By Robert Stitt
When you think of outsourcing, you probably think about a large manufacturer sending their work to China, Mexico, or some other country for cheap labor. While this is global outsourcing, it is not the only kind. Domestic outsourcing takes place when a company hires another domestic firm to take care of parts of their business that their own employees used to take care of – only the other company does it for less. In some industries, this is known as subcontracting.
Lynn Reaser is an economist at Point Loma Nazarene University in San Diego. Reaser estimates that nearly 20 million American jobs are subcontracted.
While data has been compiled on the movement of jobs offshore, very little data has been collected on the transfer of labor within the United States. Economists who are beginning to study the trend have already found that the practice has played a significant role in the stagnation of wages.
Susan Houseman, an economist at the W.E. Upjohn Institute for Employment Research noted, “If a firm wants to save labor costs, outsourcing is just a way of resetting wages and expectations.” Not only can businesses save on the per hour wages, but by outsourcing the jobs, companies do not have to pay for health care, insurance, or retirement plans. Plus, if a company hires an employee, they are responsible for the training, licensing, keeping up with OSHA standards, etc. It often comes to the point where it is simply more cost effective to hire somebody else to do the work.
The impact is not just in the blue collar class of worker, either. According to The Network Journal, “Recent years have seen the rise of outsourcing even in professional ranks, like accountants and lawyers…You have even doctors on demand.”
Several economists believe that outsourcing has eroded the middle class. The Pew Research Center found that over 60 percent of Americans drew middle-class incomes in the 1970s. That number is below 50 percent today.
Whether outsourcing is truly the cause of the middle class decline is still a topic of research. One thing seems to be certain, however, it is a trend that is growing, for better or worse.