How Outsourcing Jobs Affects the U.S. Economy

7 Things You Should Know About Outsourcing

Definition: Jobs outsourcing is when U.S. companies hire foreign workers instead of Americans. U.S. companies employed 14 million workers in their overseas affiliates in 2013 (most recent data available.) The four industries affected the most are technology, call centers, human resources, and manufacturing.

How It Affects the Economy

Jobs outsourcing helps U.S. companies be more competitive in the global marketplace. They can sell to foreign markets by having overseas branches. They keep labor costs low by hiring in emerging markets with lower standards of living. That allows lower prices on the goods they ship back to the United States.

Outsourcing also increases U.S. unemployment. The 14 million outsourced jobs are nearly double the 7.4 million unemployed in the United States. If all those jobs returned, it would be enough to also hire the 5.6 million who are working part-time but would become full-time positions.

That assumes the jobs could, in fact, return to the United States. Many foreign employees are hired to help with local marketing, contacts, and language. It also assumes the unemployed here have the skills needed for those positions. Would American workers be willing to accept the low wages paid to foreign employees? If not, then American consumers would be forced to pay higher prices.

Donald Trump said he would bring jobs during the 2016 Presidential campaign. He would impose tariffs on imports from Mexico and China. That would benefit U.S.-based companies while hurting foreign-based ones. That would increase employment in America. It would also raise costs for consumers. For more, see Can Trump Bring Back American Jobs?

Imposing laws to artificially restrict jobs outsourcing could make U.S. companies less competitive. If they are forced to hire expensive U.S. workers, they would have to raise prices. Some companies might even move their whole operation overseas. Others would just go out of business.

Technology Outsourcing

Indian business people working on office
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American companies send IT jobs to India and China because the skills are similar while the wages are much lower. A company only has to pay an entry-level IT worker $7,000 a year in China and $8,400 in India. Companies in Silicon Valley outsource tech jobs by offering H-1b visas to foreign-born workers.  More

Call Center Outsourcing

Call center firms now hire U.S. workers in their homes
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In the past 20 years, many call centers have been outsourced to India and the Philippines. That's because the workers there speak English. However, that trend is changing. Unlike technology outsourcing, there is a much smaller discrepancy between call center workers in the U.S. and emerging markets.

Thanks to the recession, wages in India are catching up to those in the United States. Average call center workers only make 15 percent more than their counterparts in India. As a result, some of these jobs are coming back. More

Human Resources Outsourcing

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Human resources outsourcing reduces costs by pooling thousands of businesses. This lowers the price of health benefit plans, retirement plans, workers’ compensation insurance, and legal expertise. Human resource outsourcing particularly benefits small businesses by offering a wider range of benefits. Surprisingly, the recession may cause some human resource outsourcing firms to hire American workers. More

NAFTA Job Losses

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President Reagan envisioned NAFTA to help North America compete against the European Union. Unfortunately, it also sent at least 500,000 manufacturing jobs to Mexico. Hardest hit were California, New York, Michigan, and Texas.  More

Is Mexico Stealing U.S. Jobs?

Auto assembly line, Mexico City, Mexico
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Mexico is now the seventh largest auto manufacturer in the world. But did that growth come at the expense of U.S. auto workers? Or is something else the real reason? Like 44 free trade agreements, perhaps? More

3 Reasons India Attracts U.S. Companies

Emerging market commuter train
Office workers on crowded commuter train of Western Railway near Mahalaxmi Station on the Mumbai Suburban Railway, India. Tim Graham/Getty Images

India has three qualities that attract American companies. First, the labor force already speaks English. Second, its universities are among the highest-ranked in the world. Third, its legal system is similar to the United States, since both are rooted in the British system. More

How China Takes U.S. Jobs

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China is the world's largest exporter. One reason is that a lot of U.S. companies manufacture there. The raw materials are shipped over, and the final goods are shipped back. One reason is that companies must manufacture in China before selling products to its 1.37 billion people. Perhaps the United States should do the same thing.

China does a lot of manufacturing for foreign businesses, including U.S. companies. The raw materials are shipped to China, where factory workers build the final products and ship them back to the U.S. In this way, a lot of China's so-called "exports" are really for American companies.

Are Robots a Bigger Threat to U.S. Jobs than China?

Robots have replaced many high-paying manufacturing jobs. Alexey Dudoladov/Getty Images

Workers in many manufacturing industries have been replaced by robots. To compete, these workers must be retrained to operate the robots.

Innovations in technology are what actually allowed U.S. companies to move call centers to India. If technology is the culprit, it is also the answer. It's made the U.S. more competitive as a nation. Education, rather than protectionism, is the best way to both take advantage of technology and create jobs for U.S. workers. More

Why You Feel Underpaid

One-quarter of American workers make less than $10 per hour, or are living in poverty. Meanwhile, the top 1 percent of workers earned more in income than the bottom 40 percent of workers. This was in 2005, when the economy was still booming. Outsourcing is just one reason. Technology, globalization and a passion for "low prices" above all else are others. Find out why income inequality has dramatically risen in the last 20 years. More

How to Find Jobs in the Freelance Economy

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The freelance economy means that companies are laying off full-time, often older, workers and replacing them with part-timers, temp help and freelance workers. Here's how to find jobs in the freelance economy. More

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