Effects of Global Outsourcing on the U.S. Labor Market
The Effect of Global Outsourcing on the U.S. Labor Market
Description of Problem
Statement of Problem and Purpose of Project
It is becoming increasingly difficult to ignore that a large presence of outsourced jobs renders specific effects on the U.S. market of labor. Offshore outsourcing equal to 14. 8 million externally employed workers as opposed to a growing unemployed population of 7. 9 million U.S. citizens (Levine, 2012). Such situation evidently implies a certain problem, which is commonly associated with adverse impacts of outsourcing on the U.S. labor market. A related concern arises generally among citizens with a middle or low income; meanwhile a purely economic representation of outsourcing suggests a more cost-effective and hence profitable macroeconomic model (Levine, 2012). Outsourcing itself is not recognized as a direct harm to the national labor market, but persistent presence of other negative factors that influence employment rate among Americans make outsourcing a strong driving force of employment decline (Levine, 2012). Utilizing outsourced workforce, services, and knowledge is an obvious trend and a well-justified need for American businesses, but implications on the native local market are respectively present.
Speaking about the strongest causes for outsourcing as a vital element of contemporary American business, a drastic technological advancement should be indicated. Development of new technologies renders a cost effective approaching of labor routines, communication, servicing, and exchange of knowledge, so that U.S. companies can perform in more profitable and less competitive markets overseas with a central governance inside the country (Narayanan, Luo, & Swaminathan, 2011). Nonetheless, many companies were forced to do so, as long as contemporary American business environment requires firms to perform with extreme flexibility, integration, and downsizing: many companies merge for a less challenging performance and cooperation inside the U.S. as well as within foreign markets (Narayanan, Luo, & Swaminathan, 2011). Such a need is generally determined with a post-war shift from line production to service sector prevalence and hence orientation towards rapid, efficient, and complex, decision-making.
As a consequence, outsourcing has become an important consideration for American business entities meanwhile employees started expressing a general concern that outsourcing is adversely affecting their job security and possibility of employment in general. Nevertheless, Matissa Hollister (2011) argues that effects of outsourcing on the national native market are overestimated, and workers portray the situation with a great degree of subjectivity. Therefore, the purpose of this study is to identify whether such a concern is actually relevant to current state of labor market. Provided that a public concern is valid, the United States are expected to experience a drastic socio-economic controversy. Negative impacts of outsourcing on the native labor market will mean an extreme devaluation of routine and low-skill labor meanwhile communication-intensive and high-skill workers (so-called white collars) will be the most valuable organizational asset (Hollister, 2011). Hence, income gap will become drastically wider thereby forcing politicians to enact limitations to international trade, partnership, etc. (Tan, 2013). These problems are long run outcomes, however, but organizational context of the problem suggests shortcoming challenges.
Organizational Context
Global outsourcing places an evident impact on organizational context of labor owing to the fact that working tasks are becoming more complex in the light of technological advancements, orientation at servicing, and inter-organizational communication. Thus, a need for more experienced, skillful, and knowledgeable workers has become apparent to American companies (Narayanan, Luo, & Swaminathan, 2011). So-called white collars are expected to demonstrate cross-field skills and knowledge or at least potential for learning communication and technological literacy (Narayanan, Luo, & Swaminathan, 2011). The rest of middle- and low-skill routine workers can be substituted for machinery, information technologies, and digital applications, so that an employee is valued not only for the primary professional characteristics but also for ability to operate in communication-driven environments.
Also, high complexity of working tasks respectively results in an enhancement of a firm’s integrated performance, so that companies attempt to involve such employees wherever they are present, and technology facilitates that process. Local employees of a certain organization are placed in a challenging environment, in which they should demonstrate their top performance regarding integrity and communication in order not to be replaced with a more operationally and financially effective outsourced unit (Narayanan, Luo, & Swaminathan, 2011). At the same time, their workplace value considerably increases in the event they manage to deliver desired performance and integration outcomes regarding satisfying high-end customers. Again, this ability is closely attached to willingness and aptitude for operating with information technologies that factually facilitate communication, servicing, and integration for strategic purposes of a company (Narayanan, Luo, & Swaminathan, 2011). Otherwise, the majority of U.S. companies will prefer to outsource knowledgeable assistance from the overseas labor markets.
