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The Truth About Outsourcing

A detailed look at the real facts surrounding the outsourcing of jobs.honesty about outsourcing

How Bad Is Outsourcing? It Depends On How You Look At the Numbers

No U.S. job worker wants to hear that companies are outsourcing more of their jobs to foreign countries. This is especially unwelcome news today as the national unemployment rate stands near 10 percent.

But it’s questionable exactly how much of a negative impact outsourcing has on the U.S. economy and its workers. Much of this, of course, depends on what study you look at and how you interpret the numbers.

For instance, by 2015, it’s expected that 3.3 million service jobs will have moved offshore. At the same time, 1.5 million back-office jobs, including payroll and accounting, will have done the same, while 473,000 jobs in the IT industry will have moved out of the United States.

It’s hard to argue that those numbers don’t have serious implications for the United States. But the impact of outsourcing may actually be a bit overstated. There are about 150 million jobs in the United States now, and the country creates about 3.5 million new jobs a year. Other studies show that 70 percent of U.S. employees are not vulnerable to outsourcing. That’s because they work in restaurants, hotels, retail or healthcare, jobs that can’t readily be outsourced from the country.

Are these figures high enough to cover the losses from outsourcing? James Hines, an economics professor at the University of Michigan, thinks they are. He said that outsourcing isn’t even all that negative, and that it actually creates new employment opportunities in the United States.

This may be hard to fathom, but it works like this: Outsourcing allows companies to employ workers at a lower cost. This permits them to manufacture the same number of goods with fewer resources. This means that the price of goods being sold in the United States falls, strengthening U.S. companies.

These companies can then expand. Once they do this, they’ll create more jobs and hire more workers. Of course, U.S. workers whose jobs have disappeared thanks to outsourcing may not buy this argument. Many of them are still looking for work, and finding that their prospects are dim.

A total of 31 percent of outsourced workers are not fully re-employed after their previous positions have been eliminated. Only 36 percent were able to quickly find jobs that matched or boosted their wages from their previous position. And 25 percent suffered pay cuts of 30 percent or more when they took on their new job.

The Brookings Institution probably provides the most damning indictment of the effect that outsourcing has on workers: Outsourced workers who do find new jobs only earn an average of 47 cents of every dollar they earned at their previous positions.

So how bad is outsourcing? I guess it all depends on whether you’re now earning 50 percent less each year because your previous job is now being filled by someone in another country.

The Cost of Outsourcing Brain Power

The Bureau of Labor statistics expects wage and salary employment in management, scientific and technical consulting to increase by...

outsourcing brain power

If you're a consultant, even a talented, successful one, you can't help but be concerned that your job will end up overseas. The reason is simple: You make too much money.

According to the Bureau of Labor Statistics, the wages and salaries of employees working in management, scientific and technical consulting services are expected to increase by an incredible 78 percent from 2006 through 2016. Because of this, these jobs have become prime targets for companies looking to save money by outsourcing their most expensive positions.

Companies can hire consultants for far less in many foreign countries than they can in the United States. And, unfortunately for local workers, these overseas consultants often work just as hard and efficiently as their U.S. counterparts.

Just look at the money that U.S. companies can save through outsourcing their brain power: The average I.T. consultant who has worked for one to four years makes a yearly salary in the $50,000 to $70,000 range. That figure rises to $65,000 to $90,000 for I.T. consultants who have worked for five to nine years, and to $72,000 to $105,000 for those who have logged 10 to 19 years on the job.

I.T. consultants in many overseas locations, who have worked just as many years, will gladly accept salaries that are far lower. The cost of living simply isn't as high in many other countries as it is in the United States. Employers, then, can pay overseas workers smaller yearly salaries, and these workers will still feel as if they are being treated fairly.

Consider the management at the top consulting firms in the United States. Their companies have suffered mightily during the worst recession the country has seen in decades. If they're looking to shed high salaries, they might consider starting with their consulting staff members.

At the country's top consulting firm, McKinsey & Company, the average consultant makes more than $100,000 a year. At second-ranked The Boston Consulting Group, the typical consultant earns just under $125,000 annually.

The consulting firms following closely on McKinsey and Boston's heels pay their consultants well, too. Third-ranked Bain & Company pays its consultants an average of $125,000 a year, while consultants at fourth-ranked Booz & Company make an average of $74,000 annually. At fifth-ranked Deloitte Consulting Group, consultants earn about $76,000 each year on average.

Again, these firms can save a significant amount of money by outsourcing their top brain talent to overseas locations. Will these overseas consultants turn in the same high-quality work that these firms are used to from their consultants? That's hard to say, but today's companies are increasingly looking at the bottom line. And this bottom line might mean trouble for today's high-salaried consultants.

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