effect of outsourcing on america's economy

some people are saying that we shouldn’t worry about america losing jobs, that it just means people need to improve their skill set. well at what point does it end? we can’t have a country made up of nothing but executives, lawyers, politicians, doctors. hell, even those jobs could be outsourced to a degree. with america losing blue collar jobs, and white collar jobs becoming even less safe, what can we expect of america’s economy 10 years from now? 20? 30 years? our quality of life?

IANAE but I understand some very basic things about market pressures. The reason that outsourcing is working is that the people providing the services are in economies with lower standards of living and lower wages, so are willing to do the work much more cheaply than Americans. However, over time, the increased employment in those areas will start to drive the local economony, increasing standards of living and then wages. There was a story in the Washington Post not too long ago about how someplace in India that does a lot of outsourcing, once a modest and quiet suburb, was now thriving and bustling but also suffering from many of the same problems, like traffic jams, as typical American cities.

I don’t know if anyone ever speculates on what the economy will look like very far into the future, but the trend can’t continue indefinitely. A situation that takes advantage of disparities between markets will alter those markets and eventually the whole thing returns to some kind of equilibrium. What the equilibrium will look like, I can’t guess.

Basically, the idea is that cheap prices free up economic resources for new products or projects. Let’s imagine it costs you $10 to produce a sweatshirt in the U.S., but $1 to produce the same sweatshirt in Cambodia.

If you move your sweatshirt plant to Cambodia, now you have a plus and a minus to the American economy: on the plus side, the sweatshirts now can all cost $9 less to the consumer. On the minus side, all the people who worked in the plant are now out of a job. If the benefits from the consumer spending that $9 on other goods/services or investing it outweigh the benefits of the salaries of the workers in that plant, then the economy is improved as a whole (e.g. the consumer now spends $4 on electronic goods and invests $5 in a biotech company that then develops a cure for cancer).

What’s really important is that those people who lose their jobs are not being idle - maybe they go work for the biotech company (unrealistic without a really good retraining program, but you get the basic idea). This is why despite the fact that the US economy has a net loss in manufacturing jobs over the last few decades, the economy, total number of people employed, and wealth of the country has still increased.

I really can’t do justice to this in the limited knowledge and posting time I have, but I do recommend that you read Tom Friedman’s The World is Flat for a good assessment of the opportunities and threats posed by globalization.

What’s really important is that those people who lose their jobs are not being idle - maybe they go work for the biotech company (unrealistic without a really good retraining program, but you get the basic idea).


“Unrealistic without a really good retraining program.” – You see alot of them really good training programs out there?

I “get the basic [fantasy]”, but that wont help nobody.

I recommend P.J. O’Rourke’s Eat The Rich for a thoughtful but very humorous take on globalization and why he thinks it’s a good thing.

It’s a very tough question to answer factually. One factor is that job outsourcing, despite all we hear about it, isn’t affecting that large a percentage of all jobs, compared to other factors like mechanization and good old-fashioned downsizing.

And in theory, yes, outsourcing is supposed to be a win-win proposition because it’s supposed to make the workers in the low-wage countries more affluent, so that they can then buy more goods and services, which will pump up demand for us to produce more goods and services for them to buy, which will require us to create more jobs, etc.

However, nobody seems to have a handle on how long it’s supposed to take for this “virtuous cycle” to kick in. That was what was supposed to happen in Mexico, for example, when we instituted the North American Free Trade Agreement more than ten years ago. But many Mexican workers now are even poorer than they were then, because they couldn’t compete with the influx of cheaper US agricultural products, and the new manufacturing jobs they got working for US companies in Mexican maquiladoras didn’t offer much in the way of wages or working conditions. Mexico’s overall economy grew a lot because they gained so much economic activity from foreign corporations, but it didn’t do much for the actual prosperity (or purchasing power) of most Mexican workers.

Unless somebody figures out a way to accelerate the “virtuous cycle” to pump up demand for US-based workers, I think that current economic trends will continue in the near term. That is, the US economy itself will continue to grow somewhat, but the direct economic benefits will go mostly to the upper and middle classes. Mass-produced goods will stay cheap (unless oil prices and consequently overseas transportation costs really go through the roof), which keeps Americans’ purchasing power relatively high in some respects. But in other respects, such as affordability of housing and health care and transportation etc., the prosperity and hence the standards of living of the working class and some of the middle class will stagnate or decline.

Related question: Is there a fundamental economic difference between outsourcing and automation? If instead of moving the plant to Cambodia for $1 sweaters, we built robots to make the sweaters that cost $1 in maintenance/electricity/etc. per sweater, is the affect on the economy different? Only thing that I can think of is that potentially enriching the Cambodians makes them able to buy our exports.

This one seems more like a debate. Let’s move it.


Most of the jobs that are being outsourced are labour intensive jobs anyhow.

Working 8 + hours in a factory isn’t the type of work people enjoy.

Plus outsourcing makes things a lot cheaper, therefore increasing income.

Having things cheaper is better than making more money and having expensive things because it pushes people into a higher income tax bracket, thus actually reducing the money they keep.