Another distinct factor of outsourcing impacts on organizational perspective of the U.S. employment is a possibility of avoiding institutional aspect. Global outsourcing offers interaction between organizational and institutional perspectives of business: managerial optimization, path-dependent expertise exchange, and knowledge accumulation are not formalized and regulated with internal policies (Lewin & Volberda, 2011). American companies utilize global outsourcing outcomes as a ready-made asset for decision-making, strategic, or even operational performance. Economizing on insider workforce and related distribution of organizational assets suggests that a company is able to access a wider range of strategic opportunities meanwhile a considerable percent of insider workers becomes redundant (Lewin & Volberda, 2011). Overall, avoiding of institutional dependence on internal and external levels within local area of performance makes U.S. companies extremely flexible and expandable (Lewin & Volberda, 2011). Beyond a doubt, formation of such organizational context is likely to reduce value of low and middle skill routine employees meanwhile high skill and communication intensive workers should prove their potential for satisfying organizational expectation via doing more with less effort.
History and Background
The initial cause for global outsourcing dates back to the end of the World War the Second when a line manufacture production became less important as provision of service packages. As a result, the middle 60’s already formulated a trend on high-skill occupations even though white collars comprise only 25% of the United State’s labor market (Carbaugh, 2014). This trend was stable till the middle of 90’s when information technologies penetrated business segment on a large scale. In addition, recession of 2000 – 2001 placed white collars in almost the same position as the rest of the labor market represented by a working class with medium, low level of skill, and routine labor (Carbaugh, 2014). Still, changes and persistence of high skill labor in 60’s and 70’s caused a tendency, which is reflected nowadays on global outsourcing and U.S. labor market.
Throughout the entire history of American labor, machinery and technology played a significant role and its influence on outsourcing effects cannot be just ignored. For instance, 40% of Americans were employed in agricultural sector in 1940, and only 2% in 2000 (Autor, 2015). Within these sixty years, technologies have substituted direct aggregate labor of Americans. It is reasonable to admit that technology is playing a fundamental role in the national employment trending. Such a statement is certainly true but to extent of a particular industry and time frame. In such a way, a common deployment of ATMs within the United States in 70’s did not make a considerable impact on value of human bank tellers. This fact can be explained with the following evidence (Autor, 2015). Spread of ATMs decreased a demand on human bank tellers but their functionality was expanded to operations, which presuppose interpersonal communication. Bank tellers became not just cashiers but representatives of a bank regarding loans, deposits, mortgages and other bank services (Autor, 2015).It is becoming increasingly apparent that technology was not always a threat to employment, so that outsourcing is perceived in the same way as technology for businesses.
Taking these points into account, it is worth saying that the history of outsourcing and its impacts on American labor market does not suggest a distinct tendency even though a role of technology cannot be underestimated. That is why background of the problem presents a dubious but transparent outcome: high skill and communication-intensive labor has a better chance to sustain its value within the native labor market rather than low skill and routine-based work (Autor, 2015). Thus, a matter of cost effectiveness becomes a determining factor in that regard. In case a worker is able to satisfy corporate needs with integrated, cross-disciplinary, and highly efficient performance, he/she will not be substituted for a less expensive outsourced workforce.
Scope of The Project
The study is scoped towards three basic dimensions, which provide a meaningful account of the problem to a sufficient extent. First, the project focuses on identification and measurement of public concern regarding global outsourcing making an adverse impact on the U.S. labor market. As the description of the problem has already outlined, many workers express a concern that outsourcing may affect their employment in a negative way. Contrary to this statement, a profound research has detected the evidence of a more stable employment situation in comparison with opinions portrayed by communities (Hollister, 2011). Thus, identification of public concern relevance is a central orientation of this research, and measuring validity of such attitudes in comparison with a real state of the native labor market is an initial task for the project.
