Outsourcing American Jobs to Foreign Countries - Case Study Example

Outsourcing American Jobs to Foreign Countries Robert Mattes Axia College Online APA 5th Edition Template November 24, 2006 While most American families would view outsourcing jobs to foreign countries as a threat to the American family structure, many people believe that this opens up other beneficial doors. At its core, outsourcing is about efficiency. It is a way of increasing production while decreasing costs, which further leads to higher profits for all U.S. companies that can be passed down to American families in the form of lower prices for goods and services. As costs decline, every consumer benefits, including those who lose their jobs to outsourcing. Lower prices in the marketplace, regardless of how they come about, lead to higher standards of living and more jobs in a stronger economy. According to information gleaned from the Household Employment Survey of Americans, almost 2 million more Americans have been employed since the recession in November 2001, joining a labor force that has reached 138.3 million workers, a record high (Bureau of Labor Statistics, 2004). Likewise, this same report indicates the unemployment rate has hit an all-time low at 5.6 percent. This information is supported by another report produced by the Labor Department (2006) indicating that American has only lost an average of 7.71 million jobs every quarter. Based on this information, Forrester Research has estimated that the worst case scenario would have America losing approximately 3.3 million service jobs in the period from 2000 to 2015 (Labor Department, 2006). Calculating the math, these figures show an average of 55,000 jobs lost to outsourcing each quarter, which only comprises approximately 0.71 percent of all available jobs in America. Some people feel it is our own fault jobs are going overseas as consumers continue to demand lower costs even though many of them also complain about the results of this demand, such as having to deal with foreign call centers. Jill Insley of the Observer Cash Pages (2006) reports, “Insurers consistently argue they have to take advantage of the cheap but skilled workforces in countries such as India to produce the low premiums and competitive interest rates customers demand.” In addition, there has been some skepticism as to whether these cost-saving measures, such as foreign call centers, actually translate into true savings. Citing research conducted for Aviva, Insley (2006) indicated only 28 per cent of the respondents to a survey felt lower costs due to foreign call centers would lead to lower premiums for American consumers while a majority of respondents indicated that service provided was not up to the standards expected. She also reported “Some people are skeptical about the benefits of cheaper workforces being passed on. The issue has become highly emotional because of two dramatically different effects associated directly to outsourcing. The first effect is the short term result of numerous layoffs and disruption for thousands of U.S. workers whose jobs have gone overseas. In spite of this, it is projected that this will eventually serve to strengthen, rather than weaken, the U.S. economy. According to the Council on Foreign Relations (2004), "With the U.S. economy still in recovery from a recession, many people argue that now is not the time to be sending jobs overseas. In addition, the kinds of jobs that are vulnerable to outsourcing have increased dramatically over the past five years." The Wall Street Journal (Hilsenrath & Buckman, 2003) also states that America is not alone in experiencing declines in manufacturing jobs. According to their report, U.S. the period between 1995 and 2002 saw a decline of 11 percent in manufacturing jobs which matching perfectly with worldwide averages among developed countries. “China has seen a sharper decline, losing 15 percent of its industrial jobs over the same period” (Hilsenrath & Buckman, 2003). Advances in technology now mean that a computer programmer, data entry specialist, or help-desk operator answering calls for a U.S. company can work as easily from their home in India or the Philippines as they could from a plant in Iowa. This capability has naturally caused considerable anxiety among those members of the U.S. workforce who have previously depended upon this type of employment. These workers may rightfully feel threatened by the possibility of companies sending work to better educated workers abroad who are willing to work for significantly lower wages. Critics of outsourcing feel such actions by companies only serve to disrupt natural communication paths and takes advantage of less fortunate people, thereby violating human rights. However, supporters argue that outsourcing is merely free international trade that is positive for global economies. Outsourcing can help a company operate in an increasingly competitive global marketplace. Lower operational costs are essential if a firm intends to maintain a position of any kind in the modern global economy even as it becomes necessary for even very small firms to ‘think globally’. Outsourcing can enable a business to provide live customer service 24 hours a day and seven days a week thanks to the ability to take advantage of a global employee base. This is especially useful for those products or services that depend upon around-the-clock support for adequate service, such as an insurance company. It is also unrealistic to expect a firm to take a negative policy against outsourcing certain services when trying to retain a market share in the face of its foreign and domestic competitors who are able to capitalize on such practices. Even as politicians complain about the loss of domestic technical positions, venture capitalists point out the benefits of outsourcing in stimulating new business growth, which ultimately adds new jobs to the domestic economy to replace those that have been outsourced. Two research papers recently produced provide further evidence that outsourcing is actually good for American job growth. The first study, authored by Mihir Desai, Fritz Foley, and James Hines Jr. (2005), investigates the migration of manufacturing production jobs to developing countries. Their research