Do you blame offshore outsourcing for high US unemployment?
August 6, 2011
The current American unemployment rate is at 9.1%; it has been above 9% since the American financial melt-down that occurred in 2008. Who is to blame?
- Is it offshore outsourcing companies?
- Foreigners (read:Indians) coming in with H1, B1, and L1 visas?
- Illegal immigrants from Mexico stealing low-paid American jobs?
- American politicians fighting over policies instead of growing American economy?
The simple answer is none of the above. Of course, all the above options attributed to a certain extent to the anemic US job growth. Look at the US GDP graph below-at the end of 2009, compared to 2008, the US GDP increased for all the quarters. Now look at the second graph,-US unemployment peaked at 10% during 2009. At the same time period, the United States came of the recession and the GDP started growing. If you compare US GDP between 2008 and 2010, US GDP started growing at a rate that was higher than 2008-but the unemployment stubbornly stayed at 9-10%. So what do you infer?
Between 2008 and 2011, American companies eliminated close to 7 million American jobs. In the same time frame they also produced more goods and services. So, they are producing more goods and services with fewer American workers. American companies’ profits are at an all time high. Of course, some of the profits are made in emerging countries like China and India. Admittedly, you can argue that American companies are hiring in record numbers in those countries. But if you see the 2011 US GDP it is higher than the 2008 US GDP so American companies are producing goods and services within America, utilizing 7 million less American workers.
Blame the Technology
In the last ten years, American technology companies like Microsoft, Google, Amazon, and Apple have been producing tools and technologies shooting American companies’ productivity to record levels. Several SaSS companies have software systems like ERP, HR, CRM, and Accounting that can be rented by small and mid-sized companies without hiring and managing their own software team.
Google made it possible for anyone to find any information in the world just by a mouse click. Small business owners are using their computers to find whatever they want without having a full time staff working for them. Of course, now the wireless technology has made business owners able to access their business information anywhere in the world.
Look at the Amazon’s cloud computing offerings, for example- any small business can rent their IT infrastructure without hiring expensive American IT graduates.
Yes, American companies are outsourcing some of the jobs to other lower-wage countries. Here again, companies like Freelancer, Odesk, and Elance have web sites that makes it easy for small business owners to hire freelancers to do any task that can be performed from anywhere in the world. Companies like Skype (Microsoft) make American businesses able to communicate with their outsource workers for less money. Technologies like Google Docs and Box.Net make it easy to share their documents with their freelancers at no or very little cost. Companies like Webex and GoToMeeting has made American corporations able to connect with people anywhere in the world.
But for US, the total dollars outsourced as a percentage of GDP (see graph below) is very low compared to other countries. Of course, the data is old, but I don’t think it has changed a lot in recent years. Also, both China and India, the very countries that are blamed for US unemployment, are outsourcing at a rate more than the US.
US Corporate Productivity
Technology is playing a vital role in every part of human life. Digital cameras have killed the photo film processing labs. Commercialization of robotics are taking away American jobs in almost all industries. For example, check out the warehouse Robo that is replacing warehouse workers. Already, robots are appearing in almost all walks of human life-and it will accelerate in the coming years. Due to technology innovation, American companies are producing more gadgets with less American workers. For the past decade, American companies have been making investments in technology, which have helped them to produce durable products that last longer. Just look around the goods in your house-when did you last called a service person to repair it?
American companies are hiring
Even with high productivity, American companies still need workers- they are hiring more knowledge workers than ever. The IT unemployment rate is 3.8%, which is well below the national 9.1% unemployment rate. But the problem is American companies do not need any more receptionists, telephone operators, or call-center workers. They need cloud computing professionals, social media marketing professionals, social game developers, biomedical engineers , health care professionals, IT consultants and supply chain professionals.
Ultimately, the American economy will bounce back and more jobs will be created in housing, construction and in other lower-wage categories. But experts say that it will take several years for America to bounce back, and even then it will not go back to the pre-recession level. But until that time, do not blame only the offshore outsourcing but also blame American tech companies as well.