11/09/2004

Outsourcing

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.

9 comments:

Rufio said...

Not only can outsourcing be a good thing, but I think that it can make the companies within the country that is outsourcing to be stronger. Of Course, we will lose a few companies, but the stonger companies will survive and become more competitive. If these companies can become competitive enough they can force the outsourced companies out of the market and then get back to normal.

Taber Wolrab said...

I agree that outsourcing is a good thing. As different companies outsource some jobs may be lost temporarily. But by outsourcing costs are decreased, hence decreasing prices and by so doing more people are able to buy there goods which overall helps the economy. As the economy does well people come up with new ideas and more jobs are created. Outsourcing has got to be a good thing.

Anonymous said...

I agree with Peter that by looking at the whole picture, you will recognize the benefit of outsourcing cars to other countries in return the increase in jobs in the steel industry. One problem that may need to be considered would be what happens to those who specialize in the automobile industry, but don't have the skills to work in the steel industry?

Julie said...

In response to the question posed by Anonymous, what if the car companies who are outsourcing to foreign countries paid a part of their increased profits towards the retraining of laid-off employees? The company still gets larger profits than if they stayed in America and the employees could have the ability to benefit from the increased steel industry.

John West said...

I think that outsourcing is a good thing if you do indeed look at the big picture. It makes sense when you take a look at the automobile/steel example. It is tough to have anyone lose a job, but in an economy that takes into consideration millions of jobs and not just a single job, one must agree at least in-part with outsourcing.

Biancca said...

I think that workers in America are becomming more educated in response to outsourcing. The types of jobs that are not outsourced require degrees and I think the market for workers will change to meet that demand.

Maudi said...

Outsourcing is not a crime!! I agree with the author that we can all benefit from Outsourcing. The only question is why aren't more companies doing it. Many people forget that we pay more for goods when they cost more to make. Outsourcing allows us to get goods at a fraction of the normal price. Although it might hurt the economy in the short run it would do wonders for us as Americans to stop putting tarriffs on the goods that we import. It seems odd to me that we shop and shop for a good deal but we are not happy with the great deals that come to us from overseas.

Dr. Tufte said...

I think you've all gotten the point that outsourcing is probably a good thing. That's nice to see...

One thing that rarely gets discussed in these things is why workers don't insure themselves against being outsourced? I know that they just can't go out and buy a policy to cover this, but they can save their money and invest it. In media coverage they always seem to find someone who has worked for the company for ever, lost their job, and has little or no savings. You don't see all the people who saw this coming, prepared, and got out.

For example, it isn't precisely outsourcing, and I'm not claiming that these are the most brilliant guys out there, but both my father and brother saw in middle age that their jobs were not likely to be sustainable, and they prepared themselves and successfully bailed out. This is not the case with everyone, but I think there is a serious underrepesentation of people who successfully deal with being outsourced.

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