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Outsourcing Economics

The paper provides detailed explanations regarding the benefits of outsourcing to the United States economy by debating each criticism of outsourcing such as job losses in the production and manufacturing industry, increase in trade deficits and an unfair competitive advantage. It provides insights into the key reasons why a company decides to outsource.

The paper also presents actual rate of job loss due to outsourcing and discusses the positive effects of outsourcing on domestic economy and the reasons why it improves international relations, increases industrial productivity and efficiency, reduces labor costs, contributes to real Gross Domestic Product, and creates new jobs. Outsourcing Economics The impact of outsourcing on the United States economy will remain an issue in the future.

It is just a matter of looking whether outsourcing offers more benefits or creates problems to the United States economy. Based on the paper presented, the disadvantages of outsourcing can be replaced by looking at the advantages of outsourcing. Opponents of outsourcing argue that it has had negative impact on unskilled, semi-skilled and skilled workers who were stripped of the opportunity to find jobs, leading them to live more in poverty.

Poverty affects the United States economy because it decreases tax revenues and consumer

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spending. However, majority of research shows that outsourcing has benefited domestic employment in the United States because it helps in the creation of domestic jobs, resulting to higher salaries paid to domestic employees. Each job outsourced in foreign countries can produce more work for other people because the money will flow around the national economy at a faster rate than in the United States (“The Future”).

Moreover, outsourcing maintains the efficiency of the United States economy by keeping the level of competition among companies so that they will maintain low prices for their customers. The impact of outsourcing is less than opponents might perceive because when a product is outsourced in another country, only a small portion of the total retail price is provided to the outsourced country but the largest portion is taken by the company that outsourced it as profit (“The Future”).

Research also confirms that outsourcing appears to be linked to a rise in employment and investment in the United States rather than a decrease in employment and job loss in the country. Proponents of outsourcing argue that relocating low-skill service jobs is needed to ensure the competitiveness and productivity of the United States economy because it allows companies to save more money, provide them opportunities to improve entrepreneurship in the country and give more Americans the chance to hold higher level ranks (“The Future”).

The money saved by companies through outsourcing will help them lower costs for consumers and bring higher dividends for pensioners who own 75% of United States population. This implies that new jobs can be created because more money will be spent on other things such as local services (“The Future”). Research about outsourcing also indicates that the United States will create new demand for goods and services in outsourcing because of the new economic activity produced in developing countries.

According to estimates of McKinsey Global Institute, for every dollar American corporations spend on outsourcing to India, the United States economy benefits by $1. 14 and that 69% of service workers who were displaced by outsourcing will fill new jobs within a year, and will earn 96% of their previous salaries (The Future”). Companies that invest in developing countries through outsourcing can also help them develop into new markets for their own business.

This will also help address the growing division between poor and rich countries, helping foster international trade relations, prosperity, international peace and security for future generations (“The Future”). Companies are just using outsourcing in their effort to reduce costs because if they will not manage their business efficiently, every person who depends on them could lose their way of living and consumers will feel the negative effects of high prices and will eventually find another company that offers lower prices (“The Future”).

The significant challenge of outsourcing is how to best help workers who are displaced by outsourcing without closing their opportunity to find another job and thus providing them economic benefits that trade in services provides (“The Future”). Reference The Future of Outsourcing, Retrieved May 11, 2009, from http://www. globalchange. com/outsourcing. htm.

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