Three Reasons Companies Move Jobs Either to or from the USA - Assignment Example

Three reasons companies move jobs either to or from the USA Companies in the world relocate and move jobs and other business operations from one country to another country. These typically moved operations might involve operational process such as the manufacturing of goods with their consumption market being predominantly in the USA. On the other hand, companies may move jobs to other countries by transferring business-supporting processes such as accounting and customer care services. It is important to note that, even state run businesses may move jobs from one country to another country. In this regard, the USA, being the world’s biggest economy, does not operate in isolation and effectively companies have moved jobs out and into the country. Conversely, there are different reasons for companies to move jobs out and into the country. While the key reasons for companies moving jobs out of the USA range from labor arbitrage and avoidance bureaucratic regulations, companies moving jobs into the country cite high inflation on wages as the main reason of moving their plants and operations back to the country. This expose therefore elucidates three reasons companies move jobs either from or to the USA. One of the reasons that companies move their jobs overseas, especially the manufacturing processes, is to take advantage of lower wages abroad especially in poor countries. Labor arbitrage is the process of taking advantage of lower wages in any type of business operation (“Moving back to America”). China is one of the countries that offer cheap labor and essentially companies from the USA move their manufacturing plants to the country in order to lower the cost of production and improve their profit margins. A study conducted in 2002 to determine the manufacturing industry’s compensation of workers in China, showed that factories in China labor compensated their employees 64 cents an hour. In comparison, the same study found out that a similar compensation in the USA job market stood at $21.11 (“Just How Cheap is Chinese Labor?”). In this case, companies with manufacturing plants in the USA would want to take advantage of the low labor wages in China and in other countries offering cheap labor. It is crucial to note that companies expect to have a high return on investment (ROI). In effect, one way to ensure that they achieved this objective is through a reduction in the cost of operation. Therefore, cheap labor ensured that the cost of operation remained low and therefore companies achieved the objective of having a high return on investment. However, the USA job market does not offer cheap labor, as most companies would like. While the study only covered the hourly-wages only, a further study with scanty data available in China indicated that this figure of 64 cents rose to $1.06 when considering other benefits and insurance (“Just How Cheap is Chinese Labor?”). This figure is still relatively low in comparison to the USA labor and explained company’s preference for the Chinese labor market. Labor arbitrage might be the main reason that American based companies cut their workforce in the country in order to expand abroad in the 2000s. In this regard, the Chinese job market witnessed 260% additional jobs by America based companies that translated into 943,900 jobs since 1999 to 2009 (Wessel). In this case, it is imperative to point out that cheap labor might be the key reason that attracted these multinationals to the Chinese job market. To prove this point, these US based multinationals decreased their job levels in Germany by 2% while jobs in the UK and France labor markets increased by 8% and 2% respectively (Wessel). It is crucial to note that, the same study that showed the average labor wages for china as $1.03 showed that he same wages paid to a factory worker in these three countries averaged $14.22 (“Just How Cheap Is Chinese Labor Market?”). The availability of cheap labor is not the only reason that makes USA based companies move jobs out of the country. One other reason that companies move jobs out of the country is the strict bureaucratic regulation in the country in terms of laws and taxes. President Obama notes that, there is a growing need for reforms in the country’s regulation that subdued innovation, national growth, and creation of new jobs (qtd. in Beard, Ford, Kim, and Spiwak). In this case, the regulations in the country reduced the rate of investment in the country with more companies taking their business operations to other countries away from the USA. In effect, only a reduction in regulatory bureaucracy in the country could have an impact on economic growth and moving jobs back into the country. On the other hand, Wessel noted that the issue of US-based multinationals moving jobs to other countries further puts the issue of the country’s regulations into perspective. In this case, the government’s policies towards corporate taxes and tax codes aimed at producing more jobs in the country appeared to inhibit the growth of jobs. As a result, companies tend to move their business operations, and consequently move jobs, into countries whose regulations and tax regimes do not stifle their business operations. While cheap labor abroad has been one of the main reasons why companies move jobs out of the USA, there is a growing concern on the stability of the cheap labor in markets that offered cheap labor. In this case, it is common knowledge that the economies of poor countries grow. In effect, a growth in the economy of a country results to a rise in the wages. Indeed, a good example relates to a 69% increase on the pay for factory workers in China 2005 and 2011 (“Moving back to America”). In this case, the gains that companies derived from labor arbitrage by moving their operations to countries like China are shrinking. According to Hal Sirkin of the Boston Consulting Group, the wage growth rate in China appeared to be growing at around 17% every year while growth in the United States remained relatively slower (qtd. in “Moving back to America”). In addition, it is common knowledge that the Yuan has continually experienced a modest appreciation against the dollar in recent times. In effect, Sirkin further points out those companies in the manufacturing industry will appear to be indifferent when it comes to choosing the location of their plants for production between these two nations by 2015 (qtd. in “Moving back to America”). This case is not limited to the Chinese economy but goes further to other growing economies that previously offered cheap labor. It is common knowledge that the economies in some countries that provide cheap labor, like India, are also experiencing growth. Growth in the economy consequently results to a growth in wages and demand for other benefits. To put this issue into perspective, companies, such as Caterpillar, have begun shifting some of their production based abroad to the country. In addition, Sauder, a renowned furniture manufacturing company from the Unites States, is also in the process of moving its production back from countries characterized by low wages (“Moving back to America”). Consequently, moving operations back to the country translates to moving jobs back to the country by creating more jobs. From the foregoing, it is evident that companies move jobs out and into the country for various reasons. While the cost of labor appears to be the major reason behind companies moving jobs out of the country, the same reason appears to be changing due to growing economies and increasing demand for better wages and other benefits. In effect, this consequently is forcing some companies to move jobs back to the country. On the other hand, some poor countries offer low wages for American based companies consequently making companies move jobs from the United States to those countries since there will be a high return on investment. However, some of these former poor countries are experiencing a robust economic growth and consequently increasing the wage rates steadily. As a result, the future expectations on wages in these countries have made some of the companies start the process of moving jobs back to the country. Conversely, strict bureaucratic regulations in the country stifle economic growth by hindering innovation, economic growth, and jobs. As a result, companies move jobs to countries whose regulations do not appear to be strict in comparison to the United States’ regulations. Works Cited Beard, Randolph T., George S. Ford, Hyeongwoo Kim, and Lawrence J. Spiwak. “Regulatory expenditures, economic growth and jobs: An empirical study.” Phoenix Center Policy Bulletin 28 (2011): 1-20. Print. “Just How Cheap is Chinese Labor?” Bloomberg Business Week. 13 Dec. 2004. Web. 19 Feb. 2012. < http://www.businessweek.com/magazine/content/04_50/b3912051_mz011.htm>. “Moving back to America.” The Economist. 12 May 2011. Web. 19 Feb. 2012. Wessel, David. “U.S. Firms Eager to Add Foreign Jobs.” The Wall Street Journal. 22 Nov. 2011: B1. Print. Read More