Outsourcing: not a menace.yet

While the issue of outsourcing is hardly mentioned anymore in the current news cycle, it is one of the most relevant issues of our generation because it could affect many people’s employment prospects. Even I will acknowledge that outsourcing is not a sexy topic, I mean the country is at war and elections are coming up, but in a college full of engineers and industrial technology students (The two hot job exports right now) the concern over outsourcing must have crossed their minds at least once. Fortunately, at this moment it does not appear that the costs of outsourcing come anywhere near the benefits it can provide the country, but that doesn’t mean we should become complacent.

Despite what some political pundits like Lou Dobbs say about outsourcing, so far the practice has helped the U.S. tremendously by lowering the price of goods and by expanding the U.S. economy. You don’t need to know much about economics to guess that when U.S. companies outsource jobs to a lower-wage nation, it reduces costs and consequently cuts the prices of its goods to remain competitive.

For example, according to Eric Britton of the Oxford Economic Institute, U.S. consumer prices are projected to be 0.8 percent lower in 2010 than they would have been without increased outsourcing to China. Furthermore, the Brookings Institute estimates that gross domestic product growth would have been lower by 0.3 percent a year between 1995 and 2002 without foreign outsourcing of jobs in information technology; that’s a 2.4 percent change in GDP growth.

The most apparent cost associated with outsourcing is the job displacement at home. Although U.S. companies have been shifting jobs overseas for decades, anxiety has been understandably heightened as the latest wave of outsourcing has included well-paying white-collar jobs. These jobs account for nearly 54 percent of our national output and 53 percent of our nation’s employed. The most widely cited projections for outsourcing come from Forrester Research, which estimated in a 2004 report that 3.4 million service-industry jobs would go offshore by 2015.

While this number seems troublesome, it is relatively small comparaed to the total U.S. employment of 145 million, and the fact that roughly 15 million Americans get fired each year. Nevertheless, a recent study at U.C. Berkeley, suggests that 14 million Americans work in occupations that could be outsourced and that companies could save a combined $300 billion a year as result.

Since the potential benefits of outsourcing are considerable enough to guarantee that the practice will increase in the future, there is a logical question: How should U.S. policy handle the outsourcing of labor to make sure the practice doesn’t become too out of control and result in widespread layoffs? The first thing U.S. policy should do is reduce the vast global wage gaps, which reduces the temptation to outsource jobs while simultaneously improving the standards of living overseas. This can be done by simply enforcing existing U.S. trade agreements, which would eliminate such cutthroat cost-tactics as child-labor and substandard working conditions.

The second thing U.S. policy should do is reform education to give American workers the knowledge and skills they need to compete in the global economy. This can be accomplished by strengthening the kindergarten through 12th-grade curriculum, investing in science and engineering higher education, and restoring funding to community colleges and retraining programs.

The final thing the government should do is provide ample assistance to displaced workers. This assistance should include wage insurances, temporary payments that make up the difference between what one’s old and new job pays with an annual ceiling of $10,000, as well as re-training programs.

Ultimately when it comes to contemporary outsourcing, it does not appear to be the menace everyone is making it out to be. Nevertheless, the threat of massive job displacement that can affect our generation is a real one. Consequently, our country’s policy towards outsourcing must look to eliminate unfairly cheap labor practices around the world while emphasizing education and monetary assistance at home.

Patrick Molnar is a business sophomore and Mustang Daily political columnist.