Offshoring American Jobs a problem for some, a boon for others.
Some people look at offshoring American jobs as a huge problem while others view it as a boon. It's hard to decide whether or not one side is right and the other wrong--especially since there are so many factors that influence how much any individual American worker makes. This article will take a look at some of these factors to try and determine what has more weight in the balance -- how much money Americans make or how many foreign workers there are in their country.
The ratio of American workers to the foreign workers that have replaced them has been one of the major arguments for and against offshoring. The first point to be discussed is that there are a lot more American workers than foreign workers in America--roughly 3.5 million to 1.2 million (0.4% over 18 years versus 4% under 18 years). With this in mind, there are many jobs that can be--and have been--offshored to other countries by American companies in order to stay competitive, especially since American companies don't want to pay double wages for any given job due to base costs such as electricity and water use.
The biggest argument against offshoring jobs is the simple fact that American workers make more money than foreign ones. The average American worker makes 46% more than a foreign one, with an average wage of 33.41 per hour in America as opposed to only $1.25 (76 cents after taxes) in a foreign country like India. With this kind of wage disparity between the two, it's easy to see why there wouldn't be many Americans willing to work for wages that low--they can find better paying jobs at home .
So, if the average American worker makes more money than a foreign worker, should the reason for offshoring be to keep American workers from moving home? Not necessarily. With a wage disparity of only 23% between American and foreign workers in the United States, there are many Americans who would feel that their wages aren't worth as much as those of foreign workers--hence why they would move home.
Another factor that influences how much money an American worker makes is the number of unemployed people living in each country. As of May 2011, the unemployment rate in America was 9.1% and the unemployment rate of India was a staggering 10.3%. While it's true that there are many foreign workers who have come to America to work (approximately 40,000 since 2003), it also means that there are many Americans that are going home as well because they cannot find work here.
With so many unemployed people in India and China, it's easy to see how American companies can get away with paying foreign workers very low wages--it's just a matter of the worker being able to afford food and rent at home. In fact, many foreign workers are being paid as little as $220 a month or as much as $500 a month.
The biggest argument against offshoring jobs is the simple fact that American workers make more money than foreign ones. The average American worker makes 46% more than a foreign one, with an average wage of 33.41 per hour in America as opposed to only $1.25 (76 cents after taxes) in a foreign country like India. With this kind of wage disparity between the two, it's easy to see why there wouldn't be many Americans willing to work for wages that low--they can find better paying jobs at home .
So, if the average American worker makes more money than a foreign worker, should the reason for offshoring be to keep American workers from moving home? Not necessarily. With a wage disparity of only 23% between American and foreign workers in the United States, there are many Americans who would feel that their wages aren't worth as much as those of foreign workers--hence why they would move home.
Another factor that influences how much money an American worker makes is the number of unemployed people living in each country. As of May 2011, the unemployment rate in America was 9.1% and the unemployment rate of India was a staggering 10.3%. While it's true that there are many foreign workers who have come to America to work (approximately 40,000 since 2003), it also means that there are many Americans that are going home as well because they cannot find work here.
With so many unemployed people in India and China, it's easy to see how American companies can get away with paying foreign workers very low wages--it's just a matter of the worker being able to afford food and rent at home. In fact, many foreign workers are being paid as little as $220 a month or as much as $500 a month.
Now that we've looked at the salaries of American and foreign workers, let's go into the issue of purchasing power parity. In the year 2008, China's GDP was $4.6 trillion while America's was $14.0 trillion. However, when the standard of living is taken into account on a per capita basis, America has a GDP of $48,000 and China has a GDP of just $4,800.
This means that the average Chinese citizen makes only 1/10th of what the average American does (keep in mind that this is due to the fact that 85% of China's population lives in rural areas). This statistic is reflected in the standard of living as well--the average Chinese citizen has an annual income of $2,400 while the average American has an annual income of $37,000. With such a massive amount of people living in poverty in China, it's easy to see why their workers would choose to work for lower wages in countries with higher standards of living like America--it's just a matter of survival
In fact, China and India are the biggest exporters of foreign workers to America and Japan. With such competition for jobs between the two countries, it's not hard to believe that if one country could produce something cheaper than another that they would be able to sell more products and make more money.
This brings us to the last big reason why jobs are being offshored: the foreign countries can produce products and services cheaper than America. The reason behind this is simple economics--the price of a product is determined by how much it costs to produce it, while the price of labor is determined by how much people want to work. In other words, if it costs more money to employ Americans, then foreign companies will be able to make a profit simply because they pay their workers less than American companies and thus can afford to lower their prices.
By paying foreign workers less than American workers, you're lowering your production costs significantly. You're not only lowering your production costs but you're also expanding your market base cost-effectively .
Conclusion:
To sum the argument up, it's not necessarily the case that jobs are being outsourced by American companies. In fact, it's a mutually beneficial situation in most cases. American companies get to lower their labor costs while still being able to sell products and services at higher prices because they're being made cheaper. This allows foreign workers to stay above the poverty line where they wouldn't be able to otherwise--it's just a matter of choosing between short-term and long-term benefits (just like investing).
As mentioned before, it's yet another example of how the world has become flatter due to technology--two countries can now trade goods and services with each other no matter how big or small they are .