In the every day market companies are fighting to stay afloat or surpass the competition. We live in a very competitive society where price controls almost everything. What is the easiest way to have better control over your price in your market? A simple solution is to cut down costs! Many companies use FDI (foreign direct investment) in order to cut costs by hiring cheap unskilled labor and having them create components for a cheaper wage than workers in the U.S. There are several studies, such as one from McKinsey Consulting, that state that every $1 offshored benefits the US economy by $1.14. So at the end of the day, offshoring is helping the U.S. economy by earning it more money than that which is spent.
Who does Offshoring truly hurt though? Employees of American companies are almost guaranteed to lose their jobs when companies start offshoring or outsourcing. Why would a company want to pay a higher wage for an unskilled U.S. employee when an unskilled worker in Mexico can do the same exact job for half the price? It just wouldn't be financially intelligent for the U.S. to produce whatever component is in question domestically. High skilled workers in the U.S. will often be safe though as they want to keep technology in house and controlled by the U.S. company. The employees that really are fighting to stop offshoring are the low skilled expendable workers.
So at the end of the day many people like to argue that offshoring ensures job loss and that it is unethical. But is a company aiming to be more profitable and efficient really unethical? American companies are simply setting up to compete and in some industries it requires offshoring. Which statistically benefits the U.S. as a whole but hurts U.S. employees.
When United States companies offshore to save money, this is something that helps the economy of the receiving nation. Even though they are earning less wages than domestic workers, they are still being given an opportunity that they would not have otherwise. The ethical questions regarding offshoring occur when companies cross the line with child labor or sweatshop conditions. These issues have been somewhat resolved with regulations, so they are a problem that offshoring companies are working to fix. At the end of the day, foreign labor force benefits, and the United States economy improves. The unskilled labor force domestically is taking a hit, however, like you mentioned.
ReplyDeleteI agree that it is unfortunate that the losers in this economic situation are American Unskilled laborers but we have to remember that they are only the losers in the short run model. This is a classic case of utilitarianism in which American unskilled workers take the hit in hopes of benefitting the entire economy. Firms have to focus on the bigger picture when deciding what direction to take their business. Firms don’t want to intentionally hurt American workers but they also don’t want their firm to fail. Therefore, it is the better option to pay for lower priced labor, allowing the firm and economy to thrive in the long run, at the expense of a number of Americans forced to find work elsewhere.
ReplyDeleteI think that the increase in offshoring has more benefits to the U.S. economy as a whole. Although it takes away some jobs from lower skilled workers, offshoring also creates a lower “Wal-Mart price” according to the article. A direct result is the massive number of people that shop at Wal-Mart, and even if they do not, other retailers lower their prices in order to compete. For this reason, consumers should be thankful that many firms participate in offshoring. However, the higher level of competition created by offshoring has brought along some ethical issues with it. Expanding on Drew’s idea, many firms pay their workers questionably low wages whether in a sweatshop or not. Even worse, some firms do not even go abroad to obtain cheaper labor. Instead they hire illegal immigrants already in the U.S. for more than wages in their home country, but less than minimum wage here. I have witnessed this firsthand this summer as they are paid in cash to keep it off the books. Personally I support offshoring, but I do think that firms need to assess the morality of their choices before making the final decision.
ReplyDeleteIt's unfortunate that American unskilled workers are the losers in this situation, but let us remember that this is only the case when analyzing this phenomenon from the specific factors perspective. Looking at this from a long run model (like the HO model) those American workers can find jobs in other sectors of the economy or in different economies abroad.
ReplyDeleteI believe that America offshoring business not always benefit because products quality compare to in America. Maybe offshoring make more products but the quality or brand name will be down. Many other countries person like America products but if they find out it made 3rd country then the value of name will be decrease. For example, think about Rolex watch from Swiss, they never offshoring
ReplyDeleteor try because they focus to their name and proud. Many place try to make imitation Rolex watch, but it surly different. Also, offshoring effects American lose job badly. In the future, I hope that easy to find a made of American products more often than made china or other poor countries name.
I think neither off-shoring nor outsourcing really hurt the American workers in a longer prospective. If a job can be done more cheaply, then changing production methods to do the job more cheaply frees up resources which can then be used for other sectors. Those resources will be used for other sectors, ensuring that unemployment won't rise. Workers should earn their marginal productivity. Just as the long run model that we had discussed in class.
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