The Impact of Outsourcing on The American Economy

chillibreeze writer — Shyam

The present buzzword in the IT sector is outsourcing. The reason is the law of economics is driving all countries to follow suit. Even a democratic and profit oriented country like America has opened its doors to outsourcing, though there has been considerable opposition. For instance the governor of the state of Indiana cancelled a $15 million contract with Tata Consultancy Services for processing the state unemployment benefits and awarded it to a US company for $25 million.

There is another school of thought. A recent survey by the McKinsey Global Institute has shown that for every dollar spent on outsourcing to India, the US economy gains at least $1.12. For example when medical reports are sent from the US to India for analysis it directly reduces the cost of health care. The cost saving thus achieved helps fuel new business opportunities, which in turn create more employment avenues. Health care is the primary concern for Americans today. Even if white-collar jobs were outsourced it would still make the US more productive, raising wages and increasing productivity.

Just like the American free trade agreement created jobs in 1990’s the upcoming outsourcing expansion will have a positive effect. If the US economy goes for job protection, it is heading towards job destruction. For instance had the US protected farm jobs a century ago, 70% of the Americans today would be tilling soil instead of 3%. The more the USA does to limit the import of services the more difficult it will become to export. The benefit of importing services is the same as importing goods. It increases productivity. Increased trade also forces domestic producers to become more productive. Improved productivity raises the standard of living, puts downward pressure on price and gives boost to profitability and wages.

IT employment in the US in 2004 was 17% higher than in 1999. IT jobs are predicted to be among the fastest growing occupations over the next decade according to the Bureau of Labor Statistics. It reveals that the lower wage scale in India has not lowered pay for the American IT worker. In fact the IT worker has had an average annual wage gain of 2-5%. India benefits from generating new revenue and creating high-end jobs, where as the US companies achieve better financial performance as a result of cost savings.

Outsourcing has a spectacularly bright future if it can be kept away from politicians who oppose it only to gain personally. Through misdirected governance they influence industries and people for their personal advantage. The benefits of outsourcing are many and should be interpreted within the context of current economic trends.

References

1) http://www.rediff.com/money/2004/sep/24bpo1.htm

2) www.phptr.com/articles/article.asp?p=340872 - 33k - 12 Mar 2006

3) www.deloitte.com/dtt/research/ 0,1015,sid%253D20063%2526cid%253D23886,00.html

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Shyam writes for chillibreeze.

The Impact of Outsourcing on The American Economy

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