Outsourcing to India and China has gone from being a buzzword
among economic analysts to a contentious issue that has many
Americans concerned about the future of the U.S. economy and their
own job prospects.
- Beth Dykstra
Outsourcing or offshoring is the movement of jobs from the
United States to countries such as India and China, where labor
costs are lower. Most of the jobs that are moved are blue-collar,
but high-skilled jobs are increasingly being outsourced as
well.
Professors at the University who study outsourcing trends said
they do not cause huge job losses and are a necessary step to take
as the business world continues to globalize.
“Even though in the short term outsourcing is a pain, (it
is) a general business challenge that companies are facing in a
global market,” said Mayuram Krishnan, professor at the
Stephen M. Ross School of Business.
Despite such assurances, outsourcing has become a hotly debated
political issue. Recent shifts in service-sector and software
manufacturing jobs have prompted Democratic presidential candidate
John Kerry to repeatedly criticize President Bush for allowing
companies to shift to many jobs abroad.
To stifle outsourcing, Kerry is proposing a tax holiday to
companies that reinvest in the United States, while pledging to
eliminate tax incentives to U.S. companies that outsource.
Historically, offshoring of U.S. jobs has occurred numerous
times.
In the textile and manufacturing sectors, jobs have been
exported overseas, and the economy has adjusted and grown by
creating new types of jobs. The service sector has never
experienced the effects of offshoring. Now, it is because the
service sector is being affected that the issue has gained
attention, said Robert Kennedy, associate director of the William
Davidson Institute, a research division of the Business School.
But recent outsourcing — coupled with slow job growth
since the end of the recession — has also led some economic
analysts to begin discussing the possibility of a “jobless
recovery,” where the economy grows without adding new
jobs.
Many college students are also expressing concern about the
effect offshoring will have on their future job prospects. Some
worry whether they will lose their jobs, while some politicians are
asked to take action to stop the drain of jobs.
“The fact that startles me is that 250,000 manufacturing
jobs have been lost in Michigan, and even though all of them cannot
be attributed to outsourcing, greater tax subsidies need to be
given to companies who are increasing employment opportunities in
the U.S.,” said College Democrats Vice-Chair Libby
Benton.
But some economists counter that outsourcing is actually
beneficial for the U.S. economy in the long run. Kennedy said
offshoring encourages countries to specialize in making the goods
and services that they are best at, and therefore productivity
increases.
Companies will explore all the resources they have to compete
effectively in the increasingly global economy, Kennedy said.
“The only way for an economy to grow is by using all
available resources,” he said.
Kennedy added that offshoring is a “small
phenomenon” and represents a small portion of the jobs lost
in the United States.
The benefits of offshoring also outweigh the costs of the
displaced jobs, Kennedy said. He added that job losses are painful
for some industries, but that outsourcing and free trade are more
advantages, and in the long run, is beneficial to society.
When they outsource, companies are able to provide cheaper
services because the costs of producing are lower. Lower costs are
beneficial to the economy because the firm delivers more profits
and provides better job security for its employees, Kennedy
said.
While outsourcing may be a product of globalization, Benton said
the strength of U.S producers is important for the country to
remain competitive in the global field.
“The economy is becoming increasingly global, and it is
not necessarily a bad thing, but we have to strengthen our economy
by ensuring that everybody has a level playing field,” she
said. overseas at an increasing rate is not alarming and is part of
the business cycle. “It is a part of a whole in global
restructuring,” Krishnan said.
Recently, offshoring has received media attention as politicians
use the issue as a way to garner votes, Kennedy said.
He added that protectionism against offshoring, such as placing
tariffs on foreign goods, will be ineffective because it is not
observable. He explained that while a foreign automobile can be
blockaded and accounted for, the same type of record-keeping can
not be done for services.