Off Shoring

ANALYSIS

The issues with offshoring are that there is not enough information as well as vagueness of the information presented. It is important to address both sides of the issue in order to get a better understanding of whether or not offshoring is a good business decision. There are four areas which are taken into consideration when looking at the effects of offshoring on the U.S. economy that have two opposing sides. One issue is the average U.S. standard of living which is predicted to be beneficial in the long run with the use of offshoring, however some argue that offshoring could harm the standard of living by undermining U.S. technological leadership. Another issue is employment and job loss, some predict that offshoring will have little effect on overall employment levels, however there are still arguments that it may be a much larger impact on the white collar jobs that the U.S. offers. A third issue is the distribution of income, “some economists maintain that offshoring could increase income inequality in the U.S., while others argue that changes in the income distribution are driven primarily by factors other than offshoring.” (GAO, Overview of the Issues) A final issue is security and consumer privacy. Offshoring may actually be making our national defense system vulnerable as well as consumer’s financial and medical information. There are many resources for and against the use of offshoring, although there are negative effects of offshoring, the positive effects seem to outweigh them.

Globalization “has left many Americans disgruntled, jobless, and distrustful of corporations that practice it” (ezinearticles.com/outsourcing) Job loss and loss to U.S. income have seem to be the most prevailing of all issues against offshore outsourcing. Some feel that the potential damage to the labor market remains quite large and is heavily ignored by studies purporting to tally offshoring’s costs and benefits. (Economic Policy Institute) Although it may make sense for some firms to resort to offshore outsourcing, if the trend becomes too widespread, resulting in an increase in foreign productivity in sectors where the U.S. is a net exporter, it could actually result in a loss to U.S. income through terms of trade effects. “The terms of trade of the U.S. refer to the prices foreign purchasers pay for U.S. exports relative to the prices U.S. residents pay for imports. If U.S. exports fetch ever higher prices on world markets and/or U.S. import prices drop, the terms of trade for the United States improve- the United States is able to consume more goods given its current income and productivity. If instead U.S. exports fetch ever lower prices and/or imports become more expensive, U.S. terms of trade deteriorate and its residents are able to consume less given current income and productivity.” (Economic Policy Institute)