indicates a positive correlation between foreign and domestic relations such that 10 percent greater foreign investment results in a 2.2 percent greater domestic investment, and that 10 percent greater foreign employee compensation is associated with 4 percent greater domestic employee compensation (Desai, Foley & Hines, 2005). The second study, authored by Mary Amiti and Shang-Jin Wei (2004), looks into a subject that seem to terrify many American white-collar workers, the concept of outsourcing service jobs. This research demonstrates that the value of U.S. in-sourcing, the practice of bringing foreign talent into the United States to work, has been greater than the rate of outsourcing in each of the last ten years. (Amiti & Wei, 2004). This remains true even in the face of the U.S. trade deficit and an overall current account deficit. Examining 100 sectors of the U.S. economy, Amiti & Wei (2004) also state there is no evidence to support the idea that most outsourcing sectors have had negative job growth in the last decade. To the contrary, their research shows that industries such as millwork, plywood, metal coating, engraving, the allied services sector and the insurance industry have each experienced some of the fastest increases in service outsourcing, as well as some of the fastest rates of domestic job creation. That many would have concern regarding the effects of service outsourcing is understandable as the majority of jobs available in America today fall within this sector and many of these need to be close to the customer to be effective. A job in a hotel, nursing home, restaurant, university or a public school cannot be outsourced overseas. Therefore, one solution to outsourcing can be achieved by making these types of jobs good jobs. This can be accomplished with higher minimum wages and mandatory or voluntary cost of living increases. In addition, these jobs can be structured in such as way as to encourage and reward higher skills and career paths. Thanks to measures such as these, the most humble workers in Las Vegass hotels, those who clean the rooms, are paid middle-class salaries with health benefits and have career opportunities. They are becoming homeowners and starting to live the American dream while these higher labor costs have little to no impact on the success of the casinos. Learning from this example, it can be inferred that blue-collar service jobs could pay decently, too, creating a larger and more affluent consumer base while still providing quality service and production and allowing companies to prosper. Secondly, it is necessary to create more human service jobs that pay professional salaries by addressing currently unmet needs. Numerous reports have been issued regarding the current and future status of hospital nursing staffs, which are becoming increasingly thin as the baby boomer generation retires and few Generation X students move in to replace them. These same reports also focus on the inadequately trained staffs currently caring for the elderly in nursing homes who have little incentive to obtain further training as they typically earn little more than minimum wage and experience high levels of turnover. Americas children also need a whole new set of professionally trained child development workers who receive adequate compensation for the responsibility and training required for the role they’ve undertaken. These social needs should be met in the time-tested way – by taxing those who can afford to pay and using the proceeds for social investments. There should be a new partnership formed between necessary services and good jobs. Finally, while manufacturing jobs may never employ the domestic work force they once did, public policy can help stimulate a more advanced manufacturing economy. A lot of very good jobs were created as high-tech industries gained success, introducing new services and products. Likewise, the government’s subsidy of biotech research helped to create an industry with good jobs both in research and manufacturing. Again, learning from the past, the government could continue to work in partnerships with private industries by investing in new industries such as new technologies for energy independence. A national commitment to bring broadband cable service to every household in America would not only create a huge new market for jobs, but would contribute toward the development of tomorrow’s innovators as the digital divide is reduced among social classes. These strategies would create millions of good jobs in research, services, and manufacturing. Outsourcing actually offers the U.S. a tremendous opportunity. Contrary to popular opinion, not taking advantage of the opportunity outsourcing offers would come at a significant cost to the U.S. economy. Its important to recognize that outsourcing can also help us develop trading relations with the nations we are outsourcing even as it helps to stimulate our economy at home into new areas and new opportunities. Such trading relations can lead to long-term foreign opportunities for the U.S. Ultimately, many roads are available in the new economy. Limiting ourselves would be a foolish decision. References Bureau of Foreign Relations, “What’s the Debate Over Outsourcing,” February 20, 2004. Bureau of Labor Statistics, smoothed Household Survey. The 4-month moving average of CPS employment totals reached a peak in February 2004. Jon E. Hilsenrath and Rebecca Buckman, “Factory Employment is Falling World-Wide,” Wall Street Journal, October 20, 2003, p. A2 Labor Department, BED data series, 1992 to 2003. (2006) Michael W. Klein, Scott Schuh, and Robert K. Triest, Job Creation, Job Destruction,and International Competition, Upjohn Institute, 2003 Mihir A. Desai, C, Fritz Foley and James R. Hines Jr., “Foreign Direct Investment and Domestic Economic Activity” Harvard University and NBER, October 2005 Mary Amiti and Shang-Jin Wei, “Fear of Service Outsourcing: is it Justified”, International Monetary Fund, Working Paper, October 2004 Observer Cash Pages. Byline: Jill Insley (Sept. 2006). Cash: OFFSHORE CENTRES: Who really gains when jobs go offshore?: Jill Insley puts to the test company claims that overseas call centers mean lower premiums[Electronic version]. The Observer. Sept 24, 2006 p15 Read More