One of the bloggers from Marginal Revolution and another economist had a debate set up by the Wall Street Journal about outsourcing. We all know that outsourcing is a controversial subject. But it all depends on how we look at it. For one, in certain industries, it is not just a matter of being cheap and wanting higher profits by cutting labor costs. For some, it is a matter of staying competitive and surviving.
If we take a look a the situation through partial equilibrium analysis we conclude that outsourcing causes unemployment. Yet, in general equilibrium analysis we consider the interdependence of all factors in the economy. Take the example of a production worker who makes cars loses his job as his company sends labor overseas. Without looking at the whole picture we conclude that outsourcing causes unemployment. But let's consider that the country where the car manufacturer moved production imports steel from the U.S. By looking at the big picture we can see that demand for labor in the car industry went down and the demand for labor in the steel industry went up. Not only that, the price of cars goes down and many people can benefit.
Check out the debate. It was interesting.