The other day I was playing Warhammer Online, and some members of my guild and I were discussing the issue of Chinese Fund buying a large portion of Morgan Stanley. After some talking the issue of outsourcing came up, and everyone seemed to be strongly against it. One person commented as to how terrible it is that Americans are losing their jobs overseas, and someone else commented as to how it hurts our economy that money is moving overseas and how we are unable to tax those overseas leading to additional loss in revenue.
The day before that my brother was stating how we should make outsourcing illegal simply because it takes away American jobs, and how that's just not right. My sister was of the opinion that it's terrible because of the conditions that many of the workers are put in when doing those jobs, so therefore we shouldn't do it any longer.
Now, first I'd claim that outsourcing allows us to buy a lot more goods for a lot cheaper a price. Of course the counter I hear is that the person who was just laid off because his job is outsourced can't really buy any of the cheaper goods, because, well, he has no income. Fair enough, but is that enough justification to keep that from happening?
Consider this, let's say worker A is American and earns $40,000 providing some kind of service. Now, let's say worker B is a potential worker overseas who can provide the same service for $10,000 (let's assume it's of similiar enough quality for now, just for the sake of this example). Let's also assume that 25% of A's income is taxed away, so he really only makes $30,000. Now, A produces S (the service rendered) - $30,000 ($10,000 of it is taxed and still remains in the economy, albeit in the public sector). Worker B produces S - $10,000 (he'll probably get taxed to, but that flows into the economy of his country). If you subtract A's work with B's, you get -$20,000. This is $20,000 that is essentially being given away to A, because it's not being used to produce anything additional. I mean, would you pay 20,000 dollars for someone to dig a whole and fill it back up again? I mean, with that 20,000 dollars you can hire two more people like worker B and have three times the production, which is why prices are so much lower.
Also, even though money is leaving the country, it's not like we aren't getting anything back. We are, as this example shows, getting goods and services back in return. If the money weren't allowed to leave, we'd have to essentially pay three times as much for that same good or service. Which, by extension means we are basically giving away money to those who provide the same service over here.
Now, I will grant you that sometimes the service produced over there might be somewhat inferior to that produced over here. Then you can make a calculation to see if you really are getting a deal taking that into account by hiring the person overseas. But, assuming the product is of similar enough quality or the deal is good enough, it seems like we can have much more growth by having our goods produced for a cheaper price, and that it will benefit us tremendously in the long run.
Now, I'm still not sure as to what should be done with the workforce that was displaced. Ideally, there can be some retraining involved so that they could still actually produce a good where labor is needed. But remember, arguing against outsourcing simply for the reason that some will get displaced, well, the same can be said about automation. If you are agaisnt outsourcing, are you against automation (i.e. having machines perform tasks that used to be accomplished by manual labor)? Usually when I bring that up, the subject changes, but sometimes somebody tells me that we should then cut back on automation as well, in which case I bring up technology in general. I mean, technology, as a general rule, is used to make some tasks more effecient or to use less manual labor.
As to what to do with the potential man or woman nearing the age of retirement who don't have money but were recently displaced by causes such as these, I'm afraid I don't have a very good answer, and that does bug me a bit. Ideally they can be retrained for something, but I understand the job market wouldn't likely be in their favor. Perhaps someone has an idea that I havent' thought of.
Finally though, one should remember that, unlike automation, or increasing effeciency in the workplace, outsourcing does give someone else a job where before they may have had none (or one that pays less). Unfortunatley, conditions may not be great for many, but I'd argue that it's better than having no job at all if we ended up restricting outsourcing.
Maybe I'm wrong somewhere in my reasoning, in which case, I'm eager to hear comments. I always seek to have a better informed opinion on pretty much anything, so if I'm wrong somewhere here, I'd love to hear you out and see what you think.