Outsouring

Foreign outsourcing costs US workers more than just jobs. The impact of outsourcing stretches beyond the employee and has local, regional and global considerations. While many of us work our daily jobs and do our normal day to day tasks we rarely consider how the company down the street or across town affects us directly.

Before exploring the affects, it is best to explain the benefits which cause business to explore and choose this option. The primary consideration is of course, costs. Outsourcing in general allows business to defer functions to a company who specializes in specific services and have scale to handle the volumes at lower costs. An example of this is that of call centers. For a business to have a call center, they must have the hardware and technology. These expenses are on-going to keep up with the competition and typically require IT support staff necessary to maintain the hardware and software. Secondary considerations are the need to have the resources necessary to support the call volume regardless of whether anyone calls. A standard for the Insurance industry is one customer service representative per one thousand members (potential callers). Those reps require salaries, training, supervision, and miscellaneous benefits like vacation time, 401k, and medical and dental insurance. These costs quickly escalate and can exceed $60,000 for a fully loaded employee cost per employee. The cost for the supervision and management can exceed these costs by 25-30%.

The alternative is to find a company who manage and staff call centers. They typically provide a single price and cover all the costs of the center and are accountable to maintaining service levels, hiring and retaining staff, and training. This allows the outsourcing company to maintain set costs and focus on more core functions of their business like sales and business development. Now consider the ability to outsource these services to a company who resides in another country with lower labor costs.

Farrell, D., & Laboissiиre, M., & Rosenfeld, J (2006) provide great statistics which provide a great overview of the costs. They provided the following graph which shows the current hourly labor costs by country for engineering:

As you can see, the cost of labor is significantly lower in India, the Philippines, China and Malaysia. So businesses are quick to consider the costs and the potential to reduced their spend which in turn drops straight to the bottom line as increased profits by taking an expense and turning it into an asset.

Direct Impact

With the framework of the considerations, let's explore the direct impacts. The affects to workers who are impacted directly by outsourcing are unemployment, loss of health care benefits and pension. At one time or another in your life you too where unemployed. Think about a time for a moment. How did you feel during that time? Were you depressed? Stressed? Lost? All of these are normal reactions but only cover the human side. Consider the average time it took to find a job for the "was 3.6 months" according to a study cited in CNNMoney.com (2005).

How long can you afford to pay your bills, your prescriptions, or food? Forget having four months of income saved just in case, most US workers live paycheck to paycheck. So how do these folks survive? If they are fortunate they get a job quickly or have some money saved. If not, they may ask for help from friends and family. If not, public assistance for food and rent which is provided by out taxes if they qualify and money is available.

Regional Impact

Now let's look at this from a little wider perspective. Over the years as a business executive, I have faced several decision points on the aspect of outsourcing, both domestically and foreign. Each of these decision pointed faced many questions on what outsourcing will do for the local economy, especially since my company is one of the top employers in the region. Repeatedly, the decision to forgo increased profit potential to maintain employment for many workers has been the way to go, however, the increasing costs of the local workers causes the discussion every few months. I continue to hold true to the thought of keeping the local economy strong by employing local workers. This decision helps my organization when working with political clients and favors my organization over competitors who do outsource but we are becoming an exception and not the rule. Consider this example of the impact outsourcing has to a region:

You are an employer who has 100 employees and decide to outsource the majority of your worker force to India. You layoff 50 of your workers. Most of them find work within a few months, let's use the average referenced earlier of "3.6 months." But during this time, several need to be hospitalized for a chronic or acute illness. Since these individuals are unemployed, they are also uninsured. Consequently, the hospital and doctors absorb the costs of the services or they are on Medicaid and the taxpayers pick up these charges. Due to the decreased revenue of the hospitals and doctors, they in turn pass those expenses on to those insured, who in turn passes these costs on to the employer. The net result is a self-repeating process, which will only get worse over time unless we decrease the uninsured and unemployed workers without insurance coverage.

The example assumes the services are contextual meaning they are "impersonal services that need not be delivered face to face" (Blinder, 2006), and while the example above is a regional look, consider how that influences our economy. An article titled "Outsourcing Hurts American Workers" by A. Gussert offers some alarming statistics. Gussert (2005) states, "U.S. trade deficit shot up to a record $60.3 billion during November 2004, according to the U.S. Census Bureau". Gussert also offers another perspective, by asking why US companies and business people shouldn't consider outsourcing. Many benefits exist for companies and the laws currently allow such actions, why blame the business leaders for taking every advantage to make their business successful.

While I can understand the rational from Gussert, it is still a narrow focus. We need to look even further into this and consider the impact this will have over time. According to Farrell, Laboissiиre, and Rosenfeld (2006), "The U.S. economy has already weathered a much larger loss of manufacturing jobs than the decline in service jobs we expect to be caused by offshoring, without experiencing a corresponding decline in overall employment. Over the past 30 years, the