First run through: Outsourcing

Outsourcing has become a very prominent issue in today’s world.  With the problems already existing in the economy the effects of outsourcing are magnified.  Some say that this is unfair, others argue that it is necessary for our world to function.  Outsourcing is neither inherently good or evil, but that there are reasonable arguments for and against it.  

Outsourcing is essentially obtaining goods or services from an outside, often foreign source.  This includes products but also for the purposes of this paper, actual jobs may be outsourced.  There are a variety of reasons that companies might choose to do this.  Often times people fail to recognize these other causes and tend to believe that it is always for cheap labor.  In an article by Natalia Levina it is stated that, “only 54% of the [outsourcing] agreements realized expected cost savings.”  In other words, of all the outsourcing agreements made in this case study just over half actually reduced their costs.  This tells us that there must be other legitimate reasons behind outsourcing besides to save money.  However, it is admitted earlier in this same article that “the leading reason behind outsourcing is the need to reduce and control IT operating costs.”  This may sound bleak for those trying to defend outsourcing, but right after this line comes, “followed by the need to improve management focus and access technical talent not available in-house.”  This means that the second most prominent reason behind outsourcing is the fact that people in other countries are simply more qualified.  How can you argue with that?

The main argument against outsourcing is that it takes away jobs from US workers.  Many people agree that this is detrimental to our economy because it puts people out of work.  When people aren’t working they aren’t making money.  If they aren’t making money, they aren’t buying anything.  If people don’t buy anything, nothing needs to be made.  If nothing needs to be made, more people will be put out of work, etc.  While this comes across as nerve wracking we must also consider the contrary.  If indeed the main reason for outsourcing is to cut costs on production, then prices for goods should be lower.  Companies function by selling their products or services for more than it takes to create them.  Sure if companies didn’t outsource, more US workers would have jobs.  This means however that the costs of production would be greater and in return companies would have to charge more for the same thing.  This raises probably the main question of debate: are more expensive goods and services worth the loss of some low skill American jobs?

One of the main effects outsourcing has is on the wages of American employees.  The pay differential has been getting bigger and bigger over the years between low skilled and high skilled jobs.  According to Catherine J. Morrison, “Trade and outsourcing are... alleged to have increased the earnings gap.”  We can already see a widening of this gap so outsourcing is just adding insult to injury.  These low skilled jobs and goods are being shipped off to other countries leaving the pay differential between low and high skilled jobs increasing evermore.  In the United States the distribution of wealth is already so skewed that it is daunting to think about the richer getting even richer, and the poor even more poor.  

Well how many jobs can you actually outsource?  Will this just continue to take place forever until all jobs and products are delt with in another country?  Obviously this seems quite ludicrous.  Exaggerated yes, but maybe not so much to Daniel W. Drezner.  In his article, The Outsourcing Bogeyman he says that, “The McKinsey Global Institute estimates that the volume of offshore outsourcing will increase by 30 to 40 percent a year for the net five years.  Forrester Research estimates that 3.3 million white-collar jobs will move overseas by 2015.  According to projections, the hardest hit sectors will be financial services and information technology (IT)... 1 out of every 10 IT jobs will be outsourced overseas.”  Outsourcing has become very prominent today and is quickly becoming just a way of doing business.  This is bad news for many US employees and sadly it will affect a lot of different people, especially low skill workers.  In the quote though, we also see that about 3.3 million white-collar jobs are projected to be sent oversea.  This means that outsourcing does not only affect low skilled workers.  There are negative affects for both skill sets.  

We can agree that outsourcing has a very negative effect on those low skilled workers trying to live in the United states, but we have not looked at how this affects other jobs.  The movement of low skilled jobs overseas, according to Feenstra, “has contributed to an increase in the relative demand for skilled labor in the United States.”  he goes on to say that, “This feature of globalization- the fragmentation of production into discrete activities which are then allocated across countries- has received little attention in the literature.”  This is true.  The majority of articles on outsourcing tend to focus on the fact that so many jobs are exported overseas and that it is so detrimental to our economy.  What they have failed to realize is this causes a greater need for high skilled labor in the United States.  This is the reason that the United States is the most wealthy Nation in the entire World.  This is what our country was founded upon.  The ideals of capitalism and the notion of, “survival of the fittest.”  It is also understood that this nation was founded upon equality.  But I don’t think the founding fathers were thinking about economic equality.  We all have the right to the pursuit of happiness.  The problem with that, is our society believes that money is in fact the only way to find true happiness.  The fact of the matter is that’s not the case and you do not have to live in the United States to be happy.  Economic quality is not a guaranteed right or privilege otherwise how we would we convince doctors, lawyers, and business men to go to so much extra school?