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The labor shortage in the Global Economy Essay


It has been noted so far by the various lecture articles provided in class that labor shortages within various industries comes as direct result of the following examples: companies being reluctant to train their current pool of employees beyond what is necessary, the utilization of hiring strategies that require employees to come with the aforementioned trained skills before hand, the use of temporary workers and finally the constantly changing nature of product life cycles today which require constant training and innovation in order to properly catch up.

What these various examples fail to take into account though is the impact of the business processing and outsourcing industry in locations such as the Philippines and India.

The Outsourcing Industry

For example, in the articles “Employees in U.S. Aren’t Very Happy” and “The Future of the Global Workplace” it is stated that two of the main causes behind the current labor shortage within the U.S. is the reluctance of companies to train and the fact that hiring practices often look for prospective candidates to already have the aforementioned skills the company needs to fill a job yet when examining the hiring and training practices of outsourcing companies such as Convergys and Sykes, who have business processing and call centers located within India and the Philippines, it was seen that they had no such qualms regarding training and hiring.

It is interesting to note that the call center industries within India and the Philippines have the highest “churn rates” out of any other industry within such countries. Churn rates (or employee attrition rates) can be described as the number of employee that both move into and out of a particular organization.

In the case of the Indian and the Philippine call centers, churn rates can reach up to 15 to 25 percent for particular projects yet there is never an extended period of time where positions are left vacant, rather, a continuous influx of new hires filling in positions left by trained call center agents resolves any problem related to labor shortage and most important of all the BPOs (Business Processing Organizations) or the call centers are not reluctant to train such employees despite the high churn rate. It must then be questioned as to why such companies are not as reluctant to administer training compared to their counterparts in other countries.

Differentiating Practices

McIvor (2011) explains the main reason behind the difference in practices is related to costs and expected returns (McIvor, 2011). The fact remains that Indians and Filipinos are far cheaper and easier to hire as compared to the average American or European, especially when taking into consideration costs related to benefits, health care and retirement costs (McIvor, 2011).

Not only that, the cost of doing business is far cheaper within such countries as compared to the U.S. or Europe and as such allows companies to make more profit by providing the same service due to lower costs. As such when taking into consideration the cost of training (which is also far lower) compared to expected returns (higher profits due to lower cost of business) companies become far less reluctant to train employees as a direct result of such factors (McIvor, 2011).

Effect of the Outsourcing Industry on Labor Shortages

The reason why I went into a detailed explanation of such factors is due to the fact that as companies located within the U.S. and Europe find it increasingly cheaper to outsource certain aspects of their operations to the Philippines and India this actually leaves a certain degree of skill gap between employee jobs that have been outsourced to those that remain.

What must be understood is that companies don’t outsource all aspects of a particular operation, rather, they leave some of the more technical and complicated operations to U.S. or Europe based home offices.

One example of this is the case of AT&T how they outsourced their Tier 1 services (general inquiries, generic troubleshooting, follow ups, sales and general support) to centers located in the Philippines yet retained aspects related to their Tier 2 and upper level managerial services within the U.S.

Training Progression and Labor Shortages

It must also be understood though is that in certain operations there is a distinct level of training and progression as new employees learn on the job how particular systems and procedures work and are then subsequently trained in order to further those skills and rise to tier 2 skills and above (Sutter, 2011).

Unfortunately, with tier 1 operations outsourced to other countries this particular type of employee training is no longer viable since new hires can no longer gain tier 1 experience and then get subsequently trained to tier 2 (Sutter, 2011).

Thus, company hiring practices change wherein instead of hiring an employee with no experience and training them from scratch the result is hiring practices requiring employees to have a certain skill set or experience in the needed systems or procedures before they can be hired (Thibodeau, 2006).

This particular topic was actually tackled in the article “The Future of the Global Workplace” yet by utilizing a perspective that takes into account the current trend in outsourcing it can be seen that the outsourcing industry actually limits the ability of workers to gain the initial training and experience required to be eligible for higher tiered positions.

