Outsourcing of white-collar jobs and economic concerns in the United States

¶ … Globalization Outsourcing

Effects of Globalization: Outsourcing

There is a lot of controversy regarding the effects of globalization and free trade in the world. While the proponents of globalization contend that increased trade between different countries creates wealth and benefits everyone, the opponents of globalization focus on the increasing inequality between the have and the have-nots and believe that the poorest parts of the world such as Sub-Saharan Africa have not only failed to benefit from globalization but have actually become poorer as a result of free global trade. Somewhat surprisingly, however, concern about the effects of a globalized economy is not confined to people in the underdeveloped countries. In developed countries such as the United States, more and more people are now agitated over the increasing trend of 'outsourcing' or 'off-shoring' -- another inevitable consequence of globalization. In this paper, I shall discuss why outsourcing is causing concern in the developed countries, particularly the United States and whether the concern is justified.

Is Outsourcing a New Phenomenon?

The trend of relocating jobs to other countries is not a new development in the developed world, particularly the United States, as manufacturing companies in the developed countries have established factories abroad since at least the early sixties to take advantage of lower cost structures and wages in the developing countries. Such 'outsourcing' or re-location of factories affected manufacturing jobs in the U.S. But did not cause too much concern since the loss of jobs was relatively gradual and the local economy managed to make the necessary adjustments. Moreover, the loss of manufacturing jobs was compensated for by the higher-paying, high-skill jobs in the high-tech service sector, which was expanding rapidly. (Brainard and Laitan 2004)

Is the Concern About Outsourcing Justified?

Despite the overblown figures of outsourcing bandied about in the media, the reality is much different. Even if we accept the projections of Forrester Research about the outsourcing of 3.3 million U.S. white collar jobs by 2015, the figure translates into about 220,000 lay-offs a year. Given the fact that the total employment in the United States is approximately 130 million, and about 22 million new jobs are expected to be added between now and 2010, the expected job losses to off-shoring is insignificant. (Brainard and Litan 2004)

Moreover, most jobs in the U.S. (about 90% of them) still require close geographic proximity and outsourcing them is not an option. Also, despite the fact that some white-collar jobs can now be shifted overseas due to standardization of business tasks as data entry, accounting, and IT support, the majority of high-skill jobs requiring complex interaction or innovation are likely to remain inshore.

Most of all, outsourcing of jobs results in considerable savings to companies that outsource their operations. McKinsey and Co. has estimated in a recent study that a typical customer services call center company could save up to 70% by outsourcing. One Fortune 500 firm that moved fulfillment operations to Bangalore India reported that the overall cost savings were as much as 80%. (Dossani and Kenney 2004) Such off-shoring, according to a study by Baily and Ferrel is far from a zero-sum game and benefits both the receiving and sending economies. The study reveals that for every dollar spent by an outsourcing company, the receiving economy captures 33 cents and the savings enjoyed by the company creates net value for the 'sending' (read U.S.) economy to the tune of $1.12 to $1.14 for every dollar that goes abroad. (Baily and Ferrel, 2004)

Conclusion

Until recently, only the poorest countries of the world tended to protest the unequal international trade rules that prevented the benefits of globalization from reaching their shores. The outsourcing of jobs to the developing world in recent times, however, have brought forth a storm of protest and calls for protectionist measures from the developed world itself. A closer look at the phenomenon of outsourcing reveals that most of the concern about it is unjustified as outsourcing benefits both the receiving and the sending economies in the long run.