At any rate, certain evidence or its absence will be identified by the study. Provision of rationale, explanation, and distinguishing of any implications or their absence are a comprising element of the study owing to academically formal and purely empirical needs of the research. Distinct recognition of implications and causes for global outsourcing impacts on the national labor market will create a fundamental basis for investigating and subsequent reaction on the arising problem (Elsby, Hobijn, & Sahin, 2013). Understanding the essence of the problem will enable researchers and policy makers react with a better precision and appropriateness to the context, which can be implicit. It is becoming increasingly difficult to ignore that certain effects of global outsourcing on American job market are present, but their nature and potential to negatively change processes within the market of labor are still unclear, since the history of the U.S. outsourcing and other socio-economic tendencies do not involve negative outcomes.
In spite of the present effects, it is hard to argue that outsourcing will develop in a shortcoming future. The study is also oriented at forecasting of potential effects of global outsourcing in the nearest future with the reference to the situation within U.S. labor market. Even though a present state appears to be less threatening than communities are tending to portray, prediction of the future situation is essential. Moreover, suggestion concerning potential changes of outsourcing role in labor market formation will create a basis for related studies thereby enlarging knowledge and understanding of relations between outsourcing and employment (Elsby, Hobijn, & Sahin, 2013). A large volume of literature has been already published on that subject, so that a further decline of the national labor market is generally forecasted, but the present study suggests a reconsideration of these predictions owing to initially clarified understanding of current impacts of global outsourcing.
Significance of The Project
Significance of the project is reflected with outcomes of the project’s scope, so that it is fair to say that the first significant outcome of the study is clarification of academic and public debate concerning effects of global outsourcing on the U.S. labor market. A distinct statement of negative effect of outsourcing is apparent to researchers and communities, but there is no official confirmation of such tendency and therefore respective policy making (Oldenski, 2014). That is why the study will render a transparent presentation of the outsourcing effects on employment in the United States. Significance of this outcome is based on the fact that researchers, public representatives, and policy makers will be inclined to react on the findings thereby adjusting the native market of labor to current negative effects of global outsourcing (Oldenski, 2014). Overall, this outcome will address the largest context of the problem.
Henceforth, explanation of consequences, implications, and causes for effects identified renders an equal significance to the project. As it has been already mentioned, understanding of the main antecedents will provide practitioners and researchers with wider opportunities for addressing and investigating the problem in a more detailed context. Explanation and determination of certain causes is also significant for potential public reaction or even policy making. In case the publicity relies on scientifically proved findings, it should provide the related rationale and empirical evidence (Oldenski, 2014). It is becoming abundantly clear that society as the most affected entity needs to create a specific agenda for promotion of its position. That is why provision of communities with reliable and clarified data is crucial for the future state of the labor market. In the event the society has an irrelevant perception of outsourcing effects on employment, their subsequent actions may worsen a current situation.
Eventually, the significance of the project can be observed in forecasting potential changes in outsourcing effects in a short run. This significance is similar to the second outcome of the study, once identification of a distinct tendency makes all stakeholders aware of a real situation and thus promotes more accurate behaviors in that regard (Oldenski, 2014). Forecasting of the future trend delivers profound basis for the related studies within the field, so that a more expanded view of the problem will become available. Needless to say, the study is limited to specific time frames, methodology, and reliance on explicit empirical evidence, which is why its findings cannot be recognized as ultimate. At any rate, the study will present a substantial academic value, since projects of such orientation contribute much to development of best practices and foundation of future field of study.
Definition of Terms
The study operates with multiple terms and concepts, which is why it is reasonable to be explicit what is exactly meant by terms of labor market, outsourcing, and aggregate production. As for labor market, it can be defined as a nominal market where employees are seeking for paid employment with fixed salary and specific conditions of job application, responsibilities, and conditions of termination (Hanushek, Machin, & Woessmann, 2011). A common practice suggests that labor markets can be local (attached to a certain area), national, and even international. Classifications according to specific occupation or type of job are also present, but general economic terms recognize labor market classification as an attachment to a particular location. Role of labor markets in national economy cannot be ignored, as it delivers workforce to local businesses and governmental institutions. For that reason, the study investigates implications of outsourcing effects on market of labor in the U.S.
