The Truth about Outsourcing

COMMENTARY Jobs and Labor

The Truth about Outsourcing

Aug 6th, 2004 3 min read
Edwin J. Feulner, Ph.D.


Edwin J. Feulner is the founder and president of The Heritage Foundation.

First, the bad news: Some of us will lose a job this year. It's inevitable. After all, in the last 10 years, the country has lost more than 7 million jobs each quarter on average.

But now the good news: That won't matter to most, because there are actually more jobs available than ever before. Almost everyone who loses a job can get another one, often at a higher salary.

The federal government's household survey shows more than 139 million Americans are working today -- the highest number ever recorded. Plus, the unemployment rate is holding steady at a relatively low 5.5 percent, even as our population increases.

All this matters because it's election season, and over the next three months we're going to be hearing a lot about the dangers of "outsourcing," the process by which American jobs are supposedly being sent to other nations -- countries that refuse to compete with us on a "level playing field."

The reality, of course, is that the playing field is tipped our way. The United States has the best educated, most productive, most adaptive workforce in the world. Because of that, and our support of free trade, "outsourcing" is actually far overshadowed by something we hear much less about, "insourcing." That's the process by which foreign firms hire workers here, including Honda workers in Ohio and BMW employees in South Carolina.

A recent study by the Organization for International Investment found that there are 6.4 million jobs in the U.S. in which the employer is a foreign company. The study also showed insourced jobs are growing at an annual rate of 5.5 percent, while manufacturing outsourced jobs grew at an annual rate of only 1.5 percent. More companies are moving jobs here than are shipping them elsewhere.

And even when it does happen, outsourcing isn't necessarily a dead end. A separate study by the firm Global Insight showed that t
he economic activity that followed the outsourcing of some information technology jobs led to the net creation of more than 90,000 net new jobs in 2003. It's expected to create 317,000 net new jobs by 2008.

Of course, even with the job gains, we'll probably still experience a loss of manufacturing jobs. For example, U.S. manufacturing employment declined by 11 percent between 1995 and 2002. However, America wasn't alone.

A study by Alliance Capital Management found that rising productivity is driving down manufacturing employment worldwide. The typical country lost 11 percent of its factory jobs, and some countries suffered even more than we did. China, which some accuse of stealing our manufacturing jobs, actually lost 15 percent of its manufacturing jobs over the same period.

The international economy is becoming more productive and more innovative, which means all of us are paying less for
such things as computers, cell phones and coffee. And, even though we've lost jobs, our manufacturing sector is more efficient than ever. Manufacturing output actually increased by 38 percent over the last 10 years.

Political leaders from both sides of the aisle recognize the benefits of this process.

Sen. Mitch McConnell, R-Ky., recently noted that
insourced jobs are often higher paying than those that are outsourced, and he pointed out that every state enjoys the benefits of insourcing. For example, political swing states Michigan and Ohio have 244,200 and 242,200 insourced jobs, respectively.

Meanwhile, as far back as 1997, the Clinton administration advocated outsourcing some government jobs as a way to increase efficiency, cut costs and save tax dollars.

Politicians love to highlight individual examples to prove their case, so we're sure to hear plenty of anecdotes this summer about workers who've lost their jobs because of outsourcing.

But in an economy of our size, it's important to focus on the big picture. The numbers prove our economy is growing and creating good jobs for an ever-increasing population. The good news outweighs the bad -- by far.

Ed Feulner is the president of The Heritage Foundation (, a Washington-based public policy research institute.


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