The Effects of Outsourcing: Does it Hurt the American Workforce?

Throughout our history, we have learned to survive by interacting with others. In business and economics, the rules are no different. Companies work with one another to provide services for their customers. Even some of the products that we use everyday come from around the world. Oil from the Middle East, coffee from South America, and rice from Asia are just a few of these items. Although most Americans would agree that interaction with other countries strengthens our economy, many disagree whether or not outsourcing is harmful to the American worker.

What is Outsourcing?

Before examining the outsourcing debate further, it is imperative to understand what it is and why it is becoming more popular in American business. According to The Merriam-Webster Dictionary, outsourcing means "to obtain (goods or services) from an outside supplier" (2004). Murray Weidenbaum, a renowned economist and former chairman of the Council of Economic Advisors for President Regan in the early 1980s, believed that companies in the United States outsource for various reasons (2004). He stated that companies participate in outsourcing to achieve entrance to overseas markets, reduce the cost to produce products, and to enhance their competitive edge in the global marketplace. This, in turn, allows products to be produced abroad, shipped to the United States, and sold at prices cheaper than if they had be made domestically. In the end, outsourcing allows companies to save money in production while providing cheaper prices to American citizens.

Opposition's View to Outsourcing.

Despite the popularity of outsourcing in business in the United States, there are many skeptics that believe that it is harmful to the American workforce. The main concern is that jobs sent overseas reduce the number of jobs available to the American worker. According to the Bureau of Labor Statistics, the number of manufacturing jobs has been reduced by more than three million due to work being moved overseas (Whalen, 2005). Also, Forrester Research of Cambridge, Massachusetts estimates that the number of service jobs moved outside the U.S. will reach 3.4 million by 2015 (Associated Press, 2004). This causes great concern to workers in industries being affected by the move. The uncertainty of when these positions could be shifted abroad leaves many employees feeling the stresses of possibly losing their ability to earn a living and support their families.

Opponents of outsourcing feel that the unemployment rate is evidence enough to show the damaging attributes of sending jobs to other countries. Another concern is that most workers displaced by the loss of their jobs are forced to take pay cuts in order to gain reemployment. Statistics from the U.S Labor Department (Whalen, 2004) show that a third of all workers forced to find new jobs during a company's outsource downsizing will settle for a 20 percent reduction in pay.

Supporting Views of Outsourcing.

Not all people oppose offshoring in the United States. There are many people that believe that outsourcing does not cause harm to America's workforce. In some cases, supporters believe that it even benefits it. For example, a study conducted by Mary Amiti and Shang-Jin Wei (2004) shows that the United States workforce is not at risk from outsourcing. In their study, they show that while the US is a large exporter of jobs to international markets, they are also the largest importer of outsourced services from foreign countries. Amiti and Wei's research shows that only 0.4 percent of the total gross domestic product or GDP of the US was earned from business service imports. Rather, they found that underdeveloped countries outsource more jobs that they received. Another stance that supporters of international outsourcing take is the belief that outsourcing creates new positions domestically. By moving 1,000 jobs to India in 2003, Delta Airlines was able to reduce cost by $25 million. They then used this money to fund 1,200 new reservation and sales positions in the United States (Weidenbaum, 2004).

The Effects of Outsourcing on Communities.

The American workforce is not the only thing affected by outsourcing. The populations of local communities are also affected by it. Some communities in the U.S. are formed around ,and rely on, one or more corporations based there. If companies decide to outsource and move jobs away from the communities, the workers are then forced to find new jobs. In some cases, the need to move to another community to find work is necessary. While some people find this to be a problem, others say that it is not reason to raise concern. With the study conducted by Amiti and Wei that showed that more jobs come to the U.S. from other countries than we send abroad, It is important to examine this issue. Honda, a Japanese car manufacturer, is one large importer of foreign services. A Honda plant and its subsidiaries in Marysville, Ohio employ over 12,000 employees in that area (Honda, 2007).

Government Help for Those Affected by Outsourcing.

The government has some influence on outsourcing in the U.S. While this was a huge issue in the 2004 presidential election, the debate still exists. There are government officials on both sides of the argument. While some of them support offshoring, and encourage it in American business, others are making an attempt to prevent it from happening. Either way, those on both sides of the issue work to ensure that some of the workers that are displaced by outsourcing are helped in some way. For Example, Trade Adjustment Assistance is granted to manufacturing workers to provide income benefits, training and healthcare assistance to those who have lost their jobs (Whalen, 2005).

This issue is a difficult one for a lot of Americans. While some of the data collected by researchers shows that outsourcing has negative effects, other data points us in the other direction. As the debate still stands and will continue throughout the years to come, it is up to us to decide what we believe. Whether or not we believe that outsourcing causes harm to the American worker by displacing them and leaving them out of work, it is important to realize that the issue affects many people across the country. Until a unified solution is found the debate is bound to continue for generations to come.

Sources:

The Merriam-Webster Dictionary (2004). (p. 514). Springfield, Massachusetts: Merriam-Webster Incorporated.

Weidenbaum, M. (2004, June). Outsourcing and American jobs. Weidenbaum Center breakfast presentation at Washington University in St. Louis. Retrieved October 6, 2007 from http://wc.wustl.edu.

Whalen, C. (2005) Research note offshoring: still a threat to workers. WorkingUSA, 8(6), 717. Retrieved October 5, 2007 from Business Source Complete database.

Associated Press. (2004) Study: Offshoring of U.S. jobs accelerating. MSNBC. Retrieved October 8, 2007 from www.msnbc.com/id/5003753.

Amiti, M. and Wei, S. (2004). Demystifying outsourcing. Finance and Development, p.36-39. Retrieved October 7, 2004 from www.imf.org/external/

pubs/ft/fandd/2004/12/pdf/amiti.pdf

Honda of America Mfg., Inc. (2007). Our company. Retrieved on October 7, 2007 from http://ohio.honda.com