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Impacts of exporting jobs on the U.S economy Essay


            Economists are not in agreed on how outsourcing affects the economy and the job market. While arguments have been placed in support of this practice, others have argued that it does much injustice to the United States workers. This paper seeks to look at some of the contentious issues  surrounding this practice and how they can be solved. It particularly looks at the effect of outsourcing on the workers, United States economy and why multinationals and major economists are in support of the practice. It also looks at some of the measures that the United States government can take in order to protect its workers from the harmful consequences of outsourcing.


            Domestically produced merchandise in the United States have been an important source of employment for its citizens traditionally. The number of jobs created by the exports alone almost two decades ago  amounted to more than 5 million. In other words, more than 22,000 jobs were supported by each one billion dollars of exported merchandise. Out of every 16 full time jobs held in the United States in 1987, one was an employee in the exports sector. The total number of jobs created by the exports however did not

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just include those generated in the production of the final goods for export. It encompassed all jobs directly or indirectly relates with export. For instance, the computer chip developer of Dell to the electronic store owner. In other words, in every job created in the exports, more jobs are indirectly created. In the year 1987, the rise in merchandise exports led to a rise in the number of jobs created by exports. Statistics show that in 1987, jobs related to export increased by 8 percent and continued strongly through 1988.

            Civilian employment and the growth of the United States economy since 1983 was  largely attributed to the resurgence of export volumes. A growth in the exports has significantly affected employment in the sense that an increase in the exports has led to an increase in export related jobs. However, in recent times, the job market in the United States has been largely affected by globalization. The fact that companies can relocate and hire from any country has greatly affected the export sector and therefore employment. Companies are seeking for the best ways of doing business while at the same time maintain or improve on human resource. There is an increase in demand for skilled workers than less skilled workers, an increase in demand for cheap labor and an increase in demand for cheap resources. This has resulted in widening of the gap between skilled workers and less skilled workers in terms of salary and wages. Even the export industry is demanding for highly skilled workers leading to high rate of unemployment among the less skilled hence massive income inequality. (Slaughter, Swagel, 1997)

            In the advanced economies like the United States, the labor markets are steadily shifting from less skilled laborers towards the more skilled laborers. This trend has resulted in a remarkable rise in income and wage inequality between the less and more skilled. In some cases, the impact of the shift has been felt on employment. Less skilled laborers have constantly lost their jobs due to inability to stay competitive in the ever dynamic job market. Earnings of less skilled natives have also been affected by immigration and outsourcing. Immigrants from developing countries who do not possess much skills have depressed the earnings of the natives who also possess minimum skills. According to one study carried in the United States, increased immigration in the 1980s led to an increase in wage inequality by as much as a third.

            Beginning January this year, payroll employment has been falling steadily through to the month of May leading to more than 320,000 cumulative loss. In other words, there has been an average setback of 64,000 jobs a month.(Seiders, 2008) Civilian unemployment rate has also increased which is the largest in unemployment gain since the 1980s. A deep trouble in the labor market is inevitable with the single month jump in unemployment rate. The slow growth in economy is revealed by the receding trend in payroll employment. This may wrongly be interpreted as a healthy growth in the productivity of labor.

            62,000 jobs were lost in June and more than 430,000 in the first half of this year. These figures are according to data from the Bureau of Labor Statistics. What is more is that during the same month of June, unemployment rate stood at 5.5 percent. The conditions of job market are continuing to worsen as the economy, for the seventh straight month continues to lose jobs.  (GALLUP, 2008) In this paper I assess how outsourcing affect employment and unemployment  and how this in turn affects the economy of the United States of America.

Reasons Why Companies Support Outsourcing

The export industry, American workers and the American economy are feeling both the negative and positive effects of outsourcing due to globalization. The main issue today concerns the outsourcing of jobs overseas which is considered as a quest by corporate America for short term profits at the expense of American workers long term well being. It has been argued that every month, many jobs are lost by the American workers and at the same time created due to outsourcing.