There is no need to worry.

Outsourcing accounts for less than 4.5% of “losts job”.

And according to economy of scale, only large businesses can perform this task.

Many small businesses cannot.

Small businesses make up at least 95% of the business world.

There are relatively few large companies in comparison with small businesses.

America has been resorting to outside labour for hundreds of years.

Black slavery, Chinese immigrants, and Mexicans are just three examples.

It hasn’t really effected the prosperity of the people, because America is more focused on intellectual property and less on the careers of the less educated.

But outsourcing has definitely made the job market more competitive.

It’s a changing nation.

When you send in a resume, in particular to a big company, you’re not just competing against people within your locale but rather globally.

It’s a hard thing for people to swallow but it is a strong trend.

Outsourcing has its pros and cons.

One major con is that the workers are also consumers. They buy your product as well. And having jobs in America creates spin off jobs too. So the extent of damage is beyond the single company.

Outsourcing is also a bit of a moral dillema for some because it is likely to increase the wealth gap between peoples. The rich as the cliche goes, get richer.

On the other hand, outsourcing may not have as big as an impact as people believe. It may just happen due to a company’s prosperity and an international presence. As a company grows bigger they have more customers.

A stagnate U.S. population and a limited amount of workers, and a burgeoning up and coming middle class in other countries (like China or India) may indeed play a huge role in the decision to outsource.

So in a sense jobs aren’t really lost, new ones are just created elsewhere. But who is to say those people across the sea are less important than the ones here? American companies going into other countries is often a boon to the people because they raise the standar of living in and around the area. They get more money and better benefits.

So whether outsourcing is a good idea or not really depends on what side of the coin you’re on. But it is definitely here to stay…or go.

It’s going to depend on where a person whether there will be training or education opportunities in their area. It’s also going to depend on whether the company or government is willing to pay for retraining, and on the circumstances of a person’s life whether they can take advantage of that retraining.

I “get the basic [fantasy]”, but that wont help nobody.

Like it or not, jobs are going elsewhere.

Your chances with the “fantasy” of getting training and education for a new job are better than your chances complaining about it and wishing the jobs come back. Shit in one hand, wish in the other, see which one fills up first.

There’s another side to globalization, too, one a lot of people ignore in this debate. I can’t ignore it, though, because about 20% of the work I do every year is funded by the Royal Navy.

That’s right - British taxpayers help pay my salary here in Virginia. And this sort of thing isn’t exactly uncommon.

It should certainly figure into any globalization debate how much money we take in because other countries outsource to us.

Stagnate population, are you kidding? Check out the U.S. population clock on the Census Bureau’s website. That’s the estimated population right now, over 298 million. Then check out the link for the last full census in 2000. Then the population was only 281 million. In five years or so, it’s gone up by 17 million.

But I agree that the threat of outsourcing professional level white collar jobs is not as ominous as first appears. For one thing, it’s hard to do business with a department on the other side of the world due to time differences. Secondly, in my company at least, it would be hard to do our work without being on site, or at least connected during business hours, in order to be able to deal directly with colleagues.

No, that’s not true in all cases. Internet and e-mail and standardization of software have made it incredibly easy of late. In cases where there’s no need to deal in real time, or little need for it, then it doesn’t matter where in the world the information that appears on your screen comes from.

The great promise of such computer connectivity was that you could “telecommute” from home. No one seems to have pointed out that you could telecommute from the other side of the world as easily.

Everyone concentrates on the IT biz and India, but I’ve seen two engineering firms open in Eastern Europe and elsewhere that directly compete with folks I know. These companies have a small U.S. Office, but the engineers are overseas in a location with a much lower cost of living. In a direct competition, the firms ouside the US come in cheaper than the US firms can possibly be, simply because they don’t have to pay as much for the necessities of living and for business overhead. One engineer I know says that the flattening of the global playing field means that the best engineers become available, but it also means that local talent, having higher costs, isn’t really flat – it’s inevitably higher, and there’s nothing they can do about it.

Until, I guess, it becomes more expensive to live overseas, at which time wages even out. But by that time the US firm will probably have gone under, or at least severely reduced in size.

This isn’t limited to any particular discipline – Chemical engineers, electrical engineers, mechanical engineers, biological and medical analysis (from data transmissible over computer lines) are all subject to this. If you say that it’s not a significant drain right now, then all I can say is that we’re clearly at the start of this phase, and the number of skilled “white collar” jobs moving elsewhere will only grow. Alreadty Bell Labs has downsized significantly in this country, but has opened several labs in China, India, and elsewhere.
If you tell people to retrain, then they have a good response in “retrain for what?” For years they were told that computers were the way to go, but the great flight of IT jobs is what sparked this controversy. Even now, as people suggest biotech, you must know that biotech research is heating up outside the US as well. There’s no monopoly on knowledge, and all disciplines will be represented elsewhere where the costs of operation are lower.

I’m not advocating protectionism, but I still can’t see how this won’t have dire consequences for the US. And the US will still want to retain its own capabilities in military and government science, so there is certainly an opposing force seeking to keep such talent here. Nobody weants to outsource US secret weapons development to China. But it will be increasingly difficult to keep it here if all non-government-supported R&D goes outside the country.

