The Truth About Outsourcing

A detailed look at the real facts surrounding the outsourcing of jobs.

How Bad Is Outsourcing? It Depends On How You Look At the Numbers

No U.S. job worker wants to hear that companies are outsourcing more of their jobs to foreign countries. This is especially unwelcome news today as the national unemployment rate stands near 10 percent.

But it’s questionable exactly how much of a negative impact outsourcing has on the U.S. economy and its workers. Much of this, of course, depends on what study you look at and how you interpret the numbers.

For instance, by 2015, it’s expected that 3.3 million service jobs will have moved offshore. At the same time, 1.5 million back-office jobs, including payroll and accounting, will have done the same, while 473,000 jobs in the IT industry will have moved out of the United States.

It’s hard to argue that those numbers don’t have serious implications for the United States. But the impact of outsourcing may actually be a bit overstated. There are about 150 million jobs in the United States now, and the country creates about 3.5 million new jobs a year. Other studies show that 70 percent of U.S. employees are not vulnerable to outsourcing. That’s because they work in restaurants, hotels, retail or healthcare, jobs that can’t readily be outsourced from the country.

Are these figures high enough to cover the losses from outsourcing? James Hines, an economics professor from the University of Michigan, thinks they are. He said that outsourcing isn’t even all that negative, and that it actually creates new employment opportunities in the United States.

This may be hard to fathom, but it works like this: Outsourcing allows companies to employ workers at a lower cost. This permits them to manufacture the same number of goods with fewer resources. This means that the price of goods being sold in the United States falls, strengthening U.S. companies.

These companies can then expand. Once they do this, they’ll create more jobs and hire more workers. Of course, U.S. workers whose jobs have disappeared thanks to outsourcing may not buy this argument. Many of them are still looking for work, and finding that their prospects are dim.

A total of 31 percent of outsourced workers are not fully re-employed after their previous positions have been eliminated. Only 36 percent were able to quickly find jobs that matched or boosted their wages from their previous position. And 25 percent suffered pay cuts of 30 percent or more when they took on their new job.

The Brookings Institution probably provides the most damning indictment of the effect that outsourcing has on workers: Outsourced workers who do find new jobs only earn an average of 47 cents of every dollar they earned at their previous positions.

So how bad is outsourcing? I guess it all depends on whether you’re now earning 50 percent less each year because your previous job is now being filled by someone in another country.