Concerning outsourcing, it can be described as a practice of transporting work, service, and knowledge from external sources to the organizational environment for meeting various strategic objectives, decision-making, and cost reduction. Outsourcing means temporary recruitment of work for completion of specific tasks, which are not performed on a regular basis or require additional facilities for their in-situ conduct (Hyvarinen, 2014). Many American companies utilize outsourcing owing to the fact that such labor is drastically cheaper. Cost reduction is a central driving force of global outsourcing in the United States, so that it causes a certain problem for the native labor market. Outsourcing itself is an evident advantage for business, but its implications on labor market are dubious meanwhile firms are commonly forced to use it for sustaining their profitable performance (Hyvarinen, 2014). In such a way, outsourcing is a result of much wider processes of globalization and it renders vague impacts on the national economy.
Aggregate production is a production/manufacture, which values quantitative and physical representation of investment as well as value of a single worker per a related number of items produced. In other words, aggregate production is based on measuring a specific value of a worker’s potential to produce certain goods within a given time frame. Aggregate production determines a final production output attainable by a single worker or a group of workers within a distinct time frame (Khan & Thomas, 2013). Aggregate production is associated with routine and often low-skill labor, so that switch from aggregate production on servicing repositions organizational and economic value of labor (Khan & Thomas, 2013). Executives of aggregate production are placed in the most adverse conditions in relation to global outsourcing, since their routine work can be substituted with externally hired machinery or less expensive workforce, which is why the problem outlined by the project directly relates to this population.
Problem Statement
Research Questions
Since the problem is evidently complex, the research is seeking for multiple outcomes and related findings. These findings can be categorized according to three research questions that stem from the problem statement:
Research Question #1
What are the extents of global outsourcing impacts on the U.S. labor market? It is hard to argue that a certain relation between global outsourcing and the national employment exist, but its extents determine severeness or probably positivity of produced effects (Hollister, 2011). The recent study has detected an intensive polarization of the labor market, so that a rise of communicative-driven and non-routine work is becoming an active determinant to market trend. At the same time, low and medium skilled routine work become less tradable under such circumstances, and global outsourcing is an effective alternative to invaluable aggregate labor (Mansfield & Mutz, 2013). This evidence implies the fact that a distinct relation between employment and outsourcing is present, which is why measuring its effects is an important consideration.
Research Question #2
What are the causes and implications for effects produced by global outsourcing on the U.S. labor market? In the light of proactive labor polarization, position of skill technological application has become extremely biased. That leads to the fact that relation between outsourcing and employment rates is based on that evidence. Generally speaking, outsourcing and employment are not naturally connected with each other in that way, so that a presence of external factors is quite obvious. A need to reveal these factors is pivotal, as long as biased valuation of labor makes the job market more susceptible to effects produced by global The most affected population is workers of low and medium skill and with routine-based structure of labor. As it has been already discussed, these workers are present in the most vulnerable and insecure working conditions, as long as their labor can be substituted for outsourced machinery or less expensive workforce. Linear production is not recognized as effective any longer, so that companies and manufacturers outsource such units for more cost-effective production. Speaking in simpler terms, U.S. aggregate production labor is much more expensive than abroad, once overseas labor is hired in portions sufficient for meeting a particular operational task meanwhile native workforce obtains a substantial part of labor market thereby enforcing its value and thus higher expenses. Outsourced labor is cost-effective because it is less valuable to the American business in financial aspect, and this factor places native workers in such a difficult position.
outsourcing (Mansfield & Mutz, 2013). American businesses cannot disregard outsourcing opportunities, but labor market needs major updates and adjustments. That is why investigating of driving forces of outsourcing impacts leads to future prospects of the native labor market.
Research Question #3
What effects of global outsourcing on the national labor market are likely to be in a shortcoming future? Needless to say, this research question also belongs to a scope of the project, and it is well justified owing to numerous arguments. Related empirical literature has already admitted a persistence of communication-driven and high skill labor without tailoring to influences of global outsourcing (Mansfield & Mutz, 2013). Nevertheless, verification of potential effects in the future in spite of a present situation is also vital to the native labor market. Empirical and theoretical grounding of such assumption has been already formulated, which is why investigation of this impact in relation to the future effects of global outsourcing on employment is accordingly justified orientation of the present study. Furthermore, absence of any forecasts on such relations may result in facilitation of income inequality gap that is believed to lead to stronger social disparities and radical political enforcements.