As you’ve pointed out, no particular field is safe. Knowledge won’t fit back into the genie bottle once it’s released. Training for one particular field is less valuable than the ability to create new ways of doing things - either with lower costs or higher quality. So I would say, pick your field and be the best you can be at it. Biotech or IT, you’ll have to find some sort of competitive advantage, but you won’t be able to do that without at least basic knowledge in the field.

The only way I can see is if the world economy grows quickly enough to reach US standards of living before globalization erodes our standard of living. I have no idea if that’s going to happen, but I hope for it.

I don’t see how it really can, and in fact it seems pretty evident that the standard of living for many Americans is already eroded. Incomes for younger people and working-class people have been stagnant or declining, even as families add more working hours to their schedules and more education to their resumes. Debt levels have increased, job benefits and job security have declined, and real wage growth has slowed or stopped for many workers.

I don’t think this necessarily has to be a disaster, if we handle it right. We can figure out smarter strategies for capturing certain markets to improve the quality of our jobs, we can redistribute some of the narrowly targeted rewards of outsourcing/globalization towards a better social safety net, and we can recast our lifestyles to be more sustainable and even more personally rewarding, even if our material standard of living and disposable income have to diminish somewhat.

But I don’t think it’s realistic to expect, or even hope, that increased competition with lower-paid workers worldwide isn’t going to have any negative impact on American workers’ standard of living.

This is the rather idealistic stance put on by IT guys. In the real world, being able to meet 'n greet is just as important as the ability to get the job done. As a prospective client, you figure that they can do it, (else why did they start a business?) the question is whether they can do it with you in a manner of your liking - and that question can usually, only, be answered face to face.

Secondly, doing things by remote adds a psychological cost that doing them locally (or within the same time zone) does not. Regardless of a persons psychological makeup, once you have responsibility for a task you prefer to be more involved than the sending of a bunch of emails - you want to see.

Also… think about it: do you really want your taxes done by a firm in a country that challenges and refuses requested US extraditions? :wink:

On a personal note, a couple of years ago, while involved in another company, I wanted to give the company a marketing and image makeover. I looked in the phone book under “Marketing”, I typed in the names in Google and settled on a new marketing company founded by a couple of well-capitalized 35-year olds. (With the exception of the “well-capitalized” part, that described me as well. :wink: ). I had no interest in any marketing company outside a 150 mile radius (i.e., one not within travelling distance), and definitely preferred those within my home city. Why? Because I needed to be involved, more involved than a conference call would allow.

Lastly, there is still an enormous amount of physical and service work that, regardless, can never be outsourced. Landscaping, retail, computer hardware support and installation, road paving, house building, firefighting, etc etc etc.

In short: there are very few things people prefer to have done outside their effective zone of physical influence, there is a very real cost in the lack of control and oversight in outsourced* operations, and there are tens of thousands of current American job categories that cannot be done elsewhere than in America. I don’t see how that’s any different than at any other time since the start of the Industrial Revolution.

*Outsourced overseas. If you outsource to a company that’s right next door, you’ll have better control. Guaranteed.

No – this is the reality I’ve seen. Such firms already exist and are selling their services, braggin about the cost savings and the expertise of their engineers. And they have “meet and greet” guys in the US branch of the office.

The interchangeability of standard software packages isn’t developers’ hype. As long as that CAD package or some design software for, say electronics design is available overseas (along with standard office programs like Word, Power Point,Excel, etc.) what more do they need?

But that’s just software. There’s a lot more to business than buying software. :wink:

Indeed there is – and the front men do the face-to-face, and let the engineers elsewhere do the engineering.
Make no mistake – I’m an engineer, and I know the value of direct communication. But if you’re already getting that from the in-America front guys (who are engineers, too), then how is this different from an engineering firm with the engineers on American soil, only you don’t directly interfac with them> As long as you’ve got local guys to hold your hand, answer questions, and visit the site, does the customer care if the actual nuts and bolts engineering comes from Kazakhstan? Especially if it’s delivered to his computer in the same software he’s sing, via e-mail?

And espcially if it’s half the price of the other guys down the street?

So, if the company in America outsources some labor and saves a bundle of money, how is that bad for America again? Now they can accomplish twice as much, or invest the money they would have spent on labor in new factories, or even blow the money on nice houses and cars - which employs the people who make and sell them.

Do you think it would have been better if agriculture hadn’t been mechanized and industrialized? Something like 75% of all workers lost their jobs over that, you know. Now replace the word ‘mechanization’ with ‘overseas labor’. It’s the same thing. Building more with less. Creating more infrastructure with less overhead. Letting people who have competitive advantages exercise them.

I can imagine the arguments against modern farming: “But what will the farm workers do? They’re not educated enough to do anything else. The people who own the machines will get filthy rich, and the rest of us will starve. The rich get richer, the poor lose their jobs. This is destroying America.”

You can always make that argument if you’re only willing to look at one side of the balance sheet.