Negative effects of outsourcing and offshoring on the US economy Offshoring is the contracting of jobs and peripheral business processes to Foreign Service providers who may either be affiliated or not to the hiring organization. Only international job transfers are undertaken with offshoring. Outsourcing involves the transfer of jobs and business procedures to external firms regardless of the location of such providers. Jobs may be relocated within and between countries in outsourcing. Offshore outsourcing only encompasses relocation of business procedures and jobs to international and foreign firms.
Research by Forrester has it that 400, 000 American jobs had gone abroad by 2003 with this figure projected to reach 3. 3 million by 2015 with $136 billion wage value. It was also estimated that 18. 1% of all jobs in the United States were affected by offshoring in 2003. The United States IT expenditure through outsourcing increased from 12% in 2000 to 28% in 2003 according to Forrester Research statistics (Hira, 2005, p. 13) Engaging foreigner employees decimates hundreds of thousands of both skilled and semi-skilled Americans’ jobs. Three million manufacturing vacancies were shed between 1993 and 2003.
Employees holding high-tech positions lost 560,000 jobs between 2001 and 2003. There has been an 8% decline in the number of IT personnel as from 2000. The manufacturing sector in the US employs 14. 5 million people with output valued at $1. 9 trillion as at 2002 (Ryans, 1996, p. 332). An enduring loss of Americans’ primary competitive advantage over foreigners’ results and this is detrimental to both the workers and the economy. Poverty sets in when Americans with limited skills fail to secure jobs. Semiskilled low-wage jobs are permanently lost.
Consumer expenditure drops and government tax revenues dwindle. Joblessness leads to less expenditures and also reduced production. Employees who have had their jobs taken by foreigners or have been relegated to lower paying jobs have limited status in the consumer market. Such employees have less retirement savings for investment. American Electronics Association revealed that half a million Americans lost high-tech jobs from 2001 and 2002. A given country may cut down on it activities in a particular country as an effect on offshoring. Job losses not directly linked to relocation may be experienced.
If the company relocates its activities, the portion meant to satisfy labor market in the compiling nation is imported. The section destined for the export is directly exported to the markets from the company’s affiliates (Ensign, 2007, p. 356). Offshoring recently forced Hooker Furniture Corp. to relocate its furniture manufacturing operations to China in 2003. Reduced consumer purchasing power has the effect of leading to few jobs and increased willingness to outsource jobs with a view of making products more accessible to consumers (Houseman, 2007, p. 1344).
Of all US firms with more than a million dollars IT annual budgets, over 25% do offshore procurement. Local and federal governments lose income owing to reduced sales and payroll tax revenues and limited Social Security and Medicare contributions. Unemployment benefit expenditures also inflict financial dents on the federal government. Technology firms in the US had remitted $10 billion to India as at 2003. Outsourcing results to lost skilled labor and financial benefits. Service jobs create less national income and limited earnings compared to service jobs.
Service jobs instead suck up wealth (Britt, 1997, p. 21). Outsourcing manufacturing jobs impacts more on the US economy by way of lost skills and the duration it would take to train another workforce. Industrial facilities are lost with the closure of factories and exporting investment and intellectual property abroad. Such exported capital denies the US of money for expansion. US firms supply Foreign Service providers with business techniques, management approaches, training in return for cheap products. Service jobs require less training with little money input.
Wages and health benefit expenditures constitute savings for US companies when they outsource jobs. National wealth is lost by remitting finances abroad to cater for salaries and wages. A valid case in point is the University of California Santa Cruz job cuts in the manufacturing sector. One third of labor-intensive sector like textiles, leather, clothing and footwear employees couldn’t secure new jobs within three years of employment termination. This persisted for twenty years and when then employees got employed, close to half had their salaried slashed by about 15%.