            The major reason why companies opt for outsourcing is to distribute responsibility for minor functions to other companies or third parties thereby channeling human resource and capital to more strategic uses of acquiring more capital. The reason offered by companies for resorting to outsourcing is that they want to step up quality and efficiency for their clients to get the best quality services. Today, companies are motivated to offshore because of the need to improve the performance of the business rather than to reduce costs. If the performance of the business is improved, the company may survive competition and thus be in a position to get the best from the market. Large and small companies resort to outsourcing as a means of obtaining information System services which may not be available internally but is necessary for survival of the business. (Bryce, Useem, 1998)

            Outsourcing also mean that companies cut costs on certain services. Some economists have argued that this is beneficial to the United States economy. Through the provision of quality services which are also affordable to the consumers, the companies become more competitive  hence strengthening the economy in terms of tax returns and employment. Because it operates within a 24 hour basis productivity is increased and it also has the capacity to control spiraling costs. It may also help companies to control spiraling costs. (Griswold, 2004)

            Many businesses can benefit from outsourcing. The value of outsourcing to businesses and organizations as a tool for enhancing growth is known by companies who are engaged in the practice. As a business process term, outsourcing is attached to giving out responsibilities which a company is not best placed to undertake on its own. It is every business and corporation’s desire to increase its competitiveness in terms of service delivery and quality products. However, competition is not a simple subject for quite a majority of people even though it is good for the consumer. Businesses and corporations increase their competitiveness by outsourcing some of the jobs. High quality products and services are provided at a low price enabling the consumers to reap from the benefit of competition. Through this, the economy also benefits from the quality products and services provided by the companies. Outsourcing of important business functions which are not the main business functions of the company or corporation benefits the business or corporation by cutting on time and money spent. This process trickles down to the consumer and the economy. However, there are also risks related with outsourcing.

            Businesses and companies have been grappling with the question of whether to outsource or not. When it comes to business decisions, certain risks are often involved. Some large corporations are reluctant to engage in outsourcing because they recognize that there may exist some unconceivable risks. These risks are based on the fact that it is not possible to  oversee the various stages of the project hence making evaluation difficult. However, companies should be more concerned with how outsourcing affect the job market rather than how difficult it is to evaluate the stages of business projects. Evaluation of internal employees committed to a project is easier and performance and work appraisals may be used to guide them through their work. Outsourcing of projects poses a challenge for managers since they are not in a position to make project assessments. This does not however have any clear impact on employment.

With regard to employment, companies do not seem to realize that some sections of employees are rendered jobless owing to the competitiveness in terms of skills and talent. It is easy to phase off employees with minimum qualifications if the same job can be done by highly talented and competent individuals at a competitive price. Nevertheless, companies must root for the most efficient way of improving services even if it means sacrificing a few employees.

Corporate America and Outsourcing Policy

            Corporate America has been working on and embracing a policy which seeks for the cheapest possible labor. This quest for the cheapest possible labor has no respect for national boundaries nor divergence in market economies because various entities like location, labor market or political position are not variables with regard to achieving this goal. In other words, the quest for the cheapest possible labor transcends any conceivable barrier except capital. Major united States multinational companies are engaged in the practice of outsourcing jobs. (Catherine, 2006) Research has revealed that almost all of the corporate America is involved with outsourcing of jobs either directly or indirectly to cheap labor markets in foreign countries as a way of obtaining cheapest possible labor while at the same time maintaining quality and efficiency. More than 200,000 outsourcing instances have been found by the AFL-CIO, arraying fears of how widespread the practice has become should nit turn out to be dangerous on the United States economy. This figure does not only include the major multinationals but also small and medium sized businesses and subsidiaries.

            The outsourcing policy may be stepped up further as United States multinationals aim to increase outsourcing from 24 percent to 30 percent each year. (Dobbs, Myers, 2008) What is clear is that the multinationals are rooting for cheap labor. However, this has a consequence of diminishing the United States middle class through. This being an element of international trade, the exploitation of the cheapest labor overseas is done at the expense of the working class in the United States.

