outsourcing work to Other Countries: Is Globalization a Threat to American Workers?

In the 1990s, the Internet began to revolutionize the workplace. One consequence is what some have called the “death of distance.” With high-speed telecommunications, workers can complete many jobs on a computer anywhere, even relying on outsourcing work.

Outsourcing of computer or knowledge-based services got a big boost during the explosive expansion of World Wide Web “dot-com” companies in the late 1990s. Imports of outsourced private sector services grew almost 80 percent.

The first type of knowledge-based services to be outsourced was the management of computer networks (information technology, or IT). Next, businesses began to outsource their “call centers,” places customers call to get help with a company’s products or services.

American businesses discovered that low-wage foreign workers could do much “back office” work overseas. Such jobs as data entry, billing, accounting, and processing insurance claims, loan applications, and tax returns shifted out of the country to places like India.

Today, outsourcing of knowledge-based services is expanding to high tech and professional jobs. For example, overseas workers connected over the Internet with companies in the United States are now doing software programming, paralegal work, financial investment research, X-ray and CAT-scan analysis, and drug testing.

The main reason U.S. businesses give for outsourcing is to remain competitive by cutting costs, especially wages. For example, American software rogrammers in 2004 averaged about $70,000 per year while those in India earned about $8,000.

Nearby Canada is number one in handling American outsourced knowledge-based work. But India has attracted services such as data processing and computer programming. In addition to its low labor costs, India has an advantage over other countries in its time zone difference with the United States. Workers in India can complete jobs while Americans sleep, enabling U.S. businesses to operate 24 hours a day.

India’s biggest outsourcing advantage, however, is that each year it produces up to 3 million college graduates, most of whom speak English.

There is much uncertainty about the impact of outsourcing on American knowledge-based jobs because of the lack of data collected in this area. The only U.S. government study so far reported that there were 13,000 layoffs in 2003 due to foreign outsourcing, but most of those were in manufacturing. Global Insight, a private firm, estimated that about 104,000 IT jobs were lost to outsourcing from 2000 to 2003. These numbers make up a small fraction of the 140 million workers in the U.S. economy. 

Some researchers estimate that from 3.3 to 14 million knowledge-based jobs will be at risk between 2000 and 2015 because of outsourcing. In 2004, the U.S. Government Accountability Office cautiously concluded that outsourcing “is a small but growing trend in the U.S. economy.”

Dobbs believes the United States should negotiate “fair trade” agreements. Some critics of free-trade agreements want to renegotiate them to create a “more level playing field” with international standards for working conditions. Other opponents of outsourcing call for protecting American jobs by tariffs on imports.
Protectionists also want to eliminate tax breaks for companies that outsource work. Many call for laws to protect the privacy and security of personal information sent abroad as well as an outright ban on the outsourcing of government work.

Critics of the protectionist approach point out that imposing import tariffs will only cause other countries to do the same, which will harm our export industries. Moreover, putting restrictions on outsourcing knowledge based services will weaken the competitiveness of U.S. companies and be almost impossible to enforce.

Others propose that the federal government should provide tax credits to encourage research and innovation by U.S. businesses, making them more competitive in the global economy. Some call for the federal government to increase its budget on science and technology research, which has been cut in recent years.

American workers who lose their jobs because outsourcing work may need retraining and extended unemployment benefits. Furthermore, American taxpayers will undoubtedly have to make major investments in public education at all levels. In the new globalized job market, American workers will have to prepare to compete not only with each other but also with those in India, China, and everywhere else in the world.

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