Offshoring

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Offshoring is the movement of jobs by businesses to foreign countries where labor rates are cheaper and there are fewer regulations. This is also known as "outsourcing." Many manufacturing jobs move from the United States to foreign countries in this manner.

Contents

Possible effects of offshoring

Key battleground states for the 2008 Presidential Election included Ohio, Pennsylvania and Wisconsin.

Ohio lost 31,800 jobs in goods-producing industries between January 2006 and January 2007, including a loss of 21,900 jobs in manufacturing.[1]

Pennsylvania lost 200,000 manufacturing jobs between July 2000 and March 2007.[2]

Wisconsin lost 8,600 manufacturing jobs in the last year (Feb. 2006 to Feb. 2007).[3]

All three states punished Republican candidates in the November 2006 elections.

Experiences of Europe

Thanks to a large number of offshoring projects Europe has experienced a change in its entire economy: manufacturing has been largely moved to Asia, but this has steadily been replaced by what is called "the knowledge-based economy". Anti-offshoring groups have hailed this as a catastrophe, but this has not been borne out by unemployment figures or GDP calculations.

It is important to note that there has been a strong backlash to this offshoring within the UK. Some British companies, including National Westminster Bank, RBS, the insurance firm Norwich Union, Aviva (repatriating 150 out of 7000 jobs) and Powergen have reversed their decision to outsource labor.

Economics

The main reasons for offshoring are minimizing costs[4] and maximizing revenue (by increasing productivity[5]), both of which are consistent with the behavior of a competitive firm in a free market. A more specific reason for offshoring may be the relatively high corporate taxes in the U.S. compared to other developed nations[6][7]. Also, some think offshoring is being used as a way to break up unions[8].

Although some have observed that offshored/outsourced workers are not always as productive as the workers they replace[9], if this is the case, the reduction in labor costs must outweigh the loss of productivity, otherwise a capitalistic firm would not take this action. Reducing costs by offshoring jobs increases firms' profits, and this increases economic growth according to the trickle down theory, for the same reason tax cuts do. On the other hand, offshoring causes economic hardships for the workers whose jobs are displaced, especially minimally skilled labor jobs[10]. It is debatable whether or not these negative effects outweigh the positive economic effects. In cases where the net economic benefit is positive, it can be thought of as creative destruction, which is a necessary occurrence as technology advances in a free market economy. Indeed, it is technology (communication, transportation, etc.) that often makes it possible for offshoring to occur.

External Links

BCS Site on Off shoring opportunities

Pro Off-shoring site read with reservations

Analysis of a trend of reversing off shoring

References

  1. http://jfs.ohio.gov/releases/unemp/200702/UnempPressRelease.asp
  2. http://www.centralpennbusiness.com/weekly_article.asp?aID=89156647.9077722.779558.2548748.4307912.688&aID2=59957
  3. http://www.wisbusiness.com/index.iml?Article=91717
  4. Wadhwa, Vivek; Gereffi, Gary; Rissing, Ben and Ong, Ryan. "Where the Engineers Are." Issues in Science and Technology, Spring 2007. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1015843
  5. "Outsourcing Innovation." March 21, 2005. Bloomberg Businessweek. http://www.businessweek.com/magazine/content/05_12/b3925601.htm
  6. Tamny, John. "Hillary Clinton's Backwards 'Progressive Vision'." June 8, 2007. National Review Online. http://www.nationalreview.com/articles/221224/hillary-clintons-backwards-progressive-vision/john-tamny
  7. Atkins, Chris and Hodge, Scott A. "U.S. Lagging Behind OECD Corporate Tax Trends." May 5, 2006. The Tax Foundation. http://www.taxfoundation.org/news/show/1466.html
  8. "Outsourcing and the Unions." August 6, 2007. http://www.globalenvision.org/library/3/1712
  9. Preston, Julia. "U.S. Farmers Go Where Workers Are: Mexico." September 4, 2007. The New York Times. http://www.nytimes.com/2007/09/04/world/americas/04iht-export.4.7380436.html
  10. "How Outsourcing Affects the U.S. Economy." http://www.dirjournal.com/business-journal/how-outsourcing-affects-the-us-economy/
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