            The practice, which involves reducing costs by contracting companies or workers in foreign countries for labor for the production of goods or services or accumulation of capital is not new in the United States. Various manufacturing companies have engaged in the outsourcing of production for many years. According to Forrester Research consultancy, 3 million service industry jobs will be exported by the year 2015. (Davis, 2004) Lou Dobbs, a renown journalist appeals that the United States ought to reflect and understand the effects of outsourcing.

Outsourcing, Globalization and the Job threat

            Outsourcing is one of the elements of globalization. Globalization has been viewed as jeopardizing the interests of workers directly or indirectly. Through migration, trade and capital mobility, globalization harms the workers interests. Doubts have been cast on whether the emerging global economy has the capacity of producing numerous high wage jobs as was expected by the developed economies. There is an increasing number of skilled laborers migrating to developing countries resulting in well paid workers in first worlds finding it difficult to secure jobs in their countries. However, many economists are of the position that the fears over outsourcing are exaggerated. Some of the fears are related with the governments efforts to reform its international tax rules which may encourage multinational corporations to to export American jobs. Economic findings however show that these sentiments are misplaced. Evidence indicate that substantial dividends are returned to the United States economy by improving the competitiveness of United States multinational corporations. In 200, the number of people employed by parent firms numbered 23 million. This is an indication that in every five jobs held in the United States, multinational corporations directly creates  one. In the same year, 8 million workers were employed by foreign subsidiaries of United States firms. This means that for each person employed overseas, three domestic workers are employed by the parent firm. The outsourced jobs for the United States service workers is estimated at between two hundred and fifty thousand to five hundred thousand in the last three years. This is considered relatively small. However, there is a high chance for job loss in all the sectors of the economy as a result of outsourcing.(Anstra, Garicano, 2006)

            Regardless of these observations, a study of global sourcing of computer software and services has found that even though it displaces some IT workers, the United States economy actually benefits from it. This may mean that more positions are created for more skilled individuals while the less skilled lose their jobs. The same study shows that a growth is expected on the spending for outsourcing of computer software and services. This increase is expected to generate more jobs in the United States. (Flanigan, 2004)

            Some analysts have pointed out that outsourcing, instead of creating jobs actually eliminate them. Citing an example of Dell computers, Dobbs observed that three hundred workers were laid off at its call center and the jobs shipped to Manila and Bangalore because it was more convenient for the company to export jobs in order to cut profit than secure the livelihood of three hundred individuals and hence the nation’s well being. According to him, the same services and products were provided but the jobs were eliminated. His analysis is that the tax base providing for education is reduced with every net job lost. The United States’ public educational system is therefore in jeopardy, compromising the social and economic mobility.

            Outsourcing has a consequence of dislocating workers with less skills even though it may also offer some advantages to the United States economy through strong export markets and cheaper imports. Investors, shareholders and consumers are the major beneficiaries from outsourcing but at the expense of wage earners. Corporations gain an average of 50 percent in net savings through global outsourcing alone. However, outsourcing does not only affect manufacturing workers but also professional and white collar employees. This is because there is a high possibility of these jobs being outsourced because of the need for highly skilled but cheap workers. Those who advocate for free trade often hold that a dynamic and innovative economy can easily replace jobs lost due to outsourcing. (Wright, 2006) Outsourcing benefit United States consumers because of cheap imports even though workers are often dislocated.

Impact of outsourcing on the United States economy

            The strong performance of the United States economy has often been cited in defense of globalization and outsourcing whenever a complaint is raised concerning the loss of jobs to cheap countries like India and China. United States economic output has increased since 2003 at an annual rate of 3.3 percent. This was the period when imports from cheap foreign countries increased. There has also been a steady expansion in domestic manufacturing output. (Richards, 2007) On the face value, outsourcing does not seem to impact on the economy but new evidence point towards a damage on the economy as a result of shifting production to foreign countries. Senior government statisticians have confirmed that outsourcing poses some problems to the United States economy. However, the explanation has been that there was an overstating of domestic manufacturing growth in recent years. (Mandel, 2007)

