If my understanding is correct. Outsourcing of jobs to other countries will eventually lower the standard of living in the US and bring up the standard of living in countries like China and India and eventually a new equilibrium will be established where the standard of living will be comparable through out the world. Am I correct in my understanding? If so, is this a trend that can not be stopped (only delayed)? Mark
To a certain point you are correct but that's only partially true. Outsourcing need not lower the standard of living here in the US because the global economy is not a zero sum equation. For the most part we still live in an economy where capital is created so while many jobs are lost due to outsourcing there is still very much the possibility for more jobs to be created here in the US. In some ways outsourcing provides an economic benefit to the US by keeping inflation down freeing up money that would've been spent on higher cost labor to be invested or saved. Finally the threat of outsourcing leads to greater competition among US workers and businesses to adapt and develop new markets and skills as trade does in general. So while the US auto industry took a big hit from Japan the overall quality of US cars has improved to try to keep up. If we had simply put trade barriers there would've been no incentive for US car companies to make much better cars. In the same way while outsourcing has caused many job losses it could still lead to a better and more productive US work force.
I don't think anybody can really explain the future implications with much certainty. In theory it should create huge middle classes in places like China/India that will eventually buy our products and need our technologies. On the other hand it is depleting our manufacturing base to extinction. Sishir's mention of disinflationary effects is generally true. However, in our current situation of huge deflationary pressures already straining the economy, I would say that the disinflationary effects are actually detrimental. But then again I could be wrong. Like I said, I don't think anybody really knows exactly how this will all turn out. And that includes the Kings such as Buffett, Gross, Soros, Rubin, etc.
If our labor costs were not artificially inflated with minimum wage laws and unions, then we wouldn't need to outsource and could have cheaper products as well.
Guess again. Software enigeers who have lost their jobs to offshore outsourcing (like me) make $25+ per hour (in salary) and thus would not be considered "minimum" wage. Every job that does not have to be physically done here is the US is a candidate for offshore outsourcing. There are plenty of countries with well educated populations, like India, China, Russia, and Eastern Europe, that can supply the workers for the Great 8's outsourcing needs. The question is not "if" but "when". Another question is what do the displaced US workers do, when their jobs leave the country. Do they stay in the same field and compete with the many for the few jobs that remain? Do they retrain in hopes that they will find better, more secure employment in another field? Tough questions, with no easy answers.
First of all, let's not call it 'outsourcing' in this context. Outsourcing a name created by liberals for this election in hopes of finding a method to divide the country and mislead voters. Free trade, gains from trade, specialization of labor, labor productivity, and competitive advantage are some of the most basic tenets of economics. No economist with a darn would say that "outsourcing" (again, used in this context) is a legitimate economic problem. None. That's why Kerry's OpEd in the WSJ today is so incredibly ridiculous. For him to push the concept on the WSJ reading crowd is economic-credibility suicide. I stand in shock that Americans have bought Kerry's propaganda on the subject. Fortunately, as we have seen, that number is dwindling fast. The idea of maximizing jobs in an economy, not marginal labor productivity, is an outdated concept from Mercantilism (i.e. 1600's). It's ludicrous. It's taking our economic thought back over 400 years. Insane. Simply put, labor and human capital should flow to their most productive use, in their most productive place. This decision is made independent of border crossings. We live in a global economy, and when the global economy gains, the United States gains. Hiring cheaper labor abroad helps to maximize profits for American corporations (which have American shareholders), provide a stronger international consumer base for American goods and services, and establish trading partners abroad. All of these are huge positives which far outweigh the *temporary* loss of a job at home.
Economies are complex creatures. Many factors go into determining the standard of living generated by a country's economy. Since the end of WW2, the US's standard of living has dropped. Granted, our SoL was artificially raised by the fact that war had devasted Europe and Japan. When the economies Germany and Japan et al rebounded, our SoL slowly took a hit. Whereas in the 50s and 60s, most households only needed a single breadwinner, in the 80s and 90s households need two breadwinners to be able to afford a house. I fear that offshore outsourcing will have a similar impact on our SoL, i.e. it will be a factor that contributes to the downsizing of our middle class. The outsourcing effect will be gradual and will take place over a long period of time. I suspect that my generation will just begin feeling the teeth of outsourcing by the time we retire in 20-30 years. The growing middle classes in China and India may come at the expense of our middle class.
