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The benefits of outsourcing
July 29, 2004 12:23 IST
Outsourcing of work to India or China has had a positive effect on the US economy and restrictions to offshoring may have an adverse impact on the quality of jobs in the country, according to a policy think-tank.
"Restrictions on outsourcing may save a few jobs in the short run, but they will come at the expense of better jobs in the future, jobs that will not be created," said a new analysis released by the National Center for Policy Analysis.
"Increased economic globalisation has caused jobs to move to the US as well as away from it. And because of the higher, increasing productivity of American workers, the jobs that move here pay more than the ones that leave," said NCPA Senior Fellow Bruce Bartlett, the author of the analysis.
He said American companies generally outsource work to India or China that requires little skill or training. The high-end work and wages stay here; but in fact, they might not be retained if the stateside work were not augmented by outsourced functions in lower-cost countries.
Bartlett's analysis showed that over the past 15 years, corporations reported an 82 per cent increase in insourced jobs compared to a 23 per cent increase in the outsourced variety.
Bartlett said that outsourcing benefited the US economy in other ways, including an increase in product availability, stronger demand for US jobs, competitive gains for small businesses and a rising standard of living.
"Outsourcing is not a new concept. Blue-collar manufacturing jobs have been outsourced for 100 years," the NCPA analysis said.
"Textile jobs in South Carolina today were originally outsourced from Massachusetts. While the transition was painful for Massachusetts textile workers in the short run, they soon found better jobs in new industries.
"The same will be true as South Carolina textile jobs are outsourced to China. The truth is that outsourcing is far less of a threat to American workers than they imagine. Their apprehension over outsourcing will diminish as the economic expansion reduces the unemployment rate," Bartlett adds in his analysis.
Furthermore, workers freed up from routine tasks that have been outsourced are often redeployed within the company to higher paying jobs, or on projects that generate greater value-added services or products, he said.
The US Department of Commerce reports that in 2003, the United States bought $77.38 billion in services from foreign countries and sold $131.01 billion to them.
"Thus, we exported nearly $54 billion more in services, including legal work, computer programming, telecommunications, banking and engineering, than we imported.
"Moreover, this surplus was responsible for the addition of 400,000 jobs in 2003," the analysis said.
Earlier this year, the Senate adopted a measure that would bar federal contracts to companies that outsource any job previously done by an American.
Additionally, it would prevent state and local governments from using federal funds for outsourcing. While it is unlikely that this provision will become law, it undermines US attempts to expand world trade, feels Bartlett.