Over the past few decades, advancements in technology and transportation have turned the world from geographically disparate centers of commerce into a massive global economy. Simple economic models have fallen by the wayside, as once sovereign national economies have become a tangled web of interdependence (McConnell 129-130). Despite the complexities though, there can be benefits to having a larger-scaled economy. One of the major benefits of a global economy is a global workforce. While companies could once only leverage workers and resources from their home nation, that is no longer the case. Companies can now choose to have the labor force closer to the resources they will consume. In addition, it is increasingly common for the labor to be completed for a lower wage, simply due to the standard of living in other nations (McConnell 135). Outsourcing of American jobs offers companies the benefits of cheaper labor, reduced operational costs, cheaper locations, and tax incentives but is detrimental to the economy of the US and to its citizens.
Outsourcing of jobs may lead to a loss of jobs and increased unemployment in the US especially for employees working in information technology, finance, and manufacturing industries. Outsourcing enables companies to hire employees with similar training and skills to American citizens but at lower costs. This may result in high rates of unemployment of American citizens which may in-turn lead to a sharp increase in both welfare fraud and welfare claims (Turkson 202-203). To meet the increased welfare costs, the government may be forced to increase taxes which would in turn prompt an increase in the number of claims on state programs such as Medicaid and Medicare. Higher taxes would increase the cost of living and necessitate major cuts in social security for instance, reduction of amounts dispensed for future pension claims. Eventually, the increased cost of living coupled with the rampant unemployment would render many Americans homeless. An increase in the number of homeless and unemployed people would in-turn lead to an increase in crime levels. Therefore, the loss of key industries and an increase in unemployment rates may have detrimental effects to the American economy. The country may then plunge into an economic recession due to increases in the cost of goods and cost of living as well as a decline in consumer purchasing power.
Outsourcing also denies small businesses based in the US an equal playing field. These companies may not be able to outsource their operations hence they are forced to compete with companies providing cheaper products due to lower production costs, an aspect which may lead to their extinction (Turkson 203-204). Other issues related to outsourcing of US industries and jobs include increased threats of computer viruses, terrorism, and customer identity theft since most foreign countries lack the requisite data protection legislations and high standard internal controls. It is thus explicit that outsourcing of US jobs perpetuates a vicious cycle of events that hurt the US economy and its citizens (Quittner).
Proponents of outsourcing argue that it enhances the global competitiveness of US companies and in effect, the US economy against foreign competitors and nations. The US government supports this notion and has enacted legislations that give tax incentives for companies to shift their operations overseas. The concept of enhanced competitiveness is, however, misconceived because outsourcing only benefits companies and not the US economy which suffers due to a loss of tax income and increased grants to friendly foreign nations (Turkson 204). The proponents also contend that outsourcing enables US companies to capitalize on cheap labor, cheaper locations, tax breaks, and reduced day-to-day operational costs. Indeed US companies face many legal and operational hurdles not faced by their foreign participants in countries such as India and China. US-based companies have to provide their employees with a benefits package comprising of social security, health insurance, life, and disability insurance. These benefits escalate production costs and are passed on to consumers making American products more expensive than those produced in competitor countries (Turkson 205). Increased production costs thus seem to legitimize increased globalization of American companies. However, in light of the possible adverse effects of outsourcing on the American economy, alternative solutions need to be explored. For instance, the institution of a globalization equalization factor to be extracted at the point of sale has been proposed. It is suggested that the globalization equalization factor may enhance the global competiveness of US-based companies whilst eliminating their need to relocate to foreign nations. The recent industrial accident whereby a building in Bangladesh collapsed killing over 1000 workers employed by textile industries has also put into question the ethicality and legality of paying lower wages to workers in foreign nations. These nations usually lack legal frameworks for protecting workers hired by foreign firms. Therefore, the benefits of outsourcing should be weighed against their demerits (Turkson 203).
In summary, outsourcing of American jobs overseas may seem as the logical course of action for addressing high production costs back home but it is not without demerits. It creates unemployment in the US, reduces tax sources, increases the cost of living while reducing consumer purchasing power, increases welfare costs, and in effect, it causes a steady decline in the American economy. The so-called benefits of increased global competitiveness only benefit individual companies and not the US as a country or its citizens. In this regard, more viable and sustainable solutions should be explored.
Works Cited
Quittner, Jeremy. “Offshoring Can Cut Costs, But it Raises Risk.” American
Banker 169.128(2004): 8-9. Print.
Turkson, Abraham. Save American jobs: New Business Ideas to Retain Jobs in America. Indiana: iUniverse, 2005. Print.
