Critics of Job Outsourcing Ignore Big Economic Gains
by Bruce Bartlett
IDB on outsourcing:
page A13, Dec. 31, 2003
Excerpts:
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Much of the move toward offshoring is the result of ill-considered efforts to keep software jobs in the US. Previously, companies brought Indian programmers to this country to do their work under a program established in 1990.
It provided these foreign workers with H-1B visas that let them work here temporarily. But under pressure to save such jobs for the native-born, the number of visas allowed under this program was reduced from 195,000 to 65,000 in October.
So now, instead of having Indian workers come here, where they spent much of their earnings, companies are contracting with them to work in India, which is where they now spend their earnings.
Limiting reductions
Rather than admit they were wrong in the first place, the same people who demanded restrictions on froeign workers are trying to get new limits placed on outsourcing as well.
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These include higher taxes when laws are passed preventing state and local governments from utilizing cheaper foreign sources for information technology (IT) services.
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What threat?
The truth is that outsourcing is far less of a threat to American workers than they imagine, and there are big benefits for the US economy.
For starters, there is not a one-to-one link between jobs lost here and those gained elsewhere from outsourcing. Boston University's Nitin Joglekar has found that for every 100 IT jobs outsourced to India, only 20 jobs are lost here.
A study by the McKinsey Global Institute found that workers freed up from routine tasks that have been outsourced are often redeployed within the company in projects generating greater value-added and in jobs paying higher wages. It also found that companies engaging in outsourcing often established foreign subsidiaries that generate sales and profits for the home company.
Adding it all up, McKinsey concluded that every $1 outsourced led to a gain for the US as a whole of $1.12 to $1.14. The country where the outsourcing takes place captures just 33 cents of the total gain from outsourcing.
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A new study by Catherine Mann of the Institute for International Economics looks at some of these dynamic effects. She notes that globalization of computer hardware manufacturing led to a 10% to 30% decline in prices.
This made such equipment more affordable and led to a far greater increase in jobs in the long run than were lost initially when production went abroad.
[NOTE: I'd say that had a lot to do with creating that '90s boom.]
Mann believes that lower costs resulting from outsourcing of services will lead to comparable dynamic gains in the US.
She said globalization of IT services "will yeild even stronger job demand in the United States for workers with IT proficiency and skills."
Indeed, she notes that overall employment in job classifications most impacted by IT outsourcing are in fact rising.
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Job protectionism
They have also found that small firms and start-ups gain more from outsourcing than large corporations.
The latter have managerial structures that make it hard for them to take full advantage of outsourcings benefits.
Smaller companies and those just established can organize themselves more easily to utilize outsourcing and thereby gain sales and better compete in todays global marketplace.
Other sources:
computerworld.com
parnold.com
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I asked you what you would do, given any position in a democratic US gov't, to stop outsourcing and movement of manufacturing offshore. You never answered. I now throw the question open to any opponent.
The solutions must be legal, Constitutional, able to withstand legal challenge in the courts, and actually have some realistic chance of passing Congress. |
