How Outsourcing Jobs Affects the U.S. Economy

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.  

In the past 20 years, many call centers have been outsourced to India and the Philippines. That's because the workers there speak English. But that trend is changing. Unlike technology outsourcing, there is a much smaller wage discrepancy between call center workers in the United States and emerging markets.

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

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.

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

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?

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.

China is the world's largest exporter. But a lot of China's so-called "exports" are really for American companies. A lot of U.S. companies ship raw materials over, and the final goods are shipped back. One reason is that U.S. companies can only afford to sell products to China’s 1.37 billion people if they manufacture there.

Perhaps the United States should do the same thing. Imagine if all our imported products were partly manufactured in America? Other foreign companies should be required to follow the lead of Japanese auto makers, who already do this. Of course, if the United States did that, it would mean higher prices for consumers. U.S. workers need a higher salary to pay for the better standard of living.

Workers in many manufacturing industries have been replaced by robots. To get new jobs, workers need training 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 United States 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.

One-quarter of American workers make less than $10 per hour, or are living in poverty. Meanwhile, the top 1% of workers earned more in income than the bottom 40% 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.

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.

President Trump focused his campaign on ending outsourcing to become the greatest job-producing president in U.S. history. He promised to pressure China to reduce its subsidies and raise its currency value. He would renegotiate NAFTA to require Mexico to end the maquiladora program. He would lure companies back by reducing corporate taxes.