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Outsourcing of Jobs

by Washington DC Office of Public Policy

 
 
Contact: Office of Public Policy GBGM-Women's Division 100 Maryland Avenue, NE Room 530 Washington, DC 20002 (202)488-5660 Fax:(202) 488-5681
Contact:
Office of Public Policy
GBGM-Women's Division
100 Maryland Avenue, NE Room 530
Washington, DC 20002
(202)488-5660
Fax:(202) 488-5681

Workers in manufacturing jobs, also known as “blue collar workers,” have long been exposed to foreign competition, losing jobs to lower wages abroad.  With the advancement of technology, now there is a trend to “outsource” white collar jobs as well.  “Outsourcing,” also referred to as “offshoring,” “is the term now used to describe the [emerging] practice among companies in the United States of contracting out the jobs of white collar [and blue collar] workers in service sector industries (e.g., computer programmers)  to firms located beyond U.S. borders.” 1 Economists debate whether the trend to outsource jobs will have an overall negative impact on the economy.

Advances in technology and lower cost communications now mean that a computer programmer, accountant, software or product developer or customer service operator (who may be responsible for responding to customer billing questions, order placements, shipments and returned merchandise issues) working for a U.S. company can easily work from India, China or the Philippines to do the same job that would be done in the United States-and by doing so “save parent companies 30 percent to 70 percent in costs.”2 India and China are the leading destinations for outsourced jobs and they are now home to the biggest overseas operations of some U.S. companies.3 The U.S. government does not require U.S. companies to maintain statistics on how many service jobs have been outsourced abroad so exact estimates are not available.  The Boston based consultancy firm, Forrester Research, estimates that 400,000 U.S. service jobs have been lost to offshoring since the year 2000.  They also predict that by 2015 about 3.3 million U.S. jobs will have been outsourced.  A study conducted by the University of California, Berkley estimates that 14 million U.S. jobs are vulnerable to being outsourced.4 A survey conducted by the Labor Department, Bureau of Labor Statistics, found that only 4,633 jobs were moved overseas in the first three months of 2004.  This number represents less than 2 percent of the total layoffs for the first quarter of 2004.5

From the above mentioned estimates it may be concluded that not many jobs have been lost to overseas workers.  The numbers are “small relative to total U.S. employment of 137 million, and account for less than 2 percent of the roughly 15 million Americans who involuntarily lose their jobs each year.”6 However, these layoffs have a large impact on the affected communities.  Not only are workers faced with the possibility of losing their jobs but also losing their health care.  In addition, others fear that shifting jobs offshore will put downward pressure on the wages of white collar workers in the U.S.  According to the consulting firm McKinsey and Company, U.S. companies make up about 70 percent of the global outsourcing market.  Lower wages abroad are one of the greatest incentives for corporations to hire foreign workers.  At the low skill end, Indian workers earn $1 less per hour to handle customer service calls, and among the higher-skill workers, such as computer programmers, wages are one-tenth the pay of their U.S. counterparts.7 " To date, studies typically estimated that trade has had a fairly small effect on the U.S. wage structure, but ‘if trade in services that involve more highly skilled jobs continues to grow, trade will affect a larger share of the workforce, so the effect on the wage structure could become larger over time.’”8

Changes in wages may not only affect workers in the United States but workers in developing countries as well.  Currently 54% of India is under the age of 25 (555 million people).9 This means that there will be great competition for jobs once these youths enter the workforce.  According to a briefing by the Overseas Development Institute, companies operating in foreign countries, “[raise] average growth and wages, but [do] not reduce and may increase wage inequality in developing countries.”10 At the same time, as the demand for skilled workers increases there will be an increase in the gap between skilled and unskilled wages and a growing gap in the urban and rural wage differences.11

The United States Trade Representative (USTR), the government agency which negotiates trade agreements for the United States, is now required to conduct an assessment on how trade agreements will affect the employment of workers in the U.S. and other countries involved.  An assessment of women’s and men’s employment will also be done within this analysis.  Organizations such as the Women’s Edge Coalition have been working hard to get the U.S. to look not only at employment but also at the terms and conditions for women.  Ritu Sharma, Executive Director of Women’s Edge, stated, “We cannot condemn more women to an unending cycle of poverty when a simple assessment could easily uncover ways women could benefit from the global economy.  We are asking the U.S. government to conduct this review so that trade works for women.”12

There are many conflicting views among economists on how outsourcing affects the economy.  Some experts argue that offshoring provides access to good middle class jobs that would not otherwise be available in developing countries.  Expanding the middle class in developing nations is an important goal that will yield benefits for the U.S. in the long term.13 But a counter argument states that “the potential problems resulting from an increase in the global supply of highly educated workers could depress the living standards of American workers who historically have been much less affected by globalization.”14 Some experts believe that new jobs will be created as a result of offshoring and there will be a new demand for different skills which will bring higher wages.15 Some experts state that “overall, offshoring will offer economic gains.  But some American workers, companies, and possibly communities will just as surely lose out in the process."16 For example, total exports from U.S. companies to India have grown from $2.5 billion in 1990 to $4.1 billion in 2002.17 Other economists state that “employing workers at lower cost allows U.S. companies to be more efficient and productive, permitting them to create the same amount of goods with fewer resources,” which in turn, lowers the price of the goods in the U.S., strengthening U.S. companies and freeing workers for other tasks.18

