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The Effects Of Outsourcing In America

1354 words - 5 pages

“It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy” (Taylor). This quote by Adam Smith, cited by Timothy Taylor, defines outsourcing as a task that can be done within a group, but is instead done by a third-party group for less money. While outsourcing service benefits American firms, studies show it takes jobs from middle-class Americans and adversely affects the American economy; however, other research proposes that outsourcing might actually benefit the American economy.
One effect of outsourcing is that it economically benefits American firms both domestically and abroad, and these benefits are the reason outsourcing is so prevalent in today’s world. In one research, it was found that, “Ten percent growth in American firms’ foreign investment is associated with 3% in their domestic investment” (Desai). In essence, this conclusion shows that when an American firm grows abroad, they also grow locally which benefits the firm everywhere. One study in 2004 from the McKinsey Global Institute demonstrated, “What happens when an American firm moves work that cost one dollar to India. Out of that dollar, India’s economy garners 33 cents in wages paid in India and profits earned by Indian firms. But 67 cents accrues back to American firms...” (Taylor). This research reveals that outsourcing benefits the American firms by reducing the wages they have to pay the workers and thus increases their profit margin. According to another article, “[Due to outsourcing,] return on sales was 5% and is now 6%--a net 20% change. Return on assets moves from 10% to 13.2%--an impressive 32% increase. And return on equity increases to 30%” (Lomas). This article excerpt proves that outsourcing benefits the firms that do it substantially and not just by lowering costs, which are not even the greatest effects outsourcing can have if done correctly. Although it may have positive effects on American firms, outsourcing does not benefit the workers who lose their jobs to outsourcing, but in fact, it hinders their ability to support themselves or their families and lead middle-class lives.
Outsourcing also affects U.S. unemployment and the middle class lifestyle because it takes service-producing jobs from Americans. One study found that, “Today, the total number of manufacturing jobs in the U.S. computer industry is just 166,000, Grove notes. That’s lower than it was in 1975. Meanwhile, employment in Asia’s computer sector has swelled to 1.5 million workers” (Lamphier). This excerpt manifests that outsourcing has removed jobs from America, leaving fewer workers in certain jobs than 35 years ago, yet it has benefited Asia whose workers are paid very low wages. Another researcher concluded, “We’ve lost 105,000 manufacturing jobs since 2000” (Trumka). This passage explains that outsourcing is rapidly decreasing the number of jobs available to Americans in certain careers and is increasing the...

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