6/22/2004

Who Wins and Who Loses as Jobs Move Overseas?

Since the late 1800’s the United States economy has gone through many transformations and changes. In the 80’s, we lost a considerable number of jobs in manufacturing simply because American corporations found that it was much cheaper to let cheaper labor forces from India and China perform the jobs that Americans had worked. It scared a lot of people because American jobs went overseas and with it, American money. In recent years, we have seen white collar jobs also being sent overseas. Jobs that we thought were indispensable a couple years ago are now in the hands of someone thousands of miles away. In this article, the people having the conversation made some really good points. These are American companies, taking advantage of a cheaper labor forces to make more money and enabling Americans to buy the same goods and services we’ve grown accustom to for less money. Also, these lost jobs will more than likely give way to new jobs which will some day give way for other news jobs as our country and our economy grows and evolves.

The problem that I see, that was not addressed here, is the simple fact that we are losing money to these other countries. They are right, that these are American companies, but these companies are not selling near as much goods and services to the Chinese and Indians as they do to Americans. If we are sending all of our jobs over seas, how on earth are we going to continue to buy the goods and services produced by these cheap labor sources if we don’t have the income produced by these jobs? We already have an enormous negative trade deficit, meaning we are buying more goods than we are selling. We are sending our jobs, our money, and soon, our entire way of life to other countries. Our standard of living will regress to the point at which they are currently accustomed to.

5 comments:

C-Dizzle said...

Not being an expert in the economics of things, I tend to agree with Micahnay. It seems that there's a negative cash flow associated with Americans purchasing so much from oversees companies. Isn't this where the government should step in a promote a greater production of goods here in the U.S.
From a business standpoint, I agree with the decision to move some business to other countries. If you can produce goods cheaper somewhere else, wouldn't that be the smart way to do business?

Rolf Tiblin said...

I think the main thing we have to recognize from the job exportation is that in the long run we will get returns from our investments. In increasing opportunity for growing nations we give them a greater buying power to buy American goods. These goods are acutally sought after by those of higher incomes in growing nations. As their economies grow so will their incomes. Until these other nations enjoy the true capitalism America enjoys we will always have trade deficits. Despite these deficits the American economy continues to grow. Our standard of living is determined by our willingness to achieve whatever level we choose. It will only regress if we choose to let it. The glass is half full and in the land of opportunity we have the freedom to fill it.

Dr. Tufte said...

There's a lot to comment on here.

Outsourcing (the employment of foreigners in foreign countries to do work previously done by Americans in America) is just another form of trade. Resources should be allocated where there is a comparative advantage. Micah and C-Dizzle both make this point.

Now, people are always worried about how trade is going to make them poorer. Except that there is little evidence that restricting trade ever made anyone richer. The countries that did that commonly were in the former Soviet block, and in Latin America. None of them got rich. The same holds for individuals - withdrawing from society and being self-sufficient isn't the path to riches.

But, I'm not claiming outright that outsourcing is a good thing. So, here is an alternative way to look at it. Typically, riches are accumulated by those who hold fixed resources. A job that can be outsourced can't be terribly fixed, so perhaps we are better without it. If this is the case, what will make us rich is creating things that aren't movable. And, there are a lot of things like that that are extremely valuable, for example, stabiity, honest police, laws that work, freedom of speech, and so on. They can be copied, but not moved, and they keep people and their money coming here. That's what makes us rich. Just ask Rolf Tiblin.

One point that people often forget is that while a firm may outsource jobs at a lower pay, this doesn't always make it a good idea. In almost all cases low pay correlates with low productivity. So the choice is between paying a few people more for a lot of work, or paying more people less for a smaller amount of work. It isn't always a good tradeoff. Many people think that you can just train somebody to do the same job, and get the same productivity, and to a certain extent they're right. But what they are forgetting is that there are a whole bunch of features of society that make you more productive as an individual. Institutional features like clean drinking water and safe streets are absolutely essential to the high productivity of U.S. workers, but can't be outsourced with a job to make the new worker as productive as someone here.

Lastly, did you ever hear of insourcing? I didn't think so, most people haven't. It turns out that foreign companies ship more jobs to the U.S. than the other way around. If we limit our outsourcing, do you think their response will be helpful to us?

Jordan said...

Dr. Tufte said:

"Lastly, did you ever hear of insourcing? I didn't think so, most people haven't. It turns out that foreign companies ship more jobs to the U.S. than the other way around. If we limit our outsourcing, do you think their response will be helpful to us?"

This is something that I have actually researched a lot. I have found that the media says outsourcing is all about big business trying to save money. But when it comes down to it, smart outsourcing is more about getting the right people to do the right job. As I have commented in other posts, the U.S. also is a recipient of outsourced jobs from other countries. I agree with Dr. Tufte that limiting our outsourcing would probably end up hurting American jobs more than helping. For this reason alone I am a fan of outsourcing.

Dr. Tufte said...

Great addition.