Essay on Pros and Cons for Outsourcing

Words: 1687
Pages: 7

The Pros and Cons of Outsourcing services in the US
By Berend Schoute (1713035), student of the VU university Amsterdam.

Hillary Clinton, "I don't know what reality the Bush administration is living in, but it's certainly not the reality I represent, from one end of New York to the other."
This response came on the statement of the head of U.S. President George W. Bush's Council of
Economic Advisers, Gregory Mankiw. He said: "outsourcing is just a new way of doing international trade," which makes it "a good thing." In the last decade most economists are a proponents of offshoring services outside of the US.

They say that the benefits of outsourcing exceed the

disadvantages. The main discussion is more likely a
…show more content…
The Forrester prediction of 3,3 million is spread over 15 years which means 220 thousand extra outsources jobs per year. Nowadays employment in the United States is about 130 million, and with approximately 22 million new jobs to be added till 2010, means that the effect of offshoring is less than 0,2% of American workers (Drezner,2003).

Another argument of the proponents is that the net change in the outflow of workers against the inflow is negative. So the difference between insourcing workers because of foreign companies coming to the US and outsourcing is getting smaller.
An important argument pro outsourcing is the fact that it increases the productivity of a company. The question we need to ask ourselves is can we confirm this increase with empirical evidence. Amiti & Wei (2006) investigated this question and have found some nice figures.
In their survey they tried to analyze whether there are any benefits of outsourcing in the productivity of a company. To prevent an omitted variable bias, they needed to find a valid instrument for service offshoring. In their regression model they used the number of internet hosts in the countries that supply the largest shares of services to the US. These outcomes reflect the changes in new technologies that would only affect US productivity through their effect on offshoring.
Their empirical outcome was that there is a positive effect on productivity through outsourcing.

The American citizens