Offshoring Creates More U.S. Jobs Than It Kills - Research Paper Example

?Ibrahim Adeleke Adeyanju English 1102 Pro- Henry Backer fshoring creates more U.S. jobs than it kills Introduction The labor market consequences of offshoring have been debated hotly among academics, policy makers and management scholars, particularly in industrialized countries. This debate has largely been informed by increasing offshoring of services in recent years especially in service industries in the United States and United Kingdom (Gorg 21). Offshoring of services has brought with it significant employment changes; there are divided opinions on whether it creates more jobs in the United States than it kills job creation. Offshoring points to the relocation of jobs to cost effective country abroad. In a bid to improve profits by reducing the cost of production, many companies use offshoring as a strategy (McCarthy 67). Many businesses often find it more beneficial to move jobs to developing countries in order to incur lower labor costs thereby boosting their profitability. This decision is largely informed by the fact that cost of labor in developing countries are relatively lower compared to developed countries such as the United States. It is argued that the benefits of offshoring can ultimately lead creation of more jobs in countries such as the United States (Gorg 24). However, critics of offshoring who consider it as a way of killing job creation, oppose this argument. This paper will discuss reasons why offshoring creates more jobs in the United States than it kills job creation. There are empirical evidences showing that offshoring brings about financial implications that in due course lead to the creation of more jobs. As a result of offshoring United States businesses will be able to save a lot by sending some jobs overseas thereby enhancing profit expectations and facilitating expansion locally thereby creating more jobs (King 148). Through savings from sending some jobs overseas, those expectations will be met with adequate supervisory measures. Standard of product will slowly, but eventual met consumer satisfaction. Secondly, it is understandable that Unemployment rate remains double digit, but offshoring remain the best answer to the question of specialization. In essence, offshoring increases productivity due to structural or compositional changes (Wei and Amiti 3). In an event that a firm relocates its relatively inefficient production parts abroad, where they can be more cheaply produced, it can be able to expand its output through the stages that it has comparative advantage. As a product, the average productivity of the remaining employees increases due to the change in the workforce composition. In addition, structural changes that boost the remaining workers’ productivity are also likely. These benefits emerge due to offshoring service or material inputs because of the access to new varieties of input (McCarthy 70). Offshoring of businesses abroad by United States firms enhances the likelihood of more benefits that can lead to job creation locally. Offshoring service inputs such as information and computing services from other local firms is more likely to enhance the prospects of job creation in the country. The impacts of material and service offshoring on productivity translate into job creation locally (Wei and Amiti 4). This is because offshoring could lead to higher labor demand due to scale effects. Due to higher productivity, lower prices will be reduced and therefore enhancing competitiveness of the United States companies. The effect of this outcome is that US firms will be able to expand and create more jobs abroad and more importantly locally due to the rise in demand of their goods (Wei and Amiti 4). High productivity companies are more likely to engage in global production strategies that could help reverse the jobs lost locally. Offshoring tends to boost productivity and reduce costs, thus prompting firms to expand domestic hiring to offset the lost jobs to overseas workers. Several studies have established that offshoring has no impact on native employment taken together but rather is instrumental in stimulating job creation locally. Even though offshore employees directly compete with natives, their employment enhances productivity gains that broadens the size of the pie thus leading to an overall improvement on native employment (Khimm para4). It has also been found out that increasing offshore jobs by 1 percent results to 1.72 percent rise in overall United States employment of native workers. The fact that offshoring creates more jobs in the United States is supported by evidence that it tends to push native United States workers towards more complex jobs that fetch better wages and benefits. This is because offshore workers tend to specialize and work in less-skilled employment. It has further been established that manufacturing industries with larger global exposure through offshoring fare better than those that lag in exposure in terms of growth of native employment (Khimm para7). Offshoring enables American firms to expand locally and internationally and this has economic upside to the country and its employment prospects. When American companies are performing well, American workers benefit. Offshoring provides American businesses with the opportunity to maximize their earnings, as well as the ability to capture labor efficiencies in the cross-border. This creates value for the world economy, and at the same time enormous value for American firms and the country as a whole. Studies have found out that United States receives about 78 percent of the new economic value created through offshoring (Farrell para7). This compares to 22 percent