Effects of Outsourcing on the US Economy

Outsourcing is when a company gives out part or all of its operations to a third party, known as an Outsourcing vendor,while enabling the company to concentrate in its core business. The major aim of outsourcing is to improve efficiency within an organization,by surrendering the operations that are within the company which its felt that it can be done better by a third party in focus to attain the company’s goals. The company that is outsourcing normally gives the outsourcing vendor directives on what is expected and the vendor does perfection on it.

The United state of America is perceived to be the leader in technological innovations,which has an impact of improving productivity,and ensuring both economic growth and improved welfare(Wessner,2007). The technological discoveries in the US emanates from engineers and scientists in learning institutions and in business,and independent research firms of various organizations. They convert scientific discoveries into applications in daily operations. Therefore,the US ability to innovate is what that pronouns its technological and economic strength. The emergence of global outsourcing is a real debatable issue in the US given its impacts as a leader of technology. On the emergence of global outsourcing in the US involving the Information technology ,it was felt that global outsourcing had a negative impact which was supposed to be stopped. In the recent,the issue of global outsourcing has growth despite the efforts to stop it. The bottom line of discouraging global outsourcing is that the leadership in technology by the US is threatened by this global outsourcing.

The United States of America has need stricken by more negative effects of global outsourcing more than any country because its a technological leader and in this case , most of its work force has moved out of the country with the technical skilled developed in the US and applying them in the abroad countries. the effects of outsourcing are as follows:

Global outsourcing has made the United States to loose its competitive edge in the sense that the technology that was initially developed in the US is now applicable all over the world in various manufacturing sectors abroad(Kehal and Sigh,2006). It has lost its competitive edge ion the sense that most of its operations have been duplicated offshore on the market that it has been depending on, that adversely lowers demand for the US products. This leads to low demand for its products and most likely forced to sell at a competitive price which reduces profit margins to US manufacturing companies. This is like sharpening a sword for you self. The US has been exporting a lot of products abroad including cotton to India but due to global outsourcing(Certificate website,2008),this countries in which it was exporting to are now able to produce by themselves and even much more efficiently than US due to differences in resource endowments like labor supply.

It can be argued that the US citizens who now work abroad are compensated in terms of wages for their expertise services but this is no guarantee that they will work in those countries in all of their lives(Kehal and Sigh,2006). There is always problems in terms of contact renewal in the sense that the technology importing countries come to grasp the concepts behind the technologies that were there after seen as miracles,through learning by practice. This devalues the presence of US citizens in those countries because they become irrelevant as the technology can now be adapted even by a semi skilled and even unskilled persons. This labor is flopped back into the US implying that there is no job security for US citizens who work in the process of enhancing global outsourcing.

Outsourcing increases the level of Unemployment in the Unites States. The United states has been a technological leader in so many field and due to global outsourcing, and specifically its experts going to empower abroad manufacturing industries lead to to the closure of many manufacturing companies in the US,which in turn translate into massive unemployment cases more especially in employee who working with these closed down manufacturing countries. This has a negative impact on the US economy because the US citizens purchasing power is crippled as a result of this unemployment(Wesssner,2007). This phenomena also affects the federal operations in the sense that the scope of getting income through income and value added taxes is narrowed down. Outsourcing has promoted Unemployment in the sense that the companies that were producing some products for export, have closed down due to the duplication of their operation in another country which were major importers, like the case for cotton in Idea. Closing down of companies implies a decrease in job opportunities.

Global Outsourcing can be seen as a form of trade(Ron,2003).Its is seen as a form of trade in the sense that the United States professionals provided skills for abroad companies for material gain, and this companies which are located abroad use these skills to promote their competitiveness. This sounds like kind of a transaction where both parties expectations are meant. Although this is the case,outsourcing pose new challenges to the United States technology and economics states. The new challenges include faster innovations to advantage of the world demand changes. This will imply more budgetary allocation to research so as to keep its lead and participate as a vendor in outsourcing for material gain.

Most of the Outsourcing in the United States are for the service sector(Me Magazine,2005).Service sector it perceived to be contributing less to national wealth compared to the manufacturing sector, and it rather consumes the generated wealth. The people who provide services,when paid they just use their money for their upkeep and possible save less compared to the manufacturing sector which implies monetary wealth acquired from a sell,although this is exceptional to bank and insurance services which also provide less to United State economy.

