Pacific Lutheran University

Economics of Outsourcing


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In February 2005, Professor Mark Reiman's International Economics class at Pacific Lutheran University began a journey into the exciting world of economic theory.  Come along with us as we apply our knowledge to the issue of economic outsourcing . . . and you too can become a cagey veteran of outsourcing theory!


So . . . What's the Big Deal?

  • 71 percent of Americans are concerned that the current trend of outsourcing jobs to foreign countries will affect their job security or earning potential. (Source: BH Careers International, 2004-07-16)


  • 3.3 million U.S. jobs are expected to be outsourced to India and China over the next several years. (Source: Business Week, 2003)

  • It is estimated that for every $100 of call-center work offshored by US companies, $143 is invested back into the US economy. This figure is $133 for IT services work and $142 for high-end knowledge services like equity research, and risk management. (Source: Business Week, 2003)

Let's examine the pro and con arguments for economic outsourcing: We'll begin with the cons (since those seem to be running rampant these days).

The Argument AGAINST Outsourcing

Ron HiraA search for “outsourcing” at yields 1,708 books alone.  The majority of these books are are written fron an anti-outsourcing stance, with titles ranging from Outsourcing America:  What’s Behind Our National Crisis and How We Can Reclaim American Jobs (by Ron and Anil Hira, 2005), to Exporting America:  Why Corporate Greed Is Shipping American Jobs Overseas  (by Lou Dobbs, 2004). 

While blue-collar workers have traditionally been the first to lose their jobs to outsourcing, white-collar employees are increasingly seeing their jobs move overseas as well.  As a result, labor unions have been some of the most vLou Dobbsocal critics of outsourcing, often claiming that companies’ sending jobs overseas to benefit from lower costs will lead to inferior labor laws—an accusation often termed the “race to the bottom.” 

As Mike Gildea, a representative of the AFL-CIO, explained in speaking about the countries receiving outsourced U.S. jobs, “More often than not, the labor standards are non-existent or are not enforced.  [Firms] can escape protective labor laws. They don't have to worry about it.”  Moreover, as labor lawyer Daniel Pyne notes, employees in foreign countries “earn much lower wages and enjoy few, if any, of the protections enjoyed by their American counterparts.”  Thus, not only do critics believe outsourcing will render them unemployed, literally taking the food off their tables, but also that it will lead to an overall world decrease in labor standards (USA Today). 

The Argument FOR Outsorcing

So yes, some Americans are facing unemployment from outsourcing, however, this fact leads to one of the greatest outsourcing myths:  the U.S. as a whole is losing jobs.  Not so.  According to research from The Heritage Foundation, the U.S. has never previously had so many people employed.  As their household employment survey showed, 1.9 million more Americans have been employed since the end of the last recession in November 2001.  “That means, there are 138.3 million workers in the U.S. economy today—more than ever before.” 

BhagwatiMoreover, proponents of outsourcing believe the picture of unemployment is not nearly as bleak as critics paint it.  While the most startling estimate predicts a loss of 3.3 million service jobs between 2000 and 2015, the real number is in actuality much closer to an average of 55,000 jobs lost per economic quarter.  Here it is important to note that job loss is part of the normal economic cycle—on average, 7.71 million Americans are unemployed each quarter, and the estimated number of jobs lost to outsourcing equal only 0.71% of this total.

Rather than focus solely on job loss, supporters of outsourcing believe it can bring great benefits to the economy as a whole and suggest the development of government-sponsored retraining programs and other unemployment aid as a way to soften the blow to those whose jobs are affected (The Heritage Foundation). 

Want to know more?

For an indepth examination of the outsourcing debate, return to the top of this page and click on the menu options to the left.  You'll explore more about the economic theory, data, and perspectives surrounding this issue. 

On the lighter side . . . check out our selection of outsourcing funnies!

Cartoons » 

Upcoming Events You Won't Want to Miss!

Summer Econ BBQ:

BYOP (Bring your own tri-color pen), and we’ll provide the graph paper!)   Hamburgers, watermelons, and environmental Kuznets curves will abound.  Also featuring guest speaker Paul Krugman! 

Econ Night at Jazz Bones:

Come hear the singin’ sensations of PLU’s very own econ band, playing their latest hits:  “Autarky Blues” and “Won’t Get Systematically Fooled Again.”

Econ Support Group:

Has the prospect of a whole summer without economics got you down?  Sign up now for our support group starting the week after graduation.  We’ll discuss coping methods.  For immediate relief, call our 24 hour hotline at 1-800-ECON-NOW!

New PLU Physical Education Course:

Look for “Economics Interpretive Dance” coming soon this fall.  This class will start off with the basic steps for supply and demand curves, and progress toward the four-quadrant Specific Factors Model.  Don’t be shy—no previous dance experience required!