A recent op-ed in the Wall Street Journal declared: "The fact is that for every job outsourced to Bangalore, nearly two jobs are created in Buffalo and other American cities." This article, and others like it, asserts that while outsourcing may send some jobs overseas it simultaneously creates more jobs and that the net is positive job creation.
Often these articles have data that compares companies that outsource with companies that don't. Their data shows that the outsourcers grow more rapidly than the non-outsourcers and add lots of jobs in the United States. This data is then interpreted to mean that outsourcing is creating more jobs in the U.S. than are lost through outsourcing.
While this sounds impressive, it is probably wise to take a hard look at the data before attempting to reduce unemployment in the U.S. by advocating more outsourcing. So let's check out a small hypothetical example.
We will see that, depending on the statistics you choose to look at, you can conclude that outsourcing makes companies prosperous and productive and creates jobs in the U.S., or alternatively that outsourcing destroys jobs in the U.S. and adds to the trade deficit.
Consider a hypothetical industry with 20 companies that make the same products and compete with each other. Each company has 10,000 jobs in the United States and these jobs split into two types: those that are can be outsourced (we will call these the O-type jobs), and those that cannot be outsourced (the NO-type jobs). Let's assume that in a typical company one-third of the jobs are O-type and two-thirds are NO type.
As outsourcing becomes possible, 10 of the companies decide to outsource and 10 decide not to. Let's call them the O-companies and the NO-companies.
As the outsourced work can be done for half the cost of the same work in the United States, the O-companies quickly gain a substantial cost advantage and take over the industry from the NO-companies. Once this process is complete we have only 10 companies left: All are O-companies. Each O-company has doubled its market share and therefore needs 20,000 workers to get the work done. Since these are O-type companies the 20,000 jobs are split: 13,333 of these workers are in the United States and 6,666 overseas.
At the industry level it is clear that the industry has gone from 20 companies of 10,000 each, a total of 200,000 U.S. jobs, to 10 companies with 13,333, U.S. jobs. This makes a total of 133,333 U.S. jobs. The result: 66,666 jobs have left the U.S.
However if we now do a study that is not at the industry level but rather looks at the individual companies, as was done in the study referred to in the Wall Street Journal article, the picture is quite different.
Each surviving company in the industry has doubled its output and each now has 13,333 employees in the United States. This is 3,333 more jobs than each company had before outsourcing began. Each company has not only replaced the 3,333 jobs it originally outsourced, but also has added 3,333 new jobs.
Comparing the new industry with the old would also show that U.S. productivity in the industry has gone up since outsourcing became the norm. The new smaller U.S. work force is now producing the original amount of product.
Even if you measure productivity more carefully, using value added in the United States per U.S. employee, that measure goes up too. The value added in the United States is the total value the product is sold for, less the value of any purchased input. In our case the purchased input is the product from the O-jobs now being done overseas. That input now costs half of the one-third formerly paid for those O-jobs in the U.S. or one-sixth. So the value added in the U.S. is five-sixth of the total. A U.S. workforce of two-thirds its original size is producing five-sixth of the value add. Value add per capita has gone up. But remarkably enough, despite the productivity numbers, all these U.S. workers are actually doing just the same thing they were doing before.
At the industry level it is clear that jobs have disappeared. It is also true that the industry has gone from having no impact on trade to becoming an import industry, one that adds to the current trade deficit. But if you look at the companies themselves, they are growing, they are prosperous, they are productive, and they have added U.S. jobs. We might easily conclude that outsourcing creates growth and jobs in the United States.
This hypothetical example illustrates the perils of dealing with statistics without a clear view of the processes that generate them.
Or to put it in another way, we have the well-known quote, which Mark Twain attributes to Disraeli: "There are three kinds of lies: lies, damned lies and statistics."
Second, a better question is, “Does traditional off-shoring best serve business and consumer?” Yes – it is cheaper. But savvy business leaders are moving beyond “cheaper” and are looking for suppliers who not only perform a service, but also build smarter, more innovative policies and procedures – in short achieving “better, faster and cheaper”. They look for strategies to collaborate with suppliers and maximize benefit for all parties. This new approach for outsourcing helps drive transformational results for companies and has been coined Vested Outsourcing: Five Rules that will Transform Outsourcing by the University of Tennessee researchers that studied some of the world’s most successful outsourcing deals. Outsourcing achieving transformational results for companies? No wonder the “Vested Outsourcing: Five Rules that Will Transform Outsourcing is the number 1 outsourcing book on Amazon. Find more at www.vestedoutsourcing.com.
