Offshore Outsourcing: How Should Policy Respond?

2641 words - 11 pages

I. Outsourcing As Detrimental
The U.S. economy has seen many hardships within the last decade. The economy has suffered from a recession that is still threatening to cripple some Americans and unemployment has been at an all time high. People have lost homes and jobs and many businesses have gone bankrupt simply trying to survive. However, in the midst of this economic crisis some companies have managed to survive. Many companies, approximately 36% of them, have found a way to avoid economic collapse by cutting costs (Job Outsourcing Statistics, 2014). One of the most popular cost reducing strategies of our time is called outsourcing.
Globalization
Outsourcing has quickly became to go-to solution for businesses that wish to reduce costs, however, their cost saving comes with a price. The price is employment scarcity and American citizens are straining under the weight of corporate America’s choices. While all citizens are suffering, none are suffering as much as those who fall into either the low-income or disabled populations. These people are often faced with inadequate employment opportunities or unemployment. The outsourcing of products and services has contributed to this by moving many of the jobs that these people used to occupy overseas. Now, these people are left with nothing, but empty promises from politicians and mounting walls of debt that they can’t pay off (Freedman, 2005).
Outsourcing Defined
Before this discussion goes any further it’s important that one understands what the term “outsourcing” actually means. Outsourcing is defined as obtaining or transferring goods and/or services to or from an outside supplier (Bhagwati, Panagariya, & Srinivasan, 2004). This has been found to be an effective cost reduction strategy for companies. Outsourcing is a very common strategy used in many fields such as information technology, research and development, manufacturing, and call and help centers (Job Outsourcing Statistics, 2014). Specifically, companies are transferring these services overseas as in the case of call and help center services or companies are ordering manufacturing supplies from overseas at a much cheaper price than they could obtain them inside the U.S. Outsourcing is a term that is often used interchangeably with off shoring (Bhagwati, Panagariya, & Srinivasan, 2004).
Competition & Scarcity
The debate over outsourcing in the U.S. is controversial among citizens and economists alike. There are many economists who believe that outsourcing is the next, most logical step in a free market economy (Mankiw & Swage, 2006). These economists believe that the market shifts according to supply and demand. An inherent feature of a free market economy is the free competition of goods and services where the goods and/or services go where the demand is the greatest. According to this view, there is a high demand for labor at a reduced cost and there is an almost endless supply of cheap labor overseas. An example of this would be...

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