Outsourcing and Opportunity Costs

¶ … microeconomics: Short project on opportunity costs. Rampell, Charlotte. "Outsource your way to success." The New York Times. 10 Nov 2013. The United States is becoming an increasingly service-driven economy and one of the trends fueling this development is the increasing recognition of the opportunity cost of time. More and more people and corporations are hiring specialized, outside entities to perform mundane tasks, rationalizing that the opportunity cost of time is exceeds the opportunity cost of money spent on such tasks.

For "these tedious, nonproductive tasks; there exists some higher-value activity you could be spending your time on instead" (Rampell 1). The concept of outsourcing and opportunity cost is well-known and underlines many common business developments, including maximizing the comparative advantage between nations. By specializing and focusing a specific type of good or service a nation can produce easily, productivity on an international scale is also maximized.

For businesses from a micro-level perspective, outsourcing allows them to focus their productive resources on elements which can yield higher dividends in the long run like research and development vs. mundane tasks The value of outsourcing and avoiding opportunity costs is also true of time on a personal level -- using outside services like cleaning services often makes sense for both individuals and companies, given the cost of time such work demands.

This has resulted in an explosion of services spanning from personal chefs to computer setup and service companies and a wide array of personal assistants who offer to do things like pick up dry-cleaning. While it might be assumed this is mainly a trend affecting the wealthy and upper-middle class, according to the New York Times, even lower-income individuals may make the 'opportunity cost' calculation to outsource. Some poor graduate students may decide that they have better things to do than clean.

"Outsourcing household tasks meant they had to take on more debt, but they calculated -- correctly -- that spending an extra hour working on a paper was better for their lifetime expected earnings than spending that same hour vacuuming" (Rampell 1). And the more people avail themselves of such sources, quite frequently the greater the proliferation of outsourcing entities and hence a subsequent downward pressure on price in a competitive market like cleaning services.

The downturn in the economy has also generated many more people looking for part or full-time work doing 'odd jobs' (Rampell 2). This lowers the opportunity cost of money spent on outsourcing. On an individual.