Southpark famously said “dey took R jebs!” which is bumpkin talk for “they took our jobs”. The cartoon town was mad because people were coming from the future into the present to take their jobs.
The evolution of labor has always been a hot issue. Whether it was the Chinese building the Transcontinental Railroad or Hispanics building our homes, there is a history of fat Americans complaining about jobs being taken by immigrants willing to work for cheap.
But these days the concern is shifting from immigrants taking jobs in the US to US companies shipping jobs outside of the US. The popular media often refer to this as outsourcing, and there’s even a NBC show called “Outsourced” where an American moves to India to run a call center for his company in the US. The show doesn’t go into the details of the corporate relationship between the American and the Indian call center employees, but it’s possible this wasn’t an outsourcing.
What it definitely is though is offshoring. So what’s the difference? It’s easy to understand if you ignore the idea of sending our jobs overseas as outsourcing. That is offshoring. The act of taking a job here in the US and sending it to China, Mexico, or India, is offshoring. Offshoring is exactly as it sounds, taking a job and moving it offshore. This may be done for a number of reasons, cheaper labor being the most common, but not the only one. Sometimes a job is offshored because it can be done better somewhere else. And keep in mind some jobs are offshored from overseas companies to the US, because we can do it better.
The distinction between offshoring and outsourcing are two-fold: jobs moved out of the country and/or out of the company. Offshoring is out of the country and not necessarily out of the company. Outsourcing is out of the company and not necessarily out of the country. That’s right, outsourcing can be done inside the US, and frequently is. When a contractor hires a subcontractor to do some work on a house, he’s outsourced the labor. When a major corporation dissolves much of the HR department and hires Hewitt to handle much of those needs, that’s outsourcing. But most of the Hewitt employees are based in the US, so the outsourcing is not sending jobs overseas.
Another really good example is with automobile manufacturing. General Motors and Ford (along with every other automaker) do not make all the parts for their vehicles. They outsource some of the manufacturing to companies like Delphi, which was spun off from GM (and not coincidentally went through a bankruptcy).
But you can also outsource and offshore a job at the same time. Nike used to make shoes in the US with Nike employees. But they found it cheaper to make it overseas so they offshored it and outsourced it. Today, Nike doesn’t make a single shoe. They pay other companies to do that all over the world.
The question many should be thinking is which is worse for the US economy? It’s not a simple answer. When you offshore work you are moving a job out of the US, so there is a direct and immediate impact. But you also have to create jobs to deal with that. You need specialists to teach the manufacturers how to make your products. You need logistics teams to organize the transportation of all this stuff. And you’re not always offshoring to stay alive, but to free up money to spend on advertising, innovative R&D, and grow the company. So more jobs can still be created. The pain is felt by the specific people that lose their jobs. It is tragic, but also part of business. Which sounds insensitive, but over time that person will lose their job anyway because the company will lose competitiveness and fold, and many more jobs will be lost.
Outsourcing can certainly keep jobs in the US, but not always of course. So there is no right answer, I can even spend an entire post arguing why we should offshore as much as possible, but that’s for another day.
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