            Obscure statistics may be cited as the main barrier to estimating exactly how outsourcing impact on the economy. (NAPA, 2006) The cost cut by global companies and foreign suppliers that they do make in foreign countries are not always counted properly. Underestimations or exaggeration of the Gross Domestic Product is made based on this insufficient data thereby giving figures which hardly reflect the actual domestic production. Since 2003, close to 66 billion dollars in Gross National Product may have been created through outsourcing. The GDP could be either larger or smaller because the main focus of the estimate is on manufacturing shift overseas. Outsourcing of research and development may create a phantom GDP. However, there are not sufficient data which may enable precise calculations. The problem heighten as the low cost or “cheap” countries climb the value chain. There is also the possibility of overstatement being smaller in size. Because of the construction of numbers, low phantom GDP may be generated by high-tech equipment and machinery directly shipped by low cost countries to businesses. The existence of phantom GDP may point at the influence of globalization or confirm widely held fears. The government data cannot record intangible export services provided by global corporations to their foreign suppliers in terms of training and business knowledge. They receive cheap products in exchange. (Kisaka, 2008)
It is a clear fact that instead of measuring productivity, the focus is always on the gains on trade. Globalization itself accounts for almost half of United States productivity. However, it is very difficult to quantify this since many companies are not interested in knowing the value of onshore or offshore productivity growth. Even as companies grow more efficient, the United States workers do not reap much benefit and this can be explained by the phantom GDP. According to Houseman, American workers increased productivity is not represented by the benefits that the companies reap due to cost saving. (The Economist, 2004)
The United States corporations’ strong growth in earnings may not entirely come from domestic productivity improvements. Rather, it comes from cutting costs through outsourcing. This has some implications for investment even though it is difficult to quantify. Companies whose main focus is the United States market may not receive much attention due to slow economic growth. (Aywak, 2008) Contrary to the usual belief, growth in productivity does not point to the competitiveness of the American workers. It may as well point towards how cost uncompetitive with regard to international market they are. For instance, outsourcing has transformed manufacturing of furniture in recent years. There has been 70 percent surge in imports between 2000 and 2006 in imports mainly from low cost China. According to statistics, 21 percent of jobs have been lost during the same period of time in the furniture manufacturing industry. However, official statistics within this period of time indicates an increase by 23 percent in productivity per hour  and 3 percent increase in output in the furniture industry. The industry players do not agree with these figures since many factories have closed down during this period of time. (George, Aida, 2005)

            Hooker Furniture Corporation recently closed down its domestic manufacturing plant. Prior to 2000, majority of its products were manufactured in the United States. However, he could not resist the lure of outsourcing since the cost of manufacturing domestically could not allow the company to save much. The result has been that many of the employees have been left to either look for jobs in other industries or stay jobless altogether. This is the scenario with the large companies. Many companies have found it difficult to resist the lure of outsourcing citing the need for cutting costs. (Toledo, 2008) According to Byrne of Accenture, they intend to cut cost by 30 to 40 percent by collaborating with a transportation equipment company that has a plan of offshoring more than 50 percent of its part procurement. (Tim, Michael, 2007) A large percentage of this will be channeled to China. However, there is no clear evidence in import price statistics of cost saving from outsourcing. There is 6.7 percentage increase in the import price of furniture since 2003 even though low priced furniture from China are also in the increase. United States companies quest for cost reduction have seen the total imports increase by more than 88 percent. (Silicon Valley Business Inc., 2004)
There may be a bigger effect of outsourcing on the United States economy than perceived. Many companies do not consider looking for cost efficient alternatives back at home. This has a negative influence on the United States economy as many workers are denied a source of livelihood. However, the trend cannot be reversed. The only way it can be countered is through striking a balance as companies root for outsourcing options. Even though there is no direct relationship between outsourcing and job loss, a report released by the America Electronic  Association in 2003 indicated that more than 500,000 people lost their jobs between 2001 and 2003. During the same period, the United States budget for offshore outsourcing increased by 14 percent. (Heyman, 2003)

            The shift in outsourcing technology jobs to foreign countries is eminent in the United States economy. Thousands of qualified united States engineers have lost their jobs because of the need by companies to cut costs. The basic argument is that the amount of money spent on one individual back home could be used to employ more than two overseas. This poses serious problem not only to the economy but also to the American society at large. However, those in support of outsourcing argue that the number of imported jobs is growing faster than the number of exported jobs. These imported or insourced jobs are often paid higher than the outsourced jobs.


