofficial but nearly as effective (The Nation, “Toward A Progressive View on Outsourcing”). In India, which is beginning to experience a rise in wages and shrinking profit margins, managers are pressuring their employees to full capacity, forcing them to be as productive as possible. Many workers, especially at customer call centers where they pull 10 to 12 hour night shifts in order to keep in sync with U.S. daylight hours, are beginning to suffer from BOSS, or burn out stress syndrome. There is also a nagging fear that these jobs will evaporate as soon as better deals can be found in the Philippines or elsewhere. In a recent survey by India's Dataquest magazine, 40% said they suffered from sleep disorders, and 34% complained of digestive problems. Though Indian outsourcing has a 60% rate of employee turnover per year, Ranit Bhalla, 25, a software engineer, says “It reduces life to a vacuum. Where's the time to lead a normal existence?” A 21 year old IBM call center employee, Shruti Kaushik also says “I work hard, but this is no life.”(Time, “Prosperity and It’s Perils”)
The people who are usually the worse off in the outsourcing trend are the individual workers. Workers lose jobs, cannot find equivalent ones and often lose their pension and healthcare benefits in the process, or see them reduced. According to many studies, in fact, workers who have lost jobs in general during the past couple of decades have had to take a pay cut on average to get a new one. A newer study shows that workers who lose jobs specifically because of trade take a still bigger pay cut on average (The Nation, “Toward A Progressive View On Outsourcing”). Vince Kosmac of Orlando, Fla., has lived both sad chapters of outsourcing--the blue-collar and white-collar versions. He was a trucker in the 1970s and '80s, delivering steel to plants in Johnstown, Pa. When steel melted down to lower-cost competitors in Brazil and China, he used the G.I. Bill to get a degree in computer science. "The conventional wisdom was, 'Nobody can take your education away from you,'" he says bitterly. "Guess what? They took my education away." For nearly 20 years, he worked as a programmer and saved enough for a comfortable life. But programming jobs went missing two years ago, and he is impatient with anyone who suggests that he "retrain" again. "Here I am, 47 years old. I've got a house. I've got a child with cerebral palsy. I've got two cars. What do I do--push the pause button on my life? I'm not a statistic." (Time, “Is Your Job Going Abroad?”)
Outsourcing is also taking away the entry-level jobs required to gain experience for a skilled, high paying job. Rosen Sharma is the CEO of a nine-month-old company, Solidcore, a start-up that makes backup security systems for computers. "As a business, you have to stay competitive," he says. "If we don't do it, our competitors will, and they're going to blow us away." "But if you're graduating from college today, where are the entry-level jobs?" Sharma asks quietly. How do you get to that secure, skilled job when the path that leads you there has disappeared?”
Robert Reich, the former Secretary of Labor and professor of economic policy at Brandeis University sums it up as such: "In theory, we all benefit when we can get services more cheaply abroad. But as a practical matter, there are huge costs of dislocated workers and job insecurity. The answer is not to try to stop outsourcing, but we do have to get serious about job retraining, lifetime learning, extended unemployment insurance and wage insurance. We may also want to not permit companies to deduct the expense of outsourcing from their income taxes, and use the savings to help workers who lost jobs."
Conclusion
Based on the complied evidence and the opinions of experts, I can conclude that job outsourcing does have some very strong benefits, though they mainly go directly to the businesses themselves. I do not believe however that the savings gained by outsourcing outweigh the cost of job dislocation and job insecurity. Outsourcing seems to be part of a larger trend in global economy. The most unsettling thought or globalization is that you are no long competing for you job with other people in your state or nation, but the whole entire world. Ultimately, outsourcing does not benefit the individual in the short term. If outsourcing has any positive effects, it will only benefit society in the bigger picture. If the outsourcing trend continues as multiple surveys predict it will, the best thing I can do as a student would be to train for a job that can not be easily given away to someone in a foreign country just because it is cheaper.
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