How Outsourcing Affects Unemployment?

How Outsourcing Affects Unemployment?

Overseas outsourcing is a product of market globalization and the desire of businesses to increase profit. So, many businesses outsource non-core tasks or manual labor to countries where these jobs cost less. While this strategy reduces production costs and certain services, it has some negative consequences, like unemployment. So, how outsourcing affects unemployment, exactly?

In this article, we will explain the impact of outsourcing on unemployment, the competition for jobs between American and foreign workers, and the negative effects of unemployment on the domestic job market.

The Impact of Outsourcing on Unemployment

In developed economies, the impact of outsourcing on unemployment is big. Industries like manufacturing, customer service, or IT support face job losses because of outsourcing. For example, many manufacturing jobs in developed countries have been outsourced to countries with cheaper labor, leading to unemployment in this industry.

Developing economies also have both positive and negative consequences of outsourcing. While outsourcing creates jobs in these countries, they are chosen because of the lower labor costs, which results in negative practices like wage stagnation.

Rise in unemployment rates

How outsourcing affects unemployment in America? One of the main effects of outsourcing is the rise in unemployment rates. In order to remain competitive and attain high productivity, profitability, and efficiency, companies turn to outsourcing firms abroad, most commonly in countries with low-wage developing economies. When companies outsource production or services to other countries with lower labor costs, they often lay off domestic employees to reduce costs, which potentially leads to an increased unemployment rates.

For example, robotics and information technology are prevalent in today’s U.S. factory jobs. Low-skilled jobs, including repetitive manual labor, have been outsourced to cheaper labor abroad. An example is the so-called Rust Belt, a phenomenon that represents the movement of domestic industrial jobs overseas.

Displacement of skilled workers:

With many industries turning to freelancers and workers in low-wage economies to outsource certain services, this has led to the displacement of skilled workers.  Skilled workers who have spent years learning and investing in their skills might get displaced or laid off because of lower-skilled positions or low-wage people. This is because it represents a devaluation of skills and expertise.

Plus, the displacement of skilled workers impacts the economy as a whole. Skilled workers who want to earn more are willing to spend more within their local economies. Their replacement with people from other countries contributes to an overall economic decline.

Competition for Jobs Between Americans and Foreign Workers

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Competition for Jobs Between Americans and Foreign Workers

As we already mentioned, with the phenomenon of job outsourcing, U.S. companies hire foreign workers instead of Americans. The most affected industries include human resources, technology, call centers, and manufacturing. The biggest negative effect of outsourcing is that it increases unemployment in the USA. There are more outsourced jobs than unemployed Americans.

While many foreign employees are hired for certain positions, many Americans with the same skills are unemployed. Yet, the only reason for this is that foreign workers do the same job for a lower salary. We think it is crucial to find a balance between competitiveness and the protection of domestic employment.

How Foreign Countries Benefit from Outsourced U.S. Jobs?

Foreign countries benefit from outsourced U.S. jobs mainly through economic gains. When companies outsource jobs to foreign countries, they choose locations with lower labor costs to reduce expenses. In return, this strategy creates jobs in the chosen countries, leading to improved living standards and consumer spending.

Moreover, once outsourcing starts to attract foreign investments, it promotes economic growth, technology, and infrastructure development.

Negative Effects on Domestic Job Market

Although outsourcing has many benefits, the negative effects can not be overlooked. For example, local workers may face wage stagnation. The companies aim to outsource to countries with lower standards to save and make profits. 

Losing jobs to foreign countries may destroy entire industries since individuals will not be willing to study or learn specific skills in diminishing sectors. From this phenomenon arise new disadvantages, like lower consumer spending and increased social welfare costs.

Negative Effects on Domestic Job Market

Source: freepik.com

Conclusion

In today’s globalized market, we are often faced with the question of how outsourcing affects unemployment and job displacement. Outsourcing, driven by the pursuit of cost-efficiency and enhanced competitiveness, has definitely sparked an interest on how it affects domestic employment. 

When companies outsource specific tasks, the domestic market faces destruction of entire industries and a high unemployment rate. This further leads to lower spending at local markets and economic decline in general.

So, while many companies and foreign countries profit from outsourcing, many Americans may be faced with job loss or displacement in their sector. 

With a strong background in the marketing industry and healthcare leadership roles, Filip is responsible for CLICKVISIONBPO's sales strategies and onboarding new clients. With a passion for sharing insights gained from his experience, he also shares valuable knowledge through industry related articles.

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