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Economic Review

9/13/2010

Yet another reason why US employment may continue to deteriorate over the medium to long term….the destructive forces of outsourcing have intensified, a trend which will most likely continue until structural policy changes occur, if they ever do.

US outsourcing of jobs, which has been a common place operational initiative of mainly larger organizations, has helped produce the demise in the employment situation in the US.  During the bubble years of the US economy (which ended in about 2007), the negatives of outsourcing where not felt, as the uber demand by US consumers helped create numerous employment opportunities.  The massive appreciation in real estate values provided the liquidity to private consumers so they could spend money on products and services that their actual wages couldn’t sustain.  This process led to expansion of businesses to meet this bubble driven demand.

However as the bubble burst in 2008, the fallout in US joblessness was dramatic.  And over two years and trillions of dollars in stimulus later, unemployment has probably worsened.  The culprits to this problem include initiatives by organizations to cut operational costs in the face of diminished demand by consumers.  The pulse to “do more with less” has also been a top philosophy, as companies streamline to meet demand with less and less productive resources.  However, one of the most detrimental trends adding to employment destruction has been the increased activity of outsourcing US jobs to low wage economic zones.

As profit squeezes hit organizations, more and more they are attempting to maintain profitability by cutting jobs in the US and creating them elsewhere.  However this destructive negative cycle is unsustainable because as consumers cut back due to employment uncertainty, organizations will continue to be squeezed….and so the  job destruction cycle continues.

Simply put, outsourcing is, and has been, a job destroying factor to the US economy.  Traditional tax cuts and investment incentives in proposed stimulus will not remedy this issue….unless the incentives are for organizations to end outsourcing.

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