Outsourcing – Don't Get Bangalored?
As the world has gotten “smaller” in terms of trade, outsourcing has become a hot topic in much political and economic debate in the United States.
An Associated Press-Ipsos poll in May 2004, found that 69 per cent of Americans thought that outsourcing hurts the US economy while only 17 per cent thought it helped . President Bush’s chief economic advisor Greg Mankiw has stated “outsourcing…is something that we should realize is probably a plus for the economy in the long run” . While John Kerry has emphasized, that he is going to stop the outsourcing of American job . With the presidential election coming up, and the candidates giving mixed signals about the effects of outsourcing, it could turn out to be a decisive issue. A recent poll said 22 per cent considered outsoursing somewhat important while 68 per cent said it was very important . Not to astray, for many years Americans have witnessed the outsourcing of labour-intensive production, such as manufacturing. And the US economy has actully gained from it, in terms of higher productivity. But on the other hand, for many Americans outsourcing posses a real threat. However, in recent years services, which earlier was characterized as non-tradable, are also outsourced. As developed countries, like India and China, are able to offer cheap skilled labour surely there is a great enticement for US firms to move such services abroad, thus shifting jobs abroad. Where will that leave the US and its skilled workers – are they in a sense getting Bangalored?
In this paper, I will present evidence that argues both for and against outsourcing.
I will first point out main points of Jagdish Bhagwati’s paper “The Muddles over Outsourcing” and support it with other mainstream economists’ views on outsourcing.
Secondly, I will outline the arguments in Paul Samuelson’s paper “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization” to contrast the mainstream theory. Finally, I will also introduce the theory of immiserizing growth.
A glance at staticstics
Is the public concern over outsourcing valid?
The most cited official projection outsourcing is by Forrester. It is estimated that outsourced US jobs will grow from about 400,000 in 2004 to 3.3 million (recenty revised to 3.4 million) by 2015 which seems quite significant. But on a yearly basis this accounts for about 250,000 jobs but in perspective the number is small compared to the total US employment of 137 million. It actually only constituate less than 2 per cent of 15 million Americans who lose their jobs each year . Goldman Sachs estimates that offshoring has accounted for 500,000 million lay offs in the past three years. A study by Ashok Deo Bardhan and Cynthia A. Kroll at the University of California, Berkeley indicates that up to 14 million Americans now work in occupations that are at risk of being outsourced . Forrester also estimated that...