In an increasingly networked world, outsourcing of jobs for the purposes of obtaining cheaper labor, outputs, or even geopolitical purposes born out of bilateral trade agreements seems almost inevitable. Offshore outsourcing by American corporations, companies, and firms is quickly becoming a common trend.
Globalization has enabled firms to overcome national boundaries easily in their quest to obtain labor and resources at relatively lower prices than would be the case in the US. However, offshore outsourcing comes at an expense for American laborers, their wages, and motivation for work.
Careers in industries that outsource labor are subsequently not favored by college students seeking to make career choices. In my opinion, offshore outsourcing produces a disenchanted labor force in the U.S, harms the U.S economy, and de-motivates students seeking careers in some industries; however, it benefits the economy of other countries offering the outsourced services.
The intrinsic intent of outsourcing for labor by American companies is to obtain cheaper labor from developing nations. The United States is the world’s largest economy and thus has a highly skilled labor force. According to Geishecker and Gorg, when American firms outsource their labor, the resultant effect is that the labor wages for American workers decrease over time (245).
This observation is true in many industrial nations, and Geishecker and Gorg’s empirical analysis of the gradual reduction in workers wages due to outsourcing, points to the harm that outsourcing places on an economy. Reduced wages leave workers disenchanted. Since outsourcing for labor is mostly done in less industrialized nations or developing countries, the wage demands of such workers, relative to those of the workers based in the US, is likely to be lower.
The American workers will thus be forced to lower their wage demands in the long-term, to stay on the job. The laborer’s future in such an industry is thus uncertain, because the American worker will be forced to compete in an uneven playing field with workers from third world nations mostly, for whom the relative pay in American dollars may well be a fortune.
The need for profit maximization drives the quest for outsourcing of labor. Labor and the related payment of salaries and wages are part of production expenses. When the production expenses such as labor costs are reduced through outsourcing, firms maximize their profits.
According to Donna and Wooster, another motive of outsourcing is to reduce operation and administrative costs, thus increase profits (300). The selfish desire to maximize profits at the expense of American laborers and workers harms the U.S economy enormously. Because qualified skilled workers will miss jobs when labor in their specific areas of expertise is outsourced, such workers and laborers are likely to switch careers, or may end up jobless.
Switching careers likely involves massive investments in re-training and re-education, funds that the workers may have meant to invest upon retirement, or had earmarked for other investment purposes. Therefore, the workers will be left without retirement savings, without a sound financial back ups for emergencies, and most likely short on insurance money. Other skilled laborers and workers will simply be rendered jobless.
Subsequently, the U.S economy will have to support both these sets of workers by paying unemployment benefits and other welfare needs for them. Therefore, workers who would have boosted the economy by paying taxes through their wages and salaries will be reduced to dependants of the state, which will affect the nationwide economic growth.
Thirdly, the practice of offshore outsourcing reduces interest in the specific labor industry by college students. When students in high schools, colleges, and universities decide on career choices, one of the biggest motivators is the monetary benefits attached to the specific career or job title. Because outsourcing results in a gradual reduction of salaries and wages for workers in the home countries engaged in the labor being outsourced, students are unlikely to be keen on such jobs/careers.
Outsourcing of labor for a specific job by the U.S firms reduces interest in the specific career/job by prospective employees making careers choices (Harrop par.15). This problem, when analyzed, assumes endemic proportions. Currently, many American Information Technology (I.T) firms and firms that manufacture computer products outsource for labor in Asian countries such as India.
Indian workers, skilled in computer programming and related computer techniques, thus form the highest source of labor for most I.T firms in the US. As such, many American students have lost interest in seeking careers in this industry on the unfortunate assumption that they are unlikely to be hired at competitive rates by firms in the I.T sector. The prevalent notion is that such jobs belong to mainly Asian natives.
The resultant effect of such a misguided notion originally triggered by the act of outsourcing is that, even at lower levels of education, American students shun science and technology subjects, a choice that may not augur well for the nation’s future as a bastion of technological and scientific production and research as is the present case. Therefore, the disinterest in careers notable for their outsourcing of labor by students does not only have inconsequential short-term effects, but has long-term repercussions for the entire nation.
Nevertheless looking at the other side of the outsourcing issues reveals otherwise. One of the sentiments in favor of outsourcing is that, in the current trend of globalization, outsourcing is almost inevitable. When industrialized nations such as the US outsource their labor, they are not merely engaging in singular economic endeavors, but are involved in a related effort of improve the socio-political welfare of the laborers in the less developed nations.
The American firms are empowering workers in developing countries by giving them job opportunities (Friedman par.21). The workers in these countries provide cheaper labor to these firms, but are themselves rewarded with a chance of earning incomes that improve their welfare, as well as those of their immediate family and friends. This may well be the case, but back at home, the American laborer who misses the opportunity to earn an income due to the outsourcing of the same job suffers just the same.
In conclusion, the practice of outsourcing for cheaper labor by American firms harms the American economy. Outsourcing has many disadvantages and rarely benefits the American economy. It reduces the wages and salaries of American laborers, contributes to increased profits by the firms at the expense of the workers and the nations’ economy, and reduces interest in the specific job market by prospective workers.
Therefore, although market dictates and the law of demand and supply are the bedrock of the American economy, the act of carrying these dynamics across national boundaries is counter productive to the home country’s economy. Since many of these firms and corporations that outsource are created in America, it is only fair that the American worker gets the first priority when it comes to hiring.
Works Cited
Donna, Paul, and Rossitza Wooster. “An Empirical Analysis of Motives for Offshore Outsourcing by U.S. Firms.” International Trade Journal 24.3 (2010): 298-320.
Friedman, Thomas. 30 Little Turtles, 2004. Web.
Geishecker, Ingo, and Holger Görg. “Winners and losers: a micro-level analysis of international outsourcing and wages.” Canadian Journal of Economics 41.1 (2008): 243-270.
Harrop, Froma. New Threat to Skilled U.S. Workers, 2007. Web.