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article imageOp-Ed: Outsourcing may be helpful to some companies and economies

By Ryan Hite     Jul 12, 2014 in Business
Outsourcing has become a bad word for many people because of the perceived negative economic impact, but is it really as bad as people say? For some companies, it may be a positive thing.
Many people have gone back and forth on the issue of outsourcing jobs, which is bringing jobs overseas, usually by large multinational corporations. Many stick a negative vibe to the word 'outsourcing', but is it really?
Most economists say criticizing the practice is absurd, because outsourcing ultimately does more good than harm.
"When jobs move from a factory in the South to one in Guatemala or China, it certainly has a negative impact on that community in the short run," says Jay Bryson, a global economist at Wells Fargo Bank, a multinational bank. "But in the long run it makes things more efficient."
Cheaper prices for consumer goods are often the first thing cited by those who defend outsourcing. Many items such as clothing, toys and electronics are getting cheaper without adjusting for inflation.
These efficiencies, however, extend beyond the cash register.
Companies can use the cost savings to build up other parts of their business, says Steven Leslie, a financial services analyst.
For example, if Apple can knock $100 off the cost of producing the iPhone by making it in China as opposed to the United States, the company is then able to spend that $100 in hiring people in other parts of its businesses like in sales, marketing or design.
A paper in the American Economic Review looked at 57 American industries from 2000 to 2007. The study found that even though some people lost jobs due to outsourcing, the greater efficiency that the industries realized allowed them to hire even more people in the United States than were laid off initially.
"People tend to count the losses, but they don't count the gains," Leslie said. "When we outsource manufacturing, there are a lot of other people who are helped."
Those helped include the workers in foreign countries who get those new and outsourced manufacturing jobs. They can then enter the middle class, which in turn increases demand for goods produced in the United States. China is going through this phase right now and is poised
"Outsourcing is a two way street," said Douglas Irwin, an economics professor. "Other countries are outsourcing to us all the time."
Of course, not everyone agrees with this thinking.
Businesses might not use their added profits to hire, according to Alan Tonelson, a researcher at the U.S. Business and Industry Council, which represents smaller manufacturers in the country.
Tonelson talked about another study by the Nobel prized economist Michael Spence that said from 1990 to 2008 that companies in sectors most affected by international trade were responsible for just 2% of the 27 million new jobs the economy. Tonelson said that implies that they've outsourced more jobs than they've created.
He added that losing manufacturing jobs is particularly bad to the economy because the manufacturing sector accounts for about 70% of U.S. spending on research and development. It's also the leader in pushing productivity advances and has a big "job multiplier", meaning that for every manufacturing job there are several more needed to extract the raw material, move the product, and so on.
Tonelson talked about the lower prices argument, saying it "doesn't really matter if you don't have a job to begin with."
He also disputed the notion that companies might spend savings from outsourcing on hiring other employees in other sectors.
"They could pay dividends or give themselves raises, I don't really know what they do with it," he stated. He further warned "That's part of the problem, we don't a have the data. It's held by the offshoring companies themselves."
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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