Those vast fields kept his ancestors very rich and prosperous. The entire world beat a path to his door. His ancestors took this for granted, and carefully tried to convey these values to their son.
But the Foolish Farmer suddenly thought: "They Sell for Less! Always!!" "I do not have to tend my fields at all," he proclaimed, "for with my Money I can buy everything that I need, always at the Lowest Price!" And so he set up a restaurant for himself and paid every other nation of the world to ship goods to him. He allowed his fields to go to weeds and ruin. His money became IOU's. Uncaring of this, he printed millions of IOU's every minute of every day around the clock.
One day, though, his suppliers throughout the world finally realized that the Foolish Farmer was taking advantage of all of them. Although he demanded everything, he produced nothing. The ships that landed at his ports had nothing but rocks to take back to their mother country. The IOU's (he called them, "Dollars") were paid-for by nothing but more IOU's. The Foolish Farmer arrogantly proclaimed that to do so was his rightful due, and brashly threatened everyone.
Who turned away from him, leaving him to his Folly.
This is the future they see:
http://www.bloomberg.com/news/2010-12-06/bric-consumers-to-provide-investment-of-lifetime-goldman-s-o-neill-says.html/
Consumer spending in Brazil, Russia, India and China may surpass U.S. purchases in 15 years and companies that sell to emerging-market shoppers are some of the best investments “of our lifetime,” Goldman Sachs Asset Management Chairman Jim O’Neill said.
Spending in the so-called BRIC countries may climb by more than $500 billion a year, O’Neill said in a Bloomberg Television interview in London yesterday. BRIC consumer spending was about $4 trillion in 2009, compared with about $10 trillion in the U.S., O’Neill wrote in a Dec. 3 research note.
http://www.eucomed.org/upload/pdf/tl/2005/extranet/communications/resources/healthcast2020.pdf
HealthCast 2020: Creating a Sustainable Future
"...England builds a patient safety reporting system on same concept as aviation safety system in U.S.
The Philippines export nurses around the globe.
The U.S. turns to Indian and Australian companies for outsourcing radiology readings
Companies in South Africa contract with the NHS in England for a variety of surgical procedures
Australia enhances U.S.’s DRG system, which is subsequently adapted by Singapore, France and Germany.
Pharmaceutical makers move clinical trials from U.S. and Europe to India....
Some employers are sending employees outside the country for surgery; e.g.:
http://money.cnn.com/2010/08/11/news/companies/health_care_medical_travel/index.htm
One way to cut health care costs? Outsource surgeries - Aug. 11, 2010
"NEW YORK (CNNMoney.com) -- Tina Follett and her husband Patrick are in Panama on a two-week all-expenses paid trip. But Tina isn't on vacation. She's there to get surgery..."
Dental work is much cheaper in Mexico:
http://money.cnn.com/2010/07/07/smallbusiness/denticenter/index.htm
For cut-rate dental care, head to Mexico - Jul. 7, 2010
http://www.census.gov/foreign-trade/balance/c5330.html#2010
http://www.aflcio.org/issues/jobseconomy/globaleconomy/upload/china_learnfacts.pdf
China Trade: Deficits, Jobs, Investment and Exploitation
"...Of the top fifteen U.S. exports to China, three are “ waste and scrap” - scrap metal, scrap
paper and cardboard; four are raw materials or agricultural products -- soybeans and seed
oils; six are parts -- some of which will return as finished products
o Our two leading finished product exports to China are commercial aircraft and
computers. However, 70 percent of Boeing’s new 787 will be manufactured offshore
primarily in China and Japan. Computers exports have already begun to shift..."
From October 15, 2010...
http://online.wsj.com/article/SB10001424052748704361504575551811511078860.html
U.S. Trade Deficit Widens - WSJ.com
We need to be forging relationships with more balanced trading partners and cutting back against manipulators. Unfortunately right now we're giving manipulators and non-manipulators the same treatment.
http://www.whitehouseforsale.org/documents/102804offshoring.pdf
This is about the targeting of white-collar college-degreed jobs in off-shoring:
http://www.epi.org/publications/entry/webfeatures_viewpoints_characteristics_of_offshorable_jobs/
I'm the suspicious type.
-Bindi
http://meetyourindianreplacement.com