Current issues in the US economy

¶ … U.S. Economy Issue

Outsourcing

The new business trend sweeping one-way across the Pacific is the post-recession procedure "Outsourcing" under which a company, normally American, permits its products or services. These are mainly labor-intensive, to be carried out in another country, generally located in Asia, and particularly China, Philippines and India (Lambro, 2004).

This outsourcing is a decades-long practice of moving production of goods and other administrative services overseas, representing just a minor part of the nation's $10 trillion economy. According to the studies conducted by the Labor Department and other outside groups has said that the number of jobs involved in outsourcing signifies less than one percent of all United States jobs (Lambro, 2004).

For instance, an American manufacturing company permits its products and services to be produced in Asia where labor is economical or in other words cheap, then buys it back in low-priced, it maintains savings and later sells them forward with a lot bigger profit margins to boot. It brings a tough competition in the market of such products and services, which makes it a matter of competing successfully in the marketplace or even surviving in there (Daniel, 2004).

According to Mr. Rubin, the democratic economic guru:

Is part of a much larger phenomenon, and the much larger phenomenon is trade liberalization, and I think trade liberalization has been good for our economy and I think trade liberalization will continue to be good for our economy." (Lambro, 2004)

However, much of the outsourcing seen now is the outcome of the global revolution particularly in telecommunications in which many services ranging from income tax preparation to information services can be executed just about anywhere in the world at less cost to the American consumers (Manila Bulletin, 2004). At the same time there are some jobs that are, of course, lost to overseas contracts. According to a Heritage Foundation study; "the trade-induced labor flows are a net positive for the U.S. economy." It further said that "the gains of trade have been shown to vastly outweigh the costs, even when job dislocations are factored into account."

On the contrary, economic statistics are best measured over the long-term, like mutual funds, approximately over a 10-year period. Thus, the study after applying the measurement said"

America has averaged gross gains of 8.11 million jobs per quarter over the past decade - an average net increase of 400,000 jobs every quarter, swamping the impact of outsourcing" (Lambro, 2004)

Sector study: Information Technology

This paper examines one particular sector "the information-technology" (IT) industry for the outsourcing and as what Mankiw said right about "Foreign outsourcing- a buzzword for international trade in services. Contracting for services overseas has become more and more cost-effective due to the personal computer, which has digitized much work, along with the high-speed and deregulated transmission of that information by means of broadband and the Internet. The IT companies are more and more outsourcing jobs which include data entry, routine programming, system monitoring abroad (Daniel, 2004).

The proof for this is the Labor Department's household survey. It presents a better count than the business payroll survey of the growing number of self-employed Americans. This mostly works under outsourcing contracts that decreases business costs and keep prices down. According to the household surveys:

2.2 million more Americans are employed now than were employed before the recession ended in November 2001. Never before have this many Americans - 138.6 million to be exact - been employed," the Heritage study said (Daniel, 2004).

Overseas outsourcing permits American IT companies to considerably cut the cost of particular services; resulting in the companies becoming more competitive in what they do best. Thus, better and more affordable services become available for consumers as well as for the taxpayers (Manila Bulletin, 2004).

A study was conducted by the McKinsey Global Institute in 2003 that said that outsourcing provides large and measurable profit to the United States economy. For example it reduces costs for IT and other services by as much as 60%, while keeping United States companies competitive in global markets, benefiting both workers and shareholders (Manila Bulletin, 2004). In addition, it strengthens demand abroad for the export of United States supplied computers, software, legal, financial, and marketing services & telecommunications hardware (Manila Bulletin, 2004).

It returns profits to the U.S. from United States owned associate overseas, as well allow United States companies to redistribute workers in more productive jobs in America. According to McKinsey every dollar spent on foreign outsourcing makes $1.12 to $1.14 of added economic activity in the economy of United States.

Debate:

The usual outsourcing debate is on the lack of hard numbers since none really has any idea as to how many jobs have been outsourced abroad. The best estimates from the Information technology industry are maybe 300,000 to 400,000 jobs earlier performed in America. This is now currently done overseas through contractors. According to the Forrester Research report of 2002 prediction 3.3 million jobs have been outsourced from 2000 through 2015, or about 220,000 a year (Daniel, 2004).

If taken these numbers even if accurate, then these are counted as just drops in the huge bucket of an $11 trillion economy that employs approximately 137 million people and produce and demolish millions of jobs every month. However, in years when there has been healthy employment growth, still over 350,000 people were filed for unemployment insurance per week (Daniel, 2004). According to the Labor Department figures, American economy has made an average of 32.8 million new jobs every year while eradicating 31.0 million, for a net annual increase of 1.8 million (Daniel, 2004).

Regardless of the instability of the past few years in this industry, the United States services sector remained a key strength in the economy of the United States. Computer, communications services and domestic software has accounted for around $621 billion in the year 2003, an increase from $510 billion in 1999 (Daniel, 2004).

A further actuality lost in the debate of outsourcing is the amount of outsourcing sent to the United States by the rest of the world. United States companies exported $14.8 billion worth of data-processing, research, computer, construction, architectural, development, engineering, and other IT services in the year 2002. While, in the same year Americans imported those same kinds of services worth $3.9 billion (Braga, 2005).