Why Outsourcing Hurts America

Paper Summary:

The paper is an extensive analysis with graphic quotes on the subject of outsourcing, highlighting the fact that it is the cause of major unemployment. The paper asserts that reduced salaries as a result of decreased availability of jobs adds to undue psychic trauma to fellow Americans. The paper then asks when the US will realize that it is supporting foreign economies to its own detriment. The paper then points out that, on the flip side, companies are able to increase their productivity and be more cost efficient. The paper concludes that before embarking on a system of outsourcing a company should do extensive research and investigation to determine if such an undertaking is in fact cost effective. The paper concludes that more balanced approach is required and American needs to attend primarily to the requirements of America. The writer has paper appended copies of the source material.

From the Paper:

"At the same time as jobs are disappearing, the stress of working in an environment wherein one's position can be moved overseas at a moment's notice is eroding the faith of American workers in their employers - and undermining their psychological health; in short, people are becoming over-stressed and burned-out. Eugene Garaventa and Thomas Tellefsen write that employees, upon joining an organization, enter into an unwritten psychological contract with that organization. The "informal" contract is an agreement in which employees tacitly agree to give a certain amount of loyalty, effort and creativity in exchange for things like job security, human dignity (otherwise known as fair treatment), rewarding relationships with others, and the support of the organization in achieving their "developmental" expectations (Garaventa & Tellefsen, 28+). Citing scholarly research, the aforementioned authors inform their audience that "workers suffering a breach of their psychological contract were not only likely to lower their organizational contributions, but that these violations were so significant that neither promotions nor pay raises were able to counter their negative effect on employee performance" (Garaventa & Tellefsen, 28+). In other words, as morale plummets and faith in the organization erodes, workers become less willing to sacrifice on behalf of their pay-masters; the inevitable outgrowth is diminished productivity and employees deciding to leave the corporation before the corporation cuts them loose."

Sample of Sources Used:

• Even some of those who accept the argument that international trade in goods can benefit an economy overall when--all costs and benefits are taken into account--have expressed uncertainty about Mankiw's claim. After all, five-sixths of American jobs are in service-producing industries, and only one-sixth involve goods-producing industries (Council of Economic Advisers 2005: Table B-46). Isn't there some difference between importing goods like television sets or machine tools and outsourcing service jobs? As a starting place for answering that question, let's first consider why outsourcing provides economic gains at all. Core Competencies and Make-or-Buy Decisions
• Every firm faces make-or-buy decisions. Should a car company make windshields and seat covers and door panels itself, or should it buy them from outside suppliers? Should a company run its own lunchroom, clean its own building, and trim its own trees, or should it outsource these tasks to firms that specialize in catering, janitorial services, and grounds-keeping?
• Ronald Coase (1937), University of Chicago economist and 1993 Nobel laureate, first tackled this question almost 70 years ago in a classic article. His broad argument was similar to Adam Smith's: If a firm can buy a certain good or service from outside the firm at a lower cost and at least the same level of quality, then it should buy; if not, then it should make. Coast also emphasized that the make-or-buy choice can evolve over time, as firms respond to price and technology changes and to variations in the degree of quality control they can exercise. He especially emphasized the role that contract enforcement plays in the make-or-buy decision, by determining how confident an outsourcing company can be in the quality of the goods it receives if it chooses to buy.
• In the last few decades, many American firms have been deciding to buy rather than to make an increasing number of inputs. This trend follows developments in management theory, especially the belief that most firms have only a few "core competencies" in which the firm has distinctive skills and abilities (Prahalad and Hamel 1990). Managers and key employees of a firm, the thinking goes, should focus their scarce time and energy on honing and taking advantage of these core competencies, and hire other firms with their own core competencies to perform other tasks. Aiding and abetting this new thinking have been new communications and information technologies that have altered the cost and quality-control issues at the heart of the make-or-buy decision.
• For example, most firms used to employ a human resources department that posted job listings, collected applications, and hired workers. Firms would also maintain a payroll department to cut paychecks and keep track of benefits. Yet there is no reason to believe that all firms in the American economy, regardless of what they sell, also have core competencies in human resources, payroll, and benefits. The advances in computer technology have made it possible to outsource a considerable share of these functions to other firms. Thus a firm called ADP (Automatic Data Processing) now cuts paychecks for one in six private-sector workers in America. Manpower, Inc., connects two million workers per year to 400,000 different employers, in jobs that typically start as temporary but can become permanent. One company--First Data Corporation--manages credit cards for 1,400 issuers, handling 400 million credit card accounts (Edwards 2004). Many employers, rather than running a company pension plan, instead connect employees with a selection of financial firms and help them make contributions to their own retirement in 401(k) accounts or Individual Retirement Accounts.

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