Outsourcing/Offshoring: The Cost to America’s Economy and Working Families

outsourcing jobsOutsourcing of jobs to foreign countries is one of the great hidden economic issues of recent years.  It is big business, with multinational corporations actively shifting jobs out of the United States and around the globe in search of the cheapest possible labor.  But, following popular outcry against the practice in 2004, corporations have done their best to hide the details even as they expand their offshoring activities.  As a result, outsourcing has by and large fallen out of the headlines.

For the purposes of this article, the business practice of outsourcing American jobs to foreign countries—also known as offshoring or offshore outsourcing—is very simple, substituting foreign for domestic labor.

But outsourcing has not escaped the public’s attention— Working people see jobs leaving their own communities and have no doubt that outsourcing is destroying lives and local economies; it’s putting together the big picture that’s difficult.

  • “I didn’t think the day would ever come,” a Harrisburg, Pa., newspaper headlined in June 2010. The story carried the disheartening news that Hershey Foods Corporation was abandoning its hometown. The small-town manufacturer of Hershey Kisses, Reese’s Peanut Butter Cups, York Peppermint Patties and other iconic items in the pantheon of America’s sugary sweets would close down its historic East plant at 19 Chocolate Avenue in Hershey and eliminate as many as 600 jobs. After repeatedly chopping away at its U.S. workforce for years, the finality of moving production to Mexico was becoming apparent and unbearable.
  • International Business Machines (IBM) has been a global leader in technology for decades.  More recently, it has become a leader in the twin practices of outsourcing jobs and of hiding that activity. In 2005, IBM and its wholly owned subsidiaries reported 329,000 employees worldwide. Almost 134,000 of those workers—more than 40 percent—were located in the United States. At the end of 2009, though IBM’s workforce had expanded to include almost 400,000 employees worldwide, only 105,000—just over a quarter of its entire workforce—were located in the United States. IBM is reported to now be the second largest employer in India, with 120,000 to 130,000 workers.
  • Nationwide will eliminate 30 financial-service jobs at its Grove City operation and shift the work, mostly in the accounting field, to a company based in India. –The Columbus Dispatch, January 6, 2010
  • The Autolite division of Honeywell International Inc. is moving assembly of standard spark plugs to Mexico, and the first of an eventual 350 workers here who will lose their jobs will be laid off next month. –The Toledo Blade, August 9, 2007
  • A company that makes plastic containers says it will close its central Ohio plant and consolidate operations in Mexico, leading to the loss of more than 300 jobs. –Associated Press, February 10, 2009
  • In a Business Week issue on “How to Make an American Job,” former Intel CEO Andy Grove pondered the state of high-tech manufacturing in the U.S. and recounted the dangers of massive offshoring, which has broken the “chain of experience” that enabled electronic start-up companies to invent and commercialize high-technology tools, scale up their companies and train their domestic staff to productively manufacture final products. He points out, for example, that 250,000 employees of China’s Foxconn company manufacture Apple products, while only 25,000 Apple employees work in the U.S.

outsourcing

In what might be an underestimate, a University of California study concludes that 14 million white-collar jobs are vulnerable to being outsourced offshore.  These are not only call-center operators, customer service and back-office jobs, but also information technology, accounting, architecture, advanced engineering design, news reporting, stock analysis, and medical and legal services.  The authors note that these are the jobs of the American Dream, the jobs of upward mobility that generate the bulk of the tax revenues that fund our education, health, infrastructure, and social security systems.

The loss of these jobs “is fool’s gold for companies.”  Corporate America’s short-term mentality, stemming from bonuses tied to quarterly results, is causing US companies to lose not only their best employees-their human capital-but also the consumers who buy their products.  Employees displaced by foreigners and left unemployed or in lower paid work have a reduced presence in the consumer market.  They provide fewer retirement savings for new investment.

Nothink economists assume that new, better jobs are on the way for displaced Americans, but no economists can identify these jobs.  The authors point out that “the track record for the re-employment of displaced US workers is abysmal: “The Department of Labor reports that more than one in three workers who are displaced remains unemployed, and many of those who are lucky enough to find jobs take major pay cuts.  Many former manufacturing workers who were displaced a decade ago because of manufacturing that went offshore took training courses and found jobs in the information technology sector.  They are now facing the unenviable situation of having their second career disappear overseas.”

So where does that leave us?  Outsourcing is rapidly eroding America’s superpower status.  It has forced us to give away our technology, which is rapidly being captured, while US firms reduce themselves to a brand name with a sales force.

Outsourcing Statistics
Total number of U.S. jobs offshore outsourced in 2013 2,637,239
Percent of CFO’s surveyed who said their firm was currently offshore outsourcing 36 %
Percent of CFO’s who favored India for outsourcing 26 %
Percent of CFO’s who favored China for outsourcing 18 %
Offshore Outsourcing By Sector
Manufacturing 53 %
IT Services 43 %
R&D 38 %
Distribution 26 %
Call or Help Centers 12 %

 

by Robert Lagrone of NuggetDump.com

Resources Job Outsourcing StatisticsBarrons.com, Working Americaglobalresearch.caforbes.comstatisticbrain.com

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