How Information Technology Outsourcing Impacts the Economy

Question: How Information Technology Outsourcing Impacts the Economy

IT (Information Technology) outsourcing is blamed for reducing jobs for American workers. Find out how much information technology outsourcing occurs, how IT outsourcing impacts the economy, and what should be done to reduce IT outsourcing.

Answer: Information technology (IT) outsourcing is when jobs that used to go to American workers are sent to IT workers in other countries. It also occurs when those workers are given visas to work for IT companies in the U.S.

What Causes IT Outsourcing?

India and China provide a large pool of expert, proficient IT workers at a low cost. Furthermore, if a company has already moved its factory overseas, to take advantage of low labor costs, it will want its technology workers near it manufacturing plant. Often a company must locate manufacturing and technology jobs overseas if it wants access to the domestic market. The governments of China and India often require this type of technology outsourcing for an company to get an inside track to sell its products to that country's market. Another advantage for India's IT workers is that they already speak English.

U.S. technology workers just can't compete price-wise. An entry-level IT worker earns $7,000 a year in China and $8,400 in India. IT managers in China only make $22,600 while those in India make $30,800 a year. That's because the cost of living is cheaper in these countries. However, a U.S. technology company must keep its costs low to compete in the global marketplace. If it can get trained workers at a lower price, it makes good business sense to do so.

How to Reduce IT Outsourcing

Many experts suggest using federal funds to address the supply side of the problem and get more U.S. college students graduating in the STEM (Science, Technology, Engineering & Math) areas. Educating the American workforce will help to decrease reliance on importing new workers. However, this will only go so far, as U.S. workers still need higher wages than Indian or Chinese workers.

Another idea is to reduce the number of H-1 visas. Again, this is just a temporary solution. U.S. companies can save as much as 10% by technology outsourcing, whether the worker is in the U.S. or overseas. Reducing technology outsourcing through reducing the visa, or even enacting laws prohibiting outsourcing, will only raise costs, and reduce competitiveness, for U.S. based companies. (Source: CIO, IT Outsourcing White Papers)

Perhaps the only solution is to do as these emerging market countries do - require they hire U.S. workers before they sell to the U.S. market. The downside of that is higher prices for these imported goods. That's exactly what's happened with Japanese cars that used to be much cheaper before they opened U.S. manufacturing plants.

The only real solution will occur when the cost of living in emerging markets rises to meet that of the U.S.