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Outsourcing Jobs and the Unemployment Rate

By (view all posts by Dealman)
at 1:25PM Monday August 30, 2010
under Newsworthy

While the unemployment numbers are not encouraging these days, they're also often being blamed on the wrong things. You can see the unemployment numbers being blamed on everything from illegal immigration to, well, Obama, but the issue is a lot more complicated than that.  The reason that the unemployment numbers are so high is because so many jobs are being shipped out to other countries.  In an increasingly-digitized world, this problem is going to continue. 

Outsourcing manufacturing to dirt-cheap labor overseas isn't helping the matter either.
In a recent op-ed for the NY TImes, Nobel Prize-winning economist Paul Krugman had this to say about unemployment:
"We need about 2.5 percent growth just to keep unemployment from rising, and much faster growth to bring it significantly down. Yet growth is currently running somewhere between 1 and 2 percent, with a good chance that it will slow even further in the months ahead. Will the economy actually enter a double dip, with G.D.P. shrinking? Who cares? If unemployment rises for the rest of this year, which seems likely, it won't matter whether the G.D.P. numbers are slightly positive or slightly negative."
Unfortunately, it's a sort of self-fulfilling prophecy:  the economy won't improve until people get jobs, which will give them a paycheck that they'll spend on consumer goods and services, improving the economy overall and leading to more hiring.  So it's a tough situation we're in.  Unfortunately, an increasing number of jobs don't even exist in this country any more due to outsourcing reports Tech World News:

Corporate America is outsourcing an increasing number and variety of jobs to foreign shores, a trend that few industry experts predict will slow, let alone reverse, in coming months and years.

"Offshore outsourcing is just one small part of a (US)$5 trillion global outsourcing market. This market is growing by more than 15 percent per year, and the offshore component is certainly among the fastest growing," Michael Corbett, president and CEO of New York-based Michael F. Corbett & Associates, told the E-Commerce Times. "We are at the earliest stages of a fundamental transformation from regional economies to a single, integrated global economy. Just as companies now compete globally, workers need to realize that they, too, are competing globally."

And that's just for tech IT jobs.  Manufacturing jobs are also headed out of the country.  Everybody's heard of sweatshops.  Well, to not put too fine a point on it: they're real.  A post at Citizen Economists makes the argument that sweatshop work actually helps to rise people out of poverty. That may be true, but horrible compared to more horrible isn't the greatest leap up. 

Like any issue, you might be causing a problem while you're solving another.  So if companies stopped outsourcing jobs to poor countries, perhaps those poor countries would suffer further.  But it would also go a long way to curing our unemployment ills in this country.  And the mantra, "sweatshops are good for the local economy" isn't quite persuasive, given the conditions in these factories.

So what's the answer?  Many don't like the concept of increased government interference and regulations.  But many are also complaining about the rising unemployment numbers, or worse, being out of a job themselves.  If there were more regulations over companies using off-shore factories with inhumane facilities, this would stop being as much of an issue.  This is a human rights issue, as much as it is an economic one.  This doesn't say much about IT work--which isn't quite the equivalent of sweatshop labor.  However, it is similar in the sense that the cost of labor is cheaper overseas. 

When you break it all down, there's a reason that the economy is recovering so slowly.  Because we live in a global economy, the entire global economy must be working at a better level before the economy starts performing better in the United States.  America isn't a stand-alone country anymore, as "Made in America" is such a rarity.  Keep this in mind when reading the latest unemployment reports--just injecting money into the country via another stimulus won't be entirely effective if so many companies aren't even hiring within this country.