NCPA - National Center for Policy Analysis

Outsourcing: A Closer Look

March 29, 2004

A new study by the American Electronics Association offers a balanced perspective on the contentious issue of outsourcing. While acknowledging that outsourcing has hurt some Americans, the AEA study places most of the blame for job loss on slow growth and rising productivity. It also notes that other countries have caught up with the United States in terms of education and technology, making them stronger competitors for IT business. They are competing not just on the basis of wages, but quality as well, says Bruce Bartlett.

The brouhaha over outsourcing, explains Bartlett, plays to deeply held fears of foreigners:

  • The AEA study says that today's concern for outsourcing echoes warnings in the 1980s that Japan was going to take over the world:
  • A recent Forbes Magazine article points to parallels with the automation scare of the 1960s.
  • As a presidential candidate in 1960, John F. Kennedy warned that automation "carries the dark menace of industrial dislocation, increased unemployment and deepens poverty."

Writing in the May/June issue of Foreign Affairs, political scientist Daniel Drezner explains that fears of permanent job loss from trade and technology always arise when unemployment is high for cyclical reasons. But eventually the slowdowns end and employment strengthens again. "Once the economy improves, the political hysteria over outsourcing will also disappear," Drezner writes.

Outsourcing is an issue only because employment growth is slow. But it is not the cause. Hence, policies directed at restricting outsourcing are unlikely to create any jobs and run the risk of actually making the situation worse, says Bartlett.

Source: Bruce Bartlett, "Outsourcing: A Closer Look," National Center for Policy Analysis, March 29, 2004.

For AEA study


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