that lower wage countries get from services relocated to their countries. A good example is that of India versus United States. It is estimated that as much as $1.46 is created for every dollar that American firms spend offshore. The McKinsey Global Institute has found out that India gains an estimated net benefit of about 33 cents from every dollar that United States firms send offshore. Meanwhile, America earns a benefit of nearly $ 1.13 for each dollar spent (Farrell para8). The benefits are much greater for the United States because offshoring creates value for individual United States firms and therefore frees the country resources for activities with additional value. A good example is firms pass cost savings to consumers through reduced prices and cost savings to investors through higher profits. More importantly American companies get new sales from Indian companies thus boosting United States imports (Krekl 183). Because of offshoring, United States economy is able to redeploy workers who lose their jobs through offshoring in ways that are critical in boosting growth. As the United States population ages and a considerable share retires, there is need to maintain desirable living standards. This goal calls for combination of enhanced innovation and greater productivity gains (Farrell para9). Offshoring activities have proved to be effective towards achieving this goal. It will likely prove much easier to embrace going forward. Widely cited figures indicate that while the United States loses about 200,000 service jobs each year due to offshoring, the United States economy creates about 350,000 jobs due to factors related to offshoring. It is certain that if United States firms do not move jobs abroad, they could face enormous risks due to global competition from both the developed countries and from companies in the developing countries (Farrell para14). The realities of globalization and other developments around the world inform the need for American companies to engage in offshoring as a means of not only remaining competitive, but also of improving the United States overall economy. American companies, like other companies in the world, have to adjust to new realities in the world (Heineman para14). They should, on one hand support real global competition, and on the other hand, support local workers and national companies. Offshoring provides this unique opportunity for these companies to achieve this goal. Offshoring prompts American firms to do broad adjustments in attitudes and knowledge regarding changes in the global economy in order to reach the right balance of policies that promote the ideal long-term global competition, and adopts near term measures that counter policies that threaten creation of jobs domestically. Strategies adopted by American firms should protect domestic workers, but at the same time ensure that it boost national economy in order to increase job opportunities among the national population (Heineman para16). This will also be important in enabling the United States workers to engage and pursue higher-level jobs. Educational and programs Considering the benefits of offshoring in creating jobs, any attempt to limit the practice will definitely lead to high standards of living and higher taxes. The best option is to embrace offshoring as a way of improving national economy and creating more employment opportunities (King 150). If the effect of long-term offshoring is viewed from the long-term perspective and integrated into the mainstream economy, the results yielded will certainly be desirable. It will therefore be important that college and high school students be educated on the benefits of adjusting their areas of study based on the assumption that routine jobs may be relocated. State and local governments should also allocate more resources towards training workers for higher-level jobs that are not likely to be offshored abroad (Krekl 101). Conclusion The above discussion clearly supports the argument that offshoring creates more jobs in the United States rather than killing job creation. It points to the reality that while offshoring may be a painful endeavor particularly in the short run, it is a necessary occurrence for long-term benefits. As has been noted, offshoring helps to create jobs through various aspects such as enhanced productivity, reduced cost of production and boosting national economy among other ways. Works Cited Farrell, Diana. Exporting jobs : Offshoring is the way to go. 2004. Web. 18 Jul, 2013 < http://www.nytimes.com/2004/02/07/opinion/07iht-edfarrell_ed3_.html> Heineman, Ben. Why We Can All Stop Worrying About Offshoring and Outsourcing. 2013. Web. 18 Jul, 2013 < http://www.theatlantic.com/business/archive/2013/03/why-we-can-all-stop-worrying-about-offshoring-and-outsourcing/274388/> Gorg, Holger. Globalization, offshoring and jobs. 2012. Web. 18 Jul, 2013 < http://www.wto.org/english/res_e/booksp_e/glob_soc_sus_e_chap1_e.pdf> Khimm, Suzy. Offshoring creates as many U.S. jobs as it kills, study says. 2012. Web. 18 Jul, 2013 < http://www.washingtonpost.com/blogs/wonkblog/wp/2012/07/12/study-offshoring-creates-as-many-u-s-jobs-as-it-kills/> King, Melvinia T. "What Every Leader Must Know About The Future Of Job Creation: The Coming Jobs War." Academy Of Management Learning & Education 12.1 (2013): 148-150. Krekl, Jonathan S. Impacts of Offshoring on Jobs and Small U.s. Manufacturers. Hauppauge, N.Y: Nova Science Publishers, 2012. Print. McCarthy, John C. Near-term Growth of Offshoring Accelerating. Cambridge, MA: Forrester Research, 2004. Print. Wei Shang-Jin and Amiti Mary. Service Offshoring, Productivity, and Employment: Evidence from the United States. IMF Working Paper WP/05/238. Read More