Outsourcing Policy

Outsourcing policies vary greatly among nations and firms. Policy makers take a number of effects into account when making their policies.

Pro-Outsourcing Policy Considerations:

Globalization:Outsourcing increases globalization and opens trade, which is beneficial to all parties by reducing costs and increasing productivity.

Economic Growth:Outsourcing causes economies to grow due to increased productivity and globalization. New jobs are created to fit the growing economy.

Employment:Many worry that pro-outsourcing policies reduce the number of jobs available to domestic workers. But, a job gained overseas doesn't always mean a job lost at home. The growing domestic economy will demand more workers. Additionally, the major pro-outsourcing countries (U.S. and Britian) already have large job turn-over rates and are near full employment. Jobs lost do to outsourcing are fairly neglegable since they are reallocated in the economy.

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Figure One: Top reasons for outsourcing according to Michael F. Corbett & Associates. The reduction of costs is one of the most significant reasons for outsourcing.

Anti-Outsourcing Policy Considerations

Globalization:Globalization has negatively impacted the world. Workers in smaller countries have been exploited by the growth of outsourcing in the global economy. Outsourcing has created concerns regarding social justice and the fair treatment of workers.

Economic Growth:The outsourcing of jobs has destroyed local economies. As low wage workers attract jobs away from prominent local industries, workers within these industries are left without their jobs. Towns that rely upon these industries are therefore permanently crippled as their economy is stifled.

Employment:Unemployment within outsourced sectors becomes rampant. This provides a negative effect on local workers who relied upon these industries for employment. Jobs may be reallocated but not immediately. As jobs are lost new jobs are not made immediately accessible.

S. Policy: Bush vs. Kerry

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US POLICY : Bush vs Kerry
Bush Administration:

From the beginning, this administration has had strong free-trade and pro-outsourcing stances, citing its ability to increase efficiency and productivity. Bush's policy believes that outsourcing is a positive transaction that will enrich the US economy in the long-run, even if it causes short-runpain and dislocation for those whose jobs are outsourced. N. Gregory Mankiw, chairman of Bush's Counicl of Economic Advisors expressed this point of view saying, "Outsourcing is just a new way of doing international trade." Kerry and Democratic Viewpoint:

During his campaign for presidency, Kerry took a some-what anti-outsourcing stance, proposing a change in tax laws so U.S. companies have less incentive to move operations overseas. A Kerry trade advisor, Ms. Lael Brainard was quoted as saying, "John Kerry doesn't want to end outsourcing. But he wants to end the kind of outsourcing that results from distortions in the tax code." It is also important to note that during his Senate history, the majority of the time Kerry has voted in favor of free-trade and outsourcing.

The Argument FOR Outsorcing So yes, some Americans are facing unemployment from outsourcing, however, this fact leads to one of the greatest outsourcing myths: the U.S. as a whole is losing jobs. Not so. According to research from The Heritage Foundation, the U.S. has never previously had so many people employed. As their household employment survey showed, 1.9 million more Americans have been employed since the end of the last recession in November 2001. That means, there are 138.3 million workers in the U.S. economy todaymore than ever before. Moreover, proponents of outsourcing believe the picture of unemployment is not nearly as bleak as critics paint it. While the most startling estimate predicts a loss of 3.3 million service jobs between 2000 and 2015, the real number is in actuality much closer to an average of 55,000 jobs lost per economic quarter. Here it is important to note that job loss is part of the normal economic cycleon average, 7.71 million Americans are unemployed each quarter, and the estimated number of jobs lost to outsourcing equal only 0.71% of this total. Rather than focus solely on job loss, supporters of outsourcing believe it can bring great benefits to the economy as a whole and suggest the development of government-sponsored retraining programs and other unemployment aid as a way to soften the blow to those whose jobs are affected (The Heritage Foundation).

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Outsourcing in the United States
Nevermind that outsourcing has been going on within the United States for centuries,it wasn't until the last five years that outsourcing became everyone's favorite dirty word. The busting of the dotcom bubble lead many technology driven companies to search for less expensive labor outside of the United States. The high profile tech boom combined with a high unemployment rate, drove outsourcing to the top of every political agenda. As countries continue to drop trade barriers the concept of outsourcing will continue to grow. The ability of a company to seek out lower cost labor in comparitively advantaged countries will increase with the ever decreasing costs transportation and communication. This surely signals that the debate over outsourcing is nowhere near it's end.

So . . . What's the Big Deal?

71 percent of Americans are concerned that the current trend of outsourcing jobs to foreign countries will affect their job security or earning potential. (Source: BH Careers International, 2004-07-16) 3.3 million U.S. jobs are expected to be outsourced to India and China over the next several years. (Source: Business Week, 2003) It is estimated that for every $100 of call-center work offshored by US companies, $143 is invested back into the US economy. This figure is $133 for IT services work and $142 for high-end knowledge services like equity research, and risk management. (Source: Business Week, 2003)