Congress has tried to help workers affected by foreign trade.  It has created special programs to help workers displaced by government action.  The Trade Adjustment Assistance (TAA) program was initiated in 1962 and is now authorized by the Trade Act of 1974.  This program offers “an additional period of income support once workers are displaced by the importation of goods or shift in goods production outside the U.S. have exhausted their regular and extended unemployment benefits and have met a job training requirement.”  These workers can also be eligible to receive search and relocation allowances, as well as tax credits to make obtaining health insurance more affordable.  The Worker Adjustment and Retraining Notification Act (WARN) was enacted to help workers laid off through no fault of their own to move quickly to find new jobs.19

Despite the conflicting views on how outsourcing has effected and will affect the economy, it is generally acknowledged that workers laid off because of outsourcing are faced with uncertain futures.  According to the think tank Foreign Policy in Focus, “the overall goal of U.S. policy in outsourcing should be to attack the factors that make workers-in the U.S. as well as around the world-vulnerable to exploitation by increasingly mobile and unregulated global corporations.  The approach needs to recognize that raising standards overseas is vital to retaining stable and sustainable jobs at home.”20 Many analysts, such as Catherine Mann of the Institute for International Economics, Robert Litan of The Brookings Institute  and Professor Lori Kletzer of the University of California, have called for improved programs to help laid off workers adjust to the shifting labor market.  Some have also called for improved unemployment benefits and health insurance. 

ACTION

-Currently there is no system available which collects data on the number of outsourced jobs.  Write to your Representatives and Senators and ask them to make it a “priority to greatly improve the statistics on this phenomenon so that policymakers, education and training experts, companies, and workers can make informed decisions sooner rather than later.”21

-The World Trade Organization (WTO) is an international organization which deals with the rules of trade between nations.  There are 147 member countries in the WTO and these countries sign binding trade agreements under WTO guidelines.  Many of these trade agreements are unfair and many result in unfair labor practices.  For more information on the WTO and what you can do about unfair labor trade practices contact Global Exchange at 2017 Mission Street, #303, San Francisco, CA 94110.  Telephone: (415) 255-7296  Fax: (415) 255-7498  Website:  www.globalexchange.org.  For further information on trade and labor rights you may also contact the International Labor Rights Fund at 733 15th St., NW, #920, Washington, DC 20005.  Telephone: (202) 347-4100  Fax: (202) 347-4885  Website: www.laborrights.org.

-To do more about women’s labor rights contact the National Mobilization Against Sweatshops (NMASS) and join their “Ain’t I a Woman?” campaign.  This campaign works to do something about women who are experiencing longer hours, lowers wages and worsening working conditions, whether they work for a white collar or blue collar job.  For more information about this campaign contact NMASS at PO Box 130293, New York, NY 10013-0995.  Telephone: (718) 625-9091  Fax: (718) 625-8950  Website: www.nmass.org.

-Read Book of Resolutions 2000, #197 “Economic Justice for the New Millennium” pg. 501-508.

1 Levine, Linda.  Congressional Research Service.  Offshoring (a.k.a. Offshore Outsourcing) and Job Insecurity Among U.S. Workers.  Updated June 18, 2004.
2 Council on Foreign Relations. Trade: Outsourcing of Jobs. Updated February 20, 2004.
3Lagorce, Aude.  Forbes.com.  Outsourcing to India Vs. China.  February 16, 2004.
4 Anderson, Sarah and John Cavanagh.  Foreign Policy in Focus.  Outsourcing: A Policy Agenda.  Policy Brief Vol. 9, No. 2. April 2004.
5Blustein, Paul.  Survey Finds Little ‘Offshoring’ Impact. The Washington Post.  June 11, 2004.
6Brainard, Lael and Robert E. Litan.  “Offshoring” Service Jobs: Bane or Boon-and What to Do? The Brookings Institution Policy Brief #132.  April 2004.
7 Anderson, Sarah and John Cavanagh.  Foreign Policy in Focus.  Outsourcing: A Policy Agenda.  Policy Brief Vol. 9, No. 2. April 2004.
8 Levine, Linda.  Congressional Research Service.  Offshoring (a.k.a. Offshore Outsourcing) and Job Insecurity Among U.S. Workers.  Updated June 18, 2004.
9 Friedman, Thomas L.  Meet the Zippies.   The New York Times.  February 22, 2004.
10 Overseas Development Institute Briefing Paper.  Foreign Direct Investment: Who Gains?  April 2002.
11 Ibid.
12 http://womenesedge.org/pages/printerfriendly.jsp?id=186
13Economic Policy Institute Issue Guide.  Offshoring.  http://www.epinet.org
14Ibid.
15 The Economist.  The Great Hollowing-out Myth.  February 19, 2004.
16 Brainard, Lael and Robert E. Litan.  “Offshoring” Service Jobs: Bane or Boon-and What to Do? The Brookings Institution Policy Brief #132.  April 2004.
17 Friedman, Thomas L. What Goes Around… The New York Times. February 26, 2004.
18 Council on Foreign Relations. Trade: Outsourcing of Jobs. Updated February 20, 2004.
19 Levine, Linda.  Congressional Research Service.  Offshoring (a.k.a. Offshore Outsourcing) and Job Insecurity Among U.S. Workers.  Updated June 18, 2004.
20Anderson, Sarah and John Cavanagh.  Foreign Policy in Focus.  Outsourcing: A Policy Agenda.  Policy Brief Vol. 9, No. 2. April 2004.
21Brainard, Lael and Robert E. Litan.  “Offshoring” Service Jobs: Bane or Boon-and What to Do? The Brookings Institution Policy Brief #132.  April 2004.

 

 


Date posted: Jul 28, 2004