Are Low Prices Worth the Cost?

Overseas Calling Center

By: Adeline Tolle

Over the past few decades, the United States’ has engaged in cost cutting through the outsourcing of labor. This controversial practice has brought into question whether or not the U.S. economy has benefitted or suffered. A common concern for many Americans is that outsourcing has and will continue to hurt the nation’s already fragile economy as more citizens lose their jobs to cheaper workers around the globe. However, many economists argue that outsourcing allows the country’s economy to expand by offering lower priced products. A balanced understanding of this topic can be reached through evaluating various advantages and costs to the U.S. economy.
 

Many U.S. economists have addressed the questions surrounding the outsourcing of labor to countries such as China and India. The most common answer, as even stated to Congress by the Council of Economic Advisers, is that outsourcing boosts the economy as a whole in the long run.[2] This means that there will be a time of displacement for the unemployed as they move to a new area of the economy, but that the overall benefit for the nation’s economy is positive. When companies such as Microsoft and Dell look to cut costs, the most obvious solution is lowering wages. However, the U.S. standard of living is astronomically higher than in other parts of the world, forcing companies to expand into the global arena as they look for labor savings. [1] Microsoft executive, Sivaramakrishnan Somasegar comments, “It’s definitely a cultural change to use foreign workers…But if I can save a dollar, hallelujah”.[1] The savings that corporations retain by outsourcing labor are quite high as proven by a University of California at Berkley study that illustrates a U.S. computer programming job which pays between $60,000 and $80,000 will cost companies only $9,000 in China, and between $6,000-$11,000 in India per employee.[2] In China, a Business Process Outsourcing (BPO) job costs employers one tenth of what U.S. employees would demand, and is still higher than the incomes of most Chinese workers.[1] For workers like these, both the company and employee benefit as lower wages are paid and workers receive higher incomes.
 

The outsourcing of labor in the U.S. is not as new of a concept as many Americans might believe. Beginning in the 1980s, U.S. jobs began to be outsourced to countries with a young and educated workforce that labored for a fraction of the cost.[2] However, those jobs that were lost in the U.S. economy did not hurt the employment rate in the long run and even allowed many displaced workers to find better jobs within the manufacturing industry.[2] In an excerpt from Frederic Bastiat’s Abundance & Scarcity, he states, “…human labor is not an end, but a means. It never remains unemployed”. The elimination of a job does not mean the wealth disappears as the worker can be redirected to a new task. Another positive for the U.S. economy is that the reduction of wages allows for the reduction in the price of consumer goods and services.[1] Bastiat argues in Obstacle & Cause, “The consumer becomes richer in proportion as he buys everything more cheaply; he buys things more cheaply in proportion as they are abundant”. This quote directly relates to outsourcing as Bastiat implies that if a producer can find a more efficient or cheaper method to produce the product, he or she is also benefiting the consumer as the product is sold at a cheaper price. Research has shown that “for each dollar of costs that U.S. firms shift offshore, it gains $1.12 to $1.14 in cost savings”.[2] Economists have also stressed the importance of outsourcing as a way to stay competitive within the national and global markets.[2] As producers look to cut costs and maximize profits, the outsourcing of labor gives producers an advantage. If outsourcing was not allowed in the U.S., other countries would continue to employ the cheap work force around the world and would gain a competitive advantage. Lastly, some argue that the outsourcing of labor is not only for benefits to the U.S. economically, but also is a humanitarian act. By sending jobs to impoverished or developing nations, producers are providing money to help these nations raise themselves from poverty.[2] A number of economists’ stress the benefits of outsourcing labor to lower wage countries as it allows both the U.S. and global economy to prosper.
 

In recent years, a vocal group of skeptics have condemned the outsourcing of labor stating that it negatively affects the economy. The critics say that it is bad for the economy because it forces Americans to battle for lower wages just to remain employed.[2] Also, outsourcing causes people to consume less goods and services as they are forced to deal with a lower income. A 2004 study estimated that one in twenty tech jobs will be sent to other countries in the near future as the technology area loses thousands of jobs every year to outsourcing.[2] Due to this risk, people in the industry are leaving it entirely because they feel that job security is too uncertain.[2] In the 1990s, when the U.S. economy was experiencing relative prosperity, IT jobs began to be outsourced to countries such as India and China.[2] This did not immediately harm members of this sector, but when the economy declined in the early 2000s, the technology industry was hit the hardest and the side effects of outsourcing were clearly seen.[2] Paul Roberts, a finance professor, stated, “Trade implies reciprocity. It is a two-way street. There is no reciprocity in outsourcing, only the export of domestic jobs”.[2] Roberts believes that we receive nothing in return that can help our economy by outsourcing, and therefore states that the producer is only hurting the economy by trying to cut costs and laying-off the U.S. employee.
 

While companies save large sums on wage decreases, they are often faced with different and unexpected challenges through outsourcing. A controversy with outsourcing has been whether or not foreign workers can produce the same or better quality than U.S. workers. Another occupation of the U.S. economy that has experienced the transfer of jobs overseas is the customer service representative which makes up twelve percent of all outsourced jobs.[3] Several cases have indicated that foreign workers often do not perform to the same level as U.S. workers.[2] Dell Computer Company moved its call center to India, but found that the language barrier was too difficult for American callers to understand and has since tried to move its call centers back to the states.[1] One reason that foreign workers cannot perform at the same level is because of the quality or quantity of their education. While most have an education, it often does not meet the standards for “international business”.[1] Skeptics of outsourcing discuss how little evidence there is to prove that the unemployed workers left behind in the U.S. receive even better jobs in the long run.[2] Christopher Koch, editor of CIO Magazine, states, “Low-skilled workers make less in real dollars today than they did in 1973”.[2] Koch is not the only one concerned about the loss of Americans jobs. New Jersey Representative, Shirley Turner proposed a bill for the state that would “require all state contracts to be fulfilled by U.S. workers”.[2] This bill was not passed, but it did open the gate for over twenty other states to try and pass similar bills.[2] The federal government has also contemplated whether or not to provide tax incentives for companies that do not outsource labor.[2] Americans continue to remain cautious about the outsourcing of labor because of these negative impacts to the U.S. economy.
 

While outsourcing will remain a heated topic within the American society, the economic impact in undeniable. Many economists state that the long term benefits for the country greatly outweigh the short term displacement of U.S. workers. However, others contend that the cost to the individual employee and society as a whole exceed the savings. Many Americans are conflicted as to the long term personal impact of outsourcing. The initial question still remains, is outsourcing advantageous to the American standard of living?
 

[1]. Outsourcing in America: Overview
[2]. Outsourcing White-Collar Jobs Overseas
[3]. Job Outsourcing Statistics
 

Bibliography
Blackwell, Amy Hackney. “Outsourcing in America: Overview.” In Issues: Understanding Controversy and Society. ABC-CLIO, 2006-. Accessed June 26, 2014. http://issues.abc-clio.com/.
“Job Outsourcing Statistics.” Statistic Brain RSS. Accessed June 26, 2014. http://www.statisticbrain.com/outsourcing-statistics-by-country/.
“Outsourcing White-Collar Jobs Overseas.” Issues and Controversies On File. Facts On File News Services. 2008. Accessed June 26, 2014. http://www.2facts.com/article/i0900460.
Issues: Understanding Controversy and Society, s.v. “Call center in Saudi Arabia,” Image, Corel, accessed June 27, 2014. http://issues.abc-clio.com/.

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