Negative Effects of Off shoring on the U.S. Economy
Globalization and technological advancements over the last couple of decades have shifted the ways of many facets of life, which include the ways of doing businesses and its impact on the economies. Off shoring (preferably termed as outsourcing) is one of the widespread terms that have not only emerged as a result of globalization but have come under extensive utilization by the developed economies such as the U.S. (Farrell, p. 1-9).
Off shoring simply means that enterprises hire other people (which are typically known as third party vendors) in other countries that can perform their part of the jobs. In simple words, off shoring is a universal practice of shifting particular operational tasks to a new location that was originally performed in the home country. The phenomenon of off shoring is not restricted to a single sector but companies in various sectors that include manufacturing, service, consumer goods and so forth are practicing it. For instance, a manufacturing company outsources a company based in a foreign country to handle its distribution or financial processes (Farrell, p. 1-9).
Off shoring is usually performed with the prime intention to save and lower the overall cost of the product. This also signifies that the companies based in the home countries such as United States are benefitting from the outsourced firms. Many of the economists are in favor of off shoring and consider this phenomenon as a good thing. According to these schools of thoughts, off shoring is an opportunity to elevate the standards of living in the developing countries (which are usually the outsourced companies) as well as creating optimistic options for the workers to get higher paid jobs (Farrell, p. 1-9).
As an outcome of it, countries like the U.S. would also benefit because the consumers would get the products at a much lower price if it were manufactured in the home country. Moreover, the advocators also believe that outsourcing is eventually benefitting the U.S. economy in growth and development due to the reason that it is lowering the overall cost of the product and even opening new paths for business on the international platform (Committee on the Offshoring of Engineering, p. 37-40).
While looking from a broad spectrum, economists find it quite difficult to determine the true outcome of off shoring on the U.S. economy, because it is providing adequate evidence of both sides. This indicates that off shoring leaves a positive as well as negative impact on the U.S. economy. Economists from a wide ranging perspective observes off shoring as a significant shift in the operations of the economy, which have both impacts on the trail of economic growth, distribution of wealth and labor force (Committee on the Off shoring of Engineering, p. 37-40).
As the world has become globally and intensely competitive, it seems like U.S. companies are being coerced to off shore jobs to foreign countries in order to remain competitive in the today’s global financial system. In this regard, the perceptions of mainstream economists reveal the fact that that off shoring is comparatively creating a more negative impact on the economy of the U.S. In other words, the economists believe that off shoring to foreign countries is demising, ruining and insecuring the overall economy of the country (Tytell & Jaumotte p. 7-14).
One of the most significant negative effects of off shoring that has come to the forefront from numerous investigations is the increased wage inequality between skilled and unskilled workers, which has also escalated the demand for the skilled workforce. In addition, the studies also highlight that United States in the last couple of decades have experienced a boom in off shoring, especially in the manufacturing industry, which has resulted in loss of jobs for millions of workers. As an outcome of it, income inequality sharply rose during this period. The loss of millions of jobs has also been due to the dramatic increase in the imports (Tytell & Jaumotte p. 7-14).
With reference to the distribution of income and income inequalities, diverse and controversial perspective has emerged, where the opponents’ stated that off shoring is likely to affect the distribution of income within the country. This has been the perception because off shoring is a direct threat to the low-income workers, as the job losses or wage reductions have a deep affect on them and middle and higher income workers are at the least risk (Tytell & Jaumotte p. 7-14).
According to the economists, the U.S. economy is immensely being affected by off shoring due to the reason that competition is rapidly growing within the developing countries, as they are providing the outsourced companies with labors at a much lower wage. In fact, the overall costs of the communication technology and information technology is reduced at a radical rate, which is also creating a huge impact on the U.S. economy and employment (Tytell & Jaumotte p. 7-14).
The competition that has expanded to global platform has adversely affected many of the segments of the U.S. enterprises and labors working for them. Manufacturing is the most affected industry in the United States, which has declined at an accelerated pace in the last few decades and ultimately has given rise to the wage inequality. Since the developing nations such as China and India provides low-wages labor, the overall costs of the products produced in the U.S. becomes higher. This envisioned that many companies based in the U.S. shut down its operations due to higher cost. Indeed, many of the firms have also migrated to foreign countries, which eventually consequence to lay-offs at a higher rate (Ricart p. 45-55).
One of the studies in this regard expose the fact to the surface that people opt for cheaper products and services in this globally competitive world of today. Nevertheless, while looking at the U.S. companies, one can evidently spot that the labors have more safer environments, protective laws than most and better equipments than others, which automatically raise the cost of living and working in comparison to other nations. The trend is relentless and undeviating, which indicates that a significant proportion of the jobs of U.S. workers are taken over by the overseas counterparts that are paid at a lower rate (Ricart p. 45-55).
This clearly denotes that the workers are forced to change and shift their roles in the company so that they can survive. Furthermore, due to the significant decline in the wage rates on an overall basis with layoffs from several manufacturing firms, the workers as a result switched to other firms within the industry, and many labors switched their occupations. However, many a considerable proportion of the labors were left jobless and unwaged, which has become a potential threat to the economy of the U.S., which is also hampering the standards of living of the average labor. This is because the firms have off shored their production operations overseas (Ricart p. 45-55).
The technological advancements and innovations at a rampant pace are also attributable to the grave concern of off shoring that negatively impacts the U.S. economy. This is predominantly due to the reason that improved technology, its advancements and higher skilled technological people in foreign countries beget the American enterprises to outsource skilled workers such as computer programmers from overseas (Bertho p. xx-xxiv).
Potential effect on the overall living standard and levels of affluence has been determined as another pessimistic impact of off shoring on the United States. Even though, according to the customary theories of the economists, the average standard of living of the citizens of the U.S. In the long run would be leveraged by off shoring, yet this aspect has been opposed and argued by quite a few of the economists (GAO, p. 14-22).
According to them, if the phenomenon of off shoring is subject to corrosion and disintegration of substantial industries of the country, it would definitely harm the overall living standards of the U.S. Moreover, if off shoring provides a challenge, damage or weaken U.S. technological leadership, it is likely to hamper the living standards of the nation. In fact, off shoring can also harm the U.S. standard of living if it contributes to the process of decreasing the average wage of U.S. labor (GAO, p. 14-22).
The economists also raise the concern that off shoring is usually performed with the prime intention to hire the lower wage labors, which means that it increases the probability of slowing the growth of average wages of a U.S. labor. As a consequence of it, the average living standard would subsequently be reduced. Additionally, the economist also highlights the fact that off shoring makes the labor of United States directly compete with the foreign workers, which boosts the probability of decreasing the labor’s share of national income due to such direct competition, which even results in decline in the average wage of the U.S. labor (GAO, p. 25-31).
From wide ranging studies and trade models, it has also been monitored that U.S. On…