Wider Implications of Outsourcing

There is a near consensus that we do not have sufficient data on how much outsourcing is going overseas and what its impacts, positive and negative, are… It is absurd that we spend $130 billion on research and development every year, and yet the government cannot find a few million dollars to collect better data on outsourcing and study its effects. (Hira, Hira 2005) Probably the most significant change in the organisation of production of goods and services over the two decades has been the expansion of outsourcing.

The mainstream debate on outsourcing trends, notably in the popular media, has raised widespread concerns about outsourcing's impact on the U. S. workforce and economy. Some interpret outsourcing as having severe negative consequences for the U. S. economy and attribute job loss, unemployment, and economic problems to this phenomenon. Yet others claim that outsourcing contributes to job and economic growth not only in the countries where the work is being outsourced, but also in the U. S. — leading to an overall improvement of standard.

In the more recent years, research on outsourcing has been taken up by several agencies, academics, policy analysts, and the politicians who have started to investigate this aspect of the economy to determine whether and/or how the domestic labor market has been affected. Offshoring is a relatively recent development in international trade whose impact is not yet fully understood. The limitations of currently available data about the extent of offshoring and its impacts contribute to our lack of certainty.

Traditional economic theory predicts that expansion of international trade, including offshoring, will have beneficial effects on the U. S. economy, despite the number of concerns raised about the potential economic and social impacts of offshoring. Economists have been expressing divergent views about the likely impact of offshoring on areas such as the U. S. standard of living, including average wage, employment and job displacement among American workers; the distribution of income, and even national security (Rost 2006).

While there is widespread popular perception that offshoring is robbing jobs from the U. S. and other developed countries, there is also growing recognition that "the cost savings and use of offshore resources lower inflation, increase productivity and lower interest rates. "  As a consequence of which business and consumer spending increases, thereby giving a big boost to the economy (CNN Money 2004). These benefits ripple through the economy, leading to creation of new jobs. At least according one major study, outsourcing tends to lift the real wages of U. S. workers, even if only by a tiny margin.

However, critics continue to dismiss such reports, arguing that the net effect of offshoring on the U. S. economy could only be detrimental in the long run. Some have even gone to the extent of calling it “a greater threat than terrorism. ” (Roberts 2005) Thus, while the overall impact of offshoring on the U. S. is still being hotly debated, what is clear is that the impact of offshoring on the global economy has been tremendously positive. In fact, it may be no exaggeration to say that the worldwide phenomenon of economic growth in Third World Countries is significantly fueled by outsourcing.

Regardless, we can expect to see a severe backlash against outsourcing in the near future. Offshoring is an unstoppable mega-trend. However, politicians, in their quest to satisfy constituents, are implementing roadblocks that will shape the future of outsourcing. (Robinson, Kalakota 2005)


Ayoob, Mohammed. & Zierler, Matthew. 2005. The Unipolar Concert: The North-South Divide Trumps Transatlantic Differences. World Policy Journal. Spring 2005. Volume XXII,  No 1. http://www.foxnews.com/story/2004/02/13/white-house-under-fire-for-outsourcing-proposal.html