Outsourcing: Getting Our Jobs Back

With the U.S. economy only beginning to emerge from a three-year slump, the migration of American jobs overseas has become one of the most explosive political issues.⁽¹⁾ Outsourcing, also known as offshoring, is the practice of hiring labor outside the country. While outsourcing is not a new phenomenon, the current controversy seems to be fueled by the loss of numerous white-collar jobs to semi-skilled workers located half-way across the world. With high unemployment rates and a weak economy the true question is, "Can Americans compete?"⁽²⁾

The benefits to outsourcing are clear, when companies outsource, they are able to remain more competitive in the global market. In the long run, lower production costs mean that American consumers will be able to buy products for cheaper prices.⁽³⁾ The other benefits to outsourcing include giving money to workers in poor regions such as India, which many agree helps "two-fold." Not only does it allow for the spread of wealth across poor nations, but it also gives poor workers the opportunity to work in jobs that they could have never dreamed of doing.

According to the article He'll Take Your Job and Ship It, the last three years haven't been good ones, and the U.S. economy has been left with 2 million jobs in the hole. For the first time, not only are blue-collar jobs being shipped abroad, but analysts estimate that as many as 14 million white-collar jobs are just as vulnerable.⁽¹⁾ Those opposed to outsourcing agree that Americans are the main casualties of this practice, and that it leads to higher unemployment rates, which in-turn lowers the standard of living for those who have been displaced. Some also suggest that companies hiring these cheaper workers are encouraging the use of "slave" or "sweatshop" labor.⁽⁴⁾

Like it or not, Atul Vashistha (a leading practitioner of offshoring) says that Americans are now part of a global competition for labor. He claims that with the arrival of the Internet and high-speed telecommunications, virtually any job that can be done at a computer or over the phone can now be moved to countries where wages are much lower. Each year, millions of jobs are destroyed in the United States as businesses go bankrupt, companies downsize, and factories automate. There are no official records on the number of jobs sent offshore, but experts estimate the total to be about 300,000 a year.⁽¹⁾

Companies who outsource just because "everybody is doing it" may be surprised by the unexpected costs and complications involved in doing so. About one-half of the outsourcing arrangements made by large companies are terminated as overseas vendors encounter financial difficulties or are acquired by other firms with different procedures and priorities. Businesses that set a fixed percentage of work to be outsourced likely will regret it and will find themselves dealing with unreliable suppliers who put work aside when they gain a more valuable client.

The big question is, "How far will all of this go?" A new study from the McKinsey Global Institute predicts that some industries could be changed beyond recognition. In theory up to 52% of engineering jobs, 49% of software jobs and 44% of jobs in InfoTech services could be outsourced to low-wage countries. 25% of banking jobs could be sent offshore, along with 19% of insurance jobs, and 13% of pharmaceutical jobs.Adding the numbers, about 9.6 million jobs could theoretically be sent offshore today. If all those jobs really did get outsourced, the unemployment rate would leap from 5% to 11.4%. However, for various reasons, not all these jobs will be sent abroad, and McKinsey figures that about 4.1 million jobs will actually get offshored by 2008.⁽²⁾

Almost regardless of whom you ask the future of American jobs boils down to one word, "education." In a world where technological leadership determines the winners, education is the most important factor in our economy's growth. While our fourth-graders are among the world's best in math and science, by ninth grade they are way behind. As Bill Gates would say, "This isn't an accident or a flaw in the system; it is the system."⁽²⁾

The good news is that we've repaired the system before. For example, a century ago when America changed from an agricultural to an industrial economy, something called the High School Movement swept the country. People realized that an eighth-grade education was no longer enough and built high schools that rejected the European idea of preparing only a small number of children for college. Although the Europeans thought this was foolish, it was a revolutionary concept, and as recent research by Harvard has shown, by 1940, America was by far the world's most educated nation.⁽²⁾

Our primary and secondary schools are falling behind, and although our universities are still excellent, the foreign students who come to them usually take their education back home. As the number of science and engineering graduates in other nations is increasing rapidly, ours are decreasing.This year, China will produce about 3.3 million English-speaking graduates, India will produce 3.1 million, and the U.S. will produce 1.3 million. In engineering, China's graduates will be over 600,000, India's will be over 350,000, and America's will be only about 70,000.⁽²⁾

We need to revolutionize our schools now more than ever. As the world's richest country, we definitely have the resources, but we lack the will. We live in a nation where parents are more than happy to let their kids spend hours hanging out at the mall or playing Grand Theft Auto. In China, however, it is not uncommon for middle-school students to attend school from 7:30 A.M. to noon, then from 2:00 P.M. until 5:00, and again from 7:00 to 8:30 P.M.

1. Vieth, Warren. "He'll Take Your Job and Ship It." Los Angeles Times 27 Apr. 2004: A1+. Iowa AEA Online. 6 Nov. 2006
2. Colvin, Geoffrey. "In the Relentless, Global, Tech-Driven, Cost-Cutting Struggle for Business--America Isn't Ready." Fortune Magazine 25 Jul. 2005: 70+. Iowa AEA Online. 6 Nov. 2006
3. Leading Issues: Outsourcing - Pro/Con. 2006. Iowa AEA Online. 6 Nov. 2006 .
4. Leading Issues: Outsourcing - Overview. 2006. Iowa AEA Online. 6 Nov. 2006 .
5. Weidenbaum, Murray. "Outsourcing: Pros and Cons." St. Croix Review Oct. 2004: 24-30.
6. Devraj, Ranjit. "India: Job Outsourcing Thrives Despite Criticism in U.S." Inter Press Service 8 Apr. 2004. Iowa AEA Online. 6 Nov. 2006