            As yet, we may not term outsourcing as a problem that requires solution even though it has the potential of creating an imbalance to the economy. It may benefit the welfare of the nation while at the same time destroy some sectors. Outsourcing produces winners and losers and hence naturally produces adjustments within the groups in the nation. (Peter, 2000) However, there is a slow adjustment among the workers displaced through outsourcing since they need to shift careers or seek for information concerning new opportunities. The task of policymakers is to make provisions for dislocated individuals. Policy actions should not impede adjustments. They should offer incentives for adjustments for the workers in order to keep up with the dynamic economic situations. Encouraging and supporting flexible labor markets may help in minimizing labor costs. Global policies which may help curb the negative impact of outsourcing may also include the standardization of professional certification procedures globally. Information about the conditions of labor market should also be gathered and made available to workers. (Mark, Richard, 2007) There is also need to educate and train workers in the country so that they may be competitive and able to meet the requirements of a changing global economy.

            However, there is a tendency by policymakers to play politics with these serious issues because they design their policies within a political time frame. More often than not, they tend to avoid short term adjustment costs instead of focusing on the increasingly dynamic labor and market situation. The United States can reap from the benefit of globalization and channel outsourcing towards empowering the workers. (Thomas, Leslie, 2002)


            The major issue of our time today mainly concerns outsourcing of jobs to low cost countries. Product manufacturing and various services like computer programming have been outsourced to countries like China and India. Many arguments have been placed which point to the fact that American workers are denied job opportunities through outsourcing. Jobs are thus exported making the great majority of the Americans workers to miss work opportunities. However, corporations and some economists view outsourcing projects as providing opportunities for cost reduction and business improvements. According to them, outsourcing has the capacity to create new jobs and impact positively on the economy. Being concerned with efficiency, the decline in costs benefits all consumers including those who have lost their jobs due to the same practice.

However, one fact that cannot be denied is that businesses are constantly and consistently looking for and finding new ways of cutting costs and increasing productivity. The success of any business lies in these principles. The arguments in support of outsourcing are based on the assumption that lowering costs and increasing productivity leads to more growth thereby creating more jobs. This is logically and economically valid even though it does not take into consideration workers with less skills whom the outsourcing process is cruel towards. Workers who have lost their jobs due to outsourcing may not even benefit from the reduced costs since it will not make any meaning for they shall have lost the means.

            Until this moment, it would not be helpful to condemn or support exporting of jobs through outsourcing but it would be important to view and analyze those aspects which may be helpful to both the economy and the job market while at the same time be cautious on the long term effects that it poses for the well being of the nation.

            If any change is to be implemented, it can only be based on the theory that outsourcing eliminates domestic jobs thereby leading to massive unemployment rate. However, it cannot be left unchecked because statistics show that many workers have lost their jobs due to the need of companies to cut costs. Outsourcing, even though an old practice, seem to have crossed the minds of the majority because of the rate at which American companies are embracing it leading to massive lay-offs. It could be an inevitable occurrence which is bracing Americans for the future trends. No single individual can deny the fact that the practice is good for the well being of the company. However, we must remember that companies exist because of individuals and not vice versa. If any change is to be realized, it must be channeled towards designing outsourcing  policies which are focused on the benefit by the great majority of the population.

If confusions about outsourcing are to be minimized, then workers should be provided with a concrete information and unbiased analysis. The impacts of outsourcing on employment and the economy as we understand it today could either be greatly exaggerated or underrated. The fears and worries related to the practice could be dealt with if accurate information is provided for the workers and the concerned parties.


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