Key Variables and Populations
Variables
The study includes key variables, which are the following. The first variable is independent: impacts of global outsourcing on the United States market of labor. In consequence, dependent variables are factual current state of effects produced with global outsourcing on employment in the U.S., and their future role in the same regard. Justification of these variables is mainly based on the fact that certain effects of global outsourcing produced on American job market have been already detected, and extents of these effects nowadays and in a forthcoming future are measurable. Presence of relation between outsourcing and employment is preexisting, but its actual influence on market of labor is expected to reveal itself during the research. These variables, however, are applicable to specific populations, which are affected with relationship of outsourcing and employment.
Target Populations
The most affected population is workers of low and medium skill and with routine-based structure of labor. As it has been already discussed, these workers are present in the most vulnerable and insecure working conditions, as long as their labor can be substituted for outsourced machinery or less expensive workforce. Linear production is not recognized as effective any longer, so that companies and manufacturers outsource such units for more cost-effective production. Speaking in simpler terms, U.S. aggregate production labor is much more expensive than abroad, once overseas labor is hired in portions sufficient for meeting a particular operational task meanwhile native workforce obtains a substantial part of labor market thereby enforcing its value and thus higher expenses. Outsourced labor is cost-effective because it is less valuable to the American business in financial aspect, and this factor places native workers in such a difficult position.
The second affected population is high-skilled workers, who usually perform non-routine and communicative-driven work. This population is expected to benefit from global outsourcing in case they manage to deliver better decision-making, communication, and integration than outsourced services. Training native high skill professionals is more effective and cheaper than outsourcing, but not all white collars are capable of meeting such diverse requirements. Thus, this population is placed in a vague position rather than exposed to distinct employment benefits. The main issue for this population is related to organizational possibility to access high skill workers all over the world, which is why internal specialists are expected to prove their professional value on a regular basis. All in all, both populations are assumed to experience various challenges with regard to global outsourcing impacts on the national labor market, but degree of these impacts may vary depending on industry and specific location within the United States.
Problem Boundaries
The problem of global outsourcing making an impact on American job market can be measured, but the findings suggested with the study should be not regarded as ultimate. It is worth saying that use of outsourcing by American companies is heterogeneous, so that some organizations utilize outsourced workforce excessively meanwhile other firms may not refer to such a possibility at all. That is why it is more reasonable to seek for implied factors, which force companies to use outsourcing as a mean of competitive performance and cost reduction (Lee & Rodriguez-Pose, 2013). The problem is actually limited to these constraints, and generalization of the problem is inappropriate in such course of the research (Lee & Rodriguez-Pose, 2013). Also, the issue of global outsourcing should not be confused with use of information technologies, once many organizations outsource IT services because of their institutional inability or redundancy of in-situ IT networking (Lee & Rodriguez-Pose, 2013). Moreover, purely technical service without much involvement of human labor does not belong to type of outsourcing that makes impact on the national job market.
In the same vein, tailoring a perspective of technology advancement as the central driving force of global outsourcing in the United States is not entirely valid for the real problem and the present study. Technological progress and innovation do not cause social inequality in a direct way but make a certain shift in business and socio-political processes, which cause such problems. Innovation is always accepted by the society because it adjusts, spreads, and uses the innovation for enhancement of its existence (Lee & Rodriguez-Pose, 2013). Technology does not prevent low skilled and routine labor from being commonly used because countries with almost absent innovative leadership also face a problem of poor employment rate among occupations with low and medium skill (Lee & Rodriguez-Pose, 2013). Lack of internal technology makes firms of these countries outsource even more services or participate as an outsourced asset, so that technological perspective can be an antecedent of outsourcing as a whole but not in relation to changing rates of employment.
Taking these points together, it is fair to say that technological involvement in outsourcing and influencing employment is not a problem at all but already formulated constraint, so it should not be portrayed as irregular phenomenon within the labor market. The project also measures causes and implications of global outsourcing for the purpose of proof/refutation of the fact that technological advancement is a persistent factor. The project does not recognize this aspect as especially strong antecedent of outsourcing impacts on the national employment (Lee & Rodriguez-Pose, 2013). This aspect is limited to research based on related observations and data analysis, so it does not refer to specific studies aimed at measuring connection of technological progress to global outsourcing.