Here is an intersting article from the Minneapolis Star-Tribune discussing some of the benefits of outsourcing: http://www.startribune.com/stories/137/4963690.html Here is a tidbit: ..."More jobs are created than are lost" from sending work offshore, said Mike Raimondi, an economist at Global Insight, an economic consulting firm. In Donaldson's case, the company now has twice as many workers in China -- 2,500 -- as the 1,100 it has in Bloomington. The Chinese operation not only has allowed Donaldson to keep making a product it no longer could make at a profit in the United States, it also has helped boost the company's Minnesota employment, up by 400 people since 1990. Donaldson's highly paid engineers, chemists and designers in Minnesota spend their days designing updated filters that the Chinese plant will make for use in computers, MP3 players and digital video recorders. The falling disk-drive prices made possible by Chinese production are feeding demand for the gadgets. "If we didn't follow the [trend], we'd be out of business," said David Timm, general manager of Donaldson's disk-drive and microelectronics unit. In Minnesota, Global Insight estimates that 1,854 jobs were created as a result of foreign outsourcing in 2003. By 2008, the firm expects nearly 6,700 new jobs in Minnesota as a consequence of the trend. Within the information technology sector nationwide, the money saved by global outsourcing led to the net creation of 90,000 IT jobs in 2003 and should lead to an additional 317,000 jobs in the sector through 2008, Global Insight concluded this year. For the U.S. economy overall, Global Insight projects 589,000 net new jobs created as a result of outsourcing by 2008...
Ahh yes, we could also have 75 hour work weeks, unsafe labor conditions, a horribly oppressed poor working class like we did during the robber baron period. Man those were great times, huh? While we are at it, let's also remove child labor laws, and anti-trust legislation. We've had the lack of regulations that you are referring to, and it was a horribly corrupt period in our nation's history. Why would you trust the Ken Lay's of the world to do it differently this time? The fact is that most minimum wage jobs come from places like McDonalds, Wendy's etc. They can afford to pay a minimum wage.
..."More jobs are created than are lost" from sending work offshore, said Mike Raimondi, an economist at Global Insight, an economic consulting firm. I concur with this statement. I have 2 friends in the IT field that were laid off from the UPRR (along with 350 others) and one is now a track laborer and the other is working at Best Buy.....more jobs indeed
heh....outsourcing is liberal propoganda?? just when I thought TJ couldnt get more absurd in his statements, he proves me wrong again... tell that to the technology support people that have lost opportunities to get jobs that are now in India....tell that to the software engineers that are forced to work in different fields because their jobs have been outsourced to India or Pakistan.. outsourcing sends jobs that Americans need to other countries.....that is not propaganda....its the f*ckin TRUTH.
This is so incredibly over simplified. You have decided to focus on one narrow sliver of the economy and from that narrow sliver, make a broad based judgment about economic growth over 50 years. There are *millions* of variables that you have failed to account for. Let's keep garbage like this off the boards. Please.
I just wanted to highlight the differences between a well thought out, reinforced statement, and an uneducated, emotional opinion. Taking an economics course or two is a good thing...
Remember when the Iraq propoganda minister was saying the U.S. tanks weren't at the airport, and that Saddam's army was winning the war even as our tanks were running around the Iraqi capitol?
Outsourcing is about gertting work done better, cheaper and/or faster. Don't kid yourself into thinking it's only about the hourly wage. It's also about the quality and timeliness of the work. If China/India/etc. has a labor force that is cheaper, as good (quality and quantity) why not use them? If economics has taught us anything it's that the prices will come to be what the market says they are worth. Perhaps the problem has been that people were overpaying for IT folks because we didn't have enough of them? Just because someone made $70k last year doesn't entitle them to make $70k+ the next year. if that person is adding nothing to the company except labor and he can be replaced by someone making $40k then do it.
Well then if we want to keep the quality of life down in the U.S. and exploit our workers then yes jobs can be done cheaper. This is a generalization at the moment, I realize.
The point that is being made here is that the quality of life rises dramatically when jobs are sent to the most productive location. We see it in lower prices for imported goods, in larger economies to which to export, and to increased trade.
I guess it depends on who's quality of life. Look at the quality of life for the average person living in India compared with the quality of life with the average person living in the U.S. The post I was referring to was talking about working cheaper. I was mentioning what it would take to work as cheaply as some of those countries,. It appears the quality of life you are referring to is the quality of life rich folks who run the corporations doing the outsourcing.
No, the quality of life of all of that company's shareholders (middle class included), the quality of life of all of the consumers of that company's goods and services (all classes), the quality of life of those who work for or with companies that export goods and services to that country, etc. Why must you introduce demagoguery into the debate?
