Five Corporate Myths About Outsourcing

Corporate Myth #1: Outsourcing saves U.S. companies money. Those companies will reinvest their increased profits in the U.S., creating jobs for American workers. The McKinsey Global Institute claims, for example, that for every dollar spent off-shoring, companies purchase an additional five cents of American goods and services. If we prevent off-shoring, we're only hurting ourselves in the long run.

The Facts: There is no guarantee that companies that increase their profits through outsourcing to low-wage countries will turn around and use those increased profits to support jobs in the United States. Even if a small amount of the profits is invested in domestic employment creation, as the McKinsey study claims, the net effect of increased outsourcing will be negative for American workers. Even if five cents of each dollar of outsourcing returns to the U.S., this is still 95 cents less investment than the U.S. would enjoy if the company had never off-shored its work in the first place.

Corporate Myth #2: Companies outsource low-end jobs that shouldn't be done in the U.S. anyway. Off-shoring frees workers to find jobs that are more productive, and forces American companies to focus on higher value-added activities and innovate new technologies, goods and services. All of this benefits the economy in the long run.

The Facts: There are no inherent limits on the kind of work that can be outsourced as long as a service can be delivered over a phone line or internet connection, it is vulnerable to outsourcing. In fact, we are seeing the outsourcing trend move from less productive and less-highly skilled jobs like call center work, to more productive and highly-skilled jobs like engineering and research and design. According to Craig Barrett, CEO of Intel, "Unless you are a plumber, or perhaps a newspaper reporter, or one of these jobs which is geographically situated, you can be anywhere in the world and do just about any job." (NYT, 1/26/04)
The Economic Policy Institute found that industries in which new jobs are being created in the American economy actually pay 21 percent less, on average, than the industries losing jobs to off-shoring and other pressures. There is simply no economic reason why more productive and valuable work in the future will be safe from outsourcing when such jobs are already being performed offshore today.

Corporate Myth #3: Companies only outsource when there is a lack of skilled workers in the U.S. Companies need to be able to take advantage of the special skills and productivity of the millions of college-educated workers in China and India. If American workers want to compete, they need more education and training, not trade restrictions.

The Facts: Companies offshore work not because they cannot find skilled workers in the U.S., but because they can find skilled workers in other countries who will do the work for pennies on the dollar. More than 450,000 highly skilled computer programmers, software engineers, computer system design, internet publishers and search portal professionals have lost their jobs since January of 2001. An additional nearly 220,000 workers in telecommunications and business services have also lost their jobs. These skills still exist in the U.S., they are simply not being used by American companies. The reason companies are off-shoring is not because of a lack of skills, but to take advantage of significantly lower wages. In India, for example, a financial analyst makes 57 to 82 percent less than an analyst in the U.S. A telephone operator in India makes about a dollar an hour, compared to $12.57 an hour in the U.S.

Corporate Myth #4: Restrictions on off-shoring by public contractors only end up costing taxpayers money. State governments should be allowed to find the best value for each taxpayer dollar, even if it means sending work overseas.

The Facts: First, it is not clear that any savings a private company enjoys through low-wage off-shoring will be passed on to the state in the form of lower prices for contracted services. Companies that offshore instead could keep most of the profits to themselves, passing on little if any savings to taxpayers. Second, even if the state does end up paying more for contracts performed domestically, the investment could prove to be a very wise one. Taxpayer support for local job creation can help reduce the number of unemployed in the community that depend on public benefits, and can increase the tax base, and can stimulate domestic commerce by raising incomes in the community.

Corporate Myth #5: States have no business trying to legislate on international trade issues. This is a matter for the federal government to handle, not states. Besides, states may end up violating trade rules and inviting retaliation from other countries.

The Facts: Under the U.S. Constitution, states have traditionally enjoyed a great degree of autonomy over the way that local tax dollars are spent. When states act as "market participants" as they decide how to spend their own tax dollars, traditional limits on the interference of states in interstate and foreign commerce do not apply. It is for this reason that "buy local" and "buy America" laws are so common and accepted at the state level, and it is for this reason that states are not bound by international rules on government procurement unless they affirmatively decide to submit themselves to the agreements. Even states that have agreed to commit to such trade agreements are not individually bound by them under international law international trade tribunals cannot force a state to change its procurement laws.

Source: National AFL-CIO Feb. 2004