In fact when taking into consideration the increase in global outsourcing due to the current financial recession with literally thousands of companies outsourcing to locations such as India and the Philippines in order to cut costs this is indicative of possibly more labor shortages in the future as higher tier positions within companies continue to go unoccupied due to the lack of experience and training of potential candidates (Thibodeau, 2006).

Outsourced Manufacturing and Labor Shortages

Another factor to consider regarding the outsourcing industry and its effect on labor shortages is that it is not limited to technical skills alone, rather, it encompasses aspects related to manufacturing with a large percentage of today’s Fortune 500 companies outsourcing and off shoring their manufacturing facilities to China, India or other countries with low and labor and manufacturing costs (A world of opportunity, 2004).

What must be understood is that in such cases what happens is that technical expertise in utilizing and improving manufacturing technologies often improves in the location that the manufacturing facility is outsourced to while a certain degree of technical stagnation occurs where the facility was outsourced from.

Namely, technical skills in producing and manufacturing particular types of technologies improve in areas such as China while such skills stagnate in places such as the U.S. (A world of opportunity, 2004).

The reason behind this is connected to the fact that as product life cycles continue to decrease around the world as a result of continually improving technologies this necessitates the need to improve skills along with the processes meant to produce them.

If the manufacturing facility is located in another country then it is the technical experts from that location that improve along with means of producing the technology that was outsourced (Mangi, 2005).

Evidence of this can be seen in the literal boom in China’s manufacturing industry wherein the development of cheaper to manufacture components, boards, screens and various other parts was brought about as a direct result of a certain degree of technical expertise transfer as more people learn how to manufacture certain types of technology on their own and at a far cheaper rate.

In fact when the iPad was developed various Chinese manufacturers were able to replicate the technology and create the “A-pad” a knockoff Chinese version of the iPad but still a very impressive instance of technology replication.

In the case of the U.S. and several European countries technical experts in manufacturing increasingly find themselves lagging behind their Asian counterparts as the gap in their knowledge regarding new methods of manufacturing has resulted in fewer hiring opportunities as companies try to find both cost effective ways of manufacturing and experts with up to date knowledge of current manufacturing processes and procedures (Mangi, 2005).

This results in many of these experts having to enter into other job opportunities which are below their skill range but as a direct result of financial need become necessities in order to survive. Such a trend is not limited to manufacturing but can actually be seen in other operational aspects that have been outsourced rendering many individuals with gaps in knowledge making them undesirable candidates for hiring.

Reference List

A world of opportunity. (2004). Economist, 373(8401), 19-20. Retrieved from EBSCOhost.

Mangi, N. A. (2005). BETTER LATE THAN NEVER IN OUTSOURCING. BusinessWeek, (3932), 54. Retrieved from EBSCOhost.

McIvor, R. (2011). Outsourcing done right. Industrial Engineer: IE, 43(1), 30. Retrieved from EBSCOhost.

Sutter, M. (2011). OUTSOURCING 2.0. Latin Trade (English), 19(4), 68. Retrieved from EBSCOhost.

Thibodeau, P. (2006). Labor Crunch Pushes State Government IT Departments Toward Outsourcing. Computerworld, 40(5), 12. Retrieved from EBSCOhost.

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IvyPanda. (2019, December 16). The labor shortage in the Global Economy. Retrieved from https://ivypanda.com/essays/the-labor-shortage-in-the-global-economy-essay/

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"The labor shortage in the Global Economy." IvyPanda, 16 Dec. 2019, ivypanda.com/essays/the-labor-shortage-in-the-global-economy-essay/.

1. IvyPanda. "The labor shortage in the Global Economy." December 16, 2019. https://ivypanda.com/essays/the-labor-shortage-in-the-global-economy-essay/.


IvyPanda. "The labor shortage in the Global Economy." December 16, 2019. https://ivypanda.com/essays/the-labor-shortage-in-the-global-economy-essay/.


IvyPanda. 2019. "The labor shortage in the Global Economy." December 16, 2019. https://ivypanda.com/essays/the-labor-shortage-in-the-global-economy-essay/.


IvyPanda. (2019) 'The labor shortage in the Global Economy'. 16 December.

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