The United states has experienced the closure of manufacturing plants(Emarald Website,2008),which implies the a lose to the United States economy,because this idle industrial infrastructure are never meaningful to the economy and its just wasted resource because they have been overtaken by competition and lose of demand for these companies’ products. This signifies the negative impact of global outsourcing to the United States economy,and it crops from the duplications of production patterns and tools abroad in exporting capital. This idle capital can never be recovered into meaningful resources that will generate wealth into the economy, therefor its wealth wasted.

Outsourcing also affects the federal government budget adversely because it narrows down sources of income and mostly from taxes(Hira,2005). The affected taxes include the income tax ,value added tax and the co-operate tax. Income tax in the sense that there is increased unemployment level thus low income tax,value added and co-operate tax in the sense that companies have closed down due to low or no demand for their products. All these lead to low contributions to the social and medical security fund, adding an insult to an injury there are increased expenses to cater for the unemployment benefits. Sales tax is also affected due to less sales made.

Outsourcing in the United State it involved even migration of high profile personnels (Hira,2005). The migration of high profile personnels affects the United States economy in a negative way. High paying industrial jobs are lost in the process of global outsourcing , which implies a decrease in the United states purchasing power. This situation deteriorates the United States Gross Domestic product figure due to low national output. The jobs that outsourcing can generate are less than the jobs that it leads to their loss, and the jobs created by outsourcing are less paying compared to the jobs in industry. The decrease in the purchasing power of the United States is likely to cause more companies to move to abroad in such for market for their products hence worsening the situation.

It is believed politically that its military might that reinforce economic might(Barrar P. and Gervasi R.,2006). A given country can never be rich having the rest being poor , and still keep the lead unless it has military might also. Global outsourcing has a negative impact on a country’s military might, in that if the plants manufacturing weapons are established abroad the supply of these weapons may loose control enabling even enemies to have the United States military skills and weapons themselves,which they use to fight back in destruction of the United states wealth( Sperling,2004). An example is the Iraq war and the famous 2001 bombing of the United States.

Global outsourcing has discouraged innovations in the United states by demoralizing young and bright generation due to lack of job opportunities in the industrial sector because most of this industries have relocated abroad where there is ready market and mostly by considering the question of resource endowment. This is a blow to the United States economy because it is certain that it might loose is technological lead and even the outsourcing opportunities because this is a cycle that tend to push the United states to scratch.

Conclusion. The United State of America has been a major player in the global outsourcing. Its a major player because its a technological leader and as such it involves the export of technology to technologically behind nations. The united States has been trying to stop outsourcing but rather its going on and it has grow. This has impacted the United states economy negatively in so many ways. Among the effects,they include the following;Increased unemployment,less competitiveness,lack of job security,loss of skilled labor,idle resources that are not profitable any more and held in closed down companies, narrows sources of income to the federal government to meet its obligations,low purchasing power and lastly,it threats the United States military mighty. The negative effects of global outsourcing are real eating down the United States of America economy than the benefits that it bring into the country. This situation reals call for policy intervention that will protect the free flow of technology from the United States of America. It should be designed in the manner that any technological transfer , should be done in an organized way that will ensure less negative impact to the economy than it left the market forces to determine the technological transfer pattern. This can be done through selective transfers of technology and the intellectual property protection that will ensure job security of the United States citizen when working abroad, and this will enable them to earn from the outsourcing itself.


Barrar P. and Gervasi R. ,2006,Global Outsourcing strategies; An International Perspective,Gower Publishing Ltd.,USA , pp 106.

Hira R.,2005. Outsourcing America; What is behind Our National Crisis,AMACOM Div,United States, pp 95, 106.

Kehal S. and Sigh P., 2006, Outsourcing and Off shoring in the 21st Century,Idea Group Inch(IGI), United States, pp 302.

Ron H., 2003. Global Outsourcing of Engineering Jobs:Recent Trends and Possible Implications.

Sperling J., 2004,The Great Divide;Retro Vs Metro, PoliPoint Press,US, pp 46.

Wessner W.,2007,Enhancing Productivity Growth in the Information Age,New Economy Publishers,US,pp 302.



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BusinessEssay. "Effects of Outsourcing on the US Economy." December 14, 2022. https://business-essay.com/effects-of-outsourcing-on-the-us-economy/.