How Outsourcing Benefits the American Economy

Outsourcing is when a company procures labor or parts to an outside organization. So, does outsourcing outside of America help or hurt our economy? For the most part outsourcing is done in order to lower costs. For example, advertising stickers produced in America for the solar company GoalZero costs ten cents each, when they started to outsource the stickers, it lowered costs to one cent each. One down side is that the quality of the service and/or items can suffer since there may be a communication barrier. Another downside is that the time to ship the items can take much longer.

Although outsourcing is perceived to hurt our economy due to the amount of jobs lost to overseas organizations, there are several articles written by Forbes, Business Source Premier, and CNN Money stating that outsourcing does not hurt the job situation in America. One reason for this is that companies have been saving money through outsourcing, which has caused organizations to grow through innovation by focusing more on core competencies such as product and design, and in turn allows them to hire more. Not only do they hire more, but they are hiring more at a management level due to growth and responsibility. 

Therefore, with the information provided by the above sources, outsourcing does help the economy by allowing organizations to focus time, money, and efforts on more important aspects of their business, which in turn raises the quality of the economy as a whole.


Su Jung Poe said...

I agree with Jeremy's conclusion that foreign outsourcing helps the US economy by allowing domestic firms the opportunity to focus on the more important aspects of their businesses. This is one of many reasons why many companies choose to outsource lower-level jobs such as manufacturing and even basic customer service.

To further clarify, there have been studies done which have concluded that foreign outsourcing actually increases the number of US jobs. According to Brainard and Riker's article on how foreign outsourcing helps create more US jobs, they argue that when a firm outsources an activity that is a compliment to the firm's domestic activities, this creates more US jobs. When certain complimentary activities are outsourced to foreign firms, this frees up more US workers to perform higher-level, more important jobs. This combination of outsourced activities and domestic activities usually leads to higher productivity and profitability for US firms. Apple is a good example of this. Apple produces most of its products overseas in order to reduce the cost of manufacturing the products. In my opinion, this cost savings has allowed Apple to be very profitable and thus, having more cash to pay more workers, the company has increased its number of US jobs. Apple has created 50,250 jobs in the US, as well as hundreds of thousands of US jobs created indirectly to support and compliment Apple's products and services.

Dr. Tufte said...

Jeremy 88/100 for grammatical problems in two sentences.

Su Jung Poe: 47/50 (compliment and complement are different words; I marked off once even though the mistake was made twice).

It's pretty much concluded in economics that outsourcing is good on net. There are two caveats for that.

First, good on net doesn't mean that some people aren't hurt (we call this distributional consequences). Economics gives us answers that getting 3 and -2 is better than getting 1 and -1, but it doesn't really any offer any answers about how to deal with the person hurting from the -2. Dealing with this is a political issue.

Second, there is ceteris paribus. An item may be cheaper if its outsourced because of the way externalities are counted. When we internalize the cost of externalities, it's really easy to beat the price by ignoring that someone else hasn't internalized their externalities. Dealing with that is a political issue too.