How Outsourcing, Immigration, and Trade Have Destroyed American Jobs

Outsourcing, immigration, and foreign imports have all had a significant (negative) impact on American job prospects. Native workers, mostly low skilled, have had to handle the burden of these policies.

Despite this, many proponents of immigration still cling to the idea that high skilled immigrants boost wages in cities for native born workers. However, this can be a play on words. Would high skilled immigrants improve wages for native high skilled workers, or native low skilled workers?

Likewise, what would be the effect on overall job availability?

And the argument tends not to mention the effect of “low skilled immigrants” or the illegal immigrants effect on native born workers. As a little spoiler, it doesn’t affect them both the same way.

Before we get started, let’s do a quick vocab lesson to make sure we’re all on the same page.

Outsourcing – a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.

Offshoring – the practice of basing some of a company’s processes or services overseas, so as to take advantage of lower costs.

Export – shipping goods from the US to another country for sale abroad.

Foreign Imports – bring (goods or services) into a country from abroad for sale.

Comparative Advantage – the ability of a nation to carry out a particular economic activity (such as making a specific product) more efficiently than another activity.

Global Supply Chain – the network created among different worldwide companies producing, handling, and distributing specific goods and/or products.

Native (Or Immigrant) High Skilled Worker – any worker who has special skill, training, knowledge, and (usually acquired) ability in their work. A skilled worker may have attended a college, university or technical school. Or, a skilled worker may have learned their skills on the job. Think: STEM employees, business professionals, business owners, high-paid research partners (knowledge), etc.

Native (Or Immigrant) Low Skilled Worker – a segment of the workforce associated with a limited skill set or minimal economic value for their work. They tend to have lower wages, and less educational attainment. Think: factory workers, manufacturing jobs, low-tier trades/crafts, general assistants.

* The definition of “Skilled” worker changes over time. In the past, artisans and craftsmen have been the elites of the labor force. Now, trade workers tend to be considered middle-class, at best.

Now we’re caught up on the terms, we can get started.

We’re going to be talking a lot of economics here, so get ready. I am an economics nerd so I love this stuff, but many of you may find it dull/boring. I ask that you please stick with me, this is important stuff to know.

Outsourcing Effect on American Jobs

Outsourcing or Offshoring, without a doubt, saves corporations a boatload of money on labor expenses.

They can send large segments of their workforces’ tasks/responsibilities overseas to a location which has much lower labor or regulatory costs. This saves the company money, which can be put toward investments or further research opportunities.

While it may be beneficial to redistribute the wealth in such a way, a large portion of jobs are typically lost in the process. Many argue, in the long term, this is not a viable way to move a country forward.

It should be no question that outsourcing and offshoring results in a lose of jobs in the US.

Companies move overseas, and do not pay Americans to do the work.

Companies that offshore, generally do not return because of the allure of these lower operating costs.

This causes a rise in unemployment, and an increased strain on social programs that protect unemployed personnel. So the money that is going toward investments or further research, may not be as promising a return as the negative effect on social services payouts.

Likewise, crime tends to increase as unemployment goes up. The increased cost of combating crime, sentencing criminals, and holding them in jail adds up very quickly. This results in higher taxation on current US workers, high skilled or low skilled.

The overall effect on GDP will certainly decrease because of the loss of native workers serving time in jail, less job opportunities, and paying more in taxes (which means they can’t use it to save or consume).

There is also a strong negative effect on intellectual capital.

With companies sending knowledge-based jobs overseas to outsource, it reduces the demand for them at home. As more accountants, computer science experts, and other high skilled jobs go the outsourcing route, we will have a “brain-drain” in the US. This brain-drain will affect the future knowledge industry in the US.

When these jobs go overseas, it’s less likely for our country to get them (or their skills) back. Colleges won’t teach them as often, and employers won’t seek those skills as often.

We become the masters at one thing, and novices at every other skill. This is harmful in the long-term, especially if a war would ever occur where we would need these workers’ skills. We are setting ourselves up for some massive hard times, should the intellectual capital of other countries no longer be of ready-service.

There is also a strong negative effect on manufacturing jobs

As the country continues to offshore manufacturing jobs, we lose our ability to manufacturer our own goods.

This is in-line with the ideas above: less job prospects for low skilled workers, less knowledge-based workers, less control over our own industries, and less national security as a result of dependence on foreign companies for our manufacturing capabilities.

Outsourcing has a tremendous negative effect on job outlook and prospects in the US.

The low-cost for companies is attractive, but it does not consider the cost of the country as a whole. Instead of focusing on the country, they are focusing on profits.

Mistakenly assuming that greater profits = better economy. However, if unemployment explodes and more people find themselves out of the labor market, it’s only going to have a negative impact on the economy.

Sure, the ultra-wealthy and business elites (CEO’s, stockholders) will be better off. But it’s simple redistribution of wealth from the low-skilled workers to the ultra high-skilled workers.

And the overall effect will be negative for the economy as a whole, as low skilled workers tend to consume (and thus raise GDP), whereas ultra-wealthy tend to save and invest; which does not circulate the currency.

Immigration Effect on American Jobs

When it comes to the topic of immigration, things get touchy-feely.

The general arguments go as follows:

Pro-Immigration: Immigrants bring over skills that are needed in the American economy. They fill the jobs Americans don’t want to do. They also bring over more jobs, as they become business owners and contribute to their local economy, increasing the local GDP and thus the overall GDP.

Pro-Common Sense: Immigrants take native-born workers jobs. Low skilled immigrants take and reduce wages of low skilled natives; high skilled immigrants take and (sometimes) reduce wages of high skilled natives. This effect harms the GDP for two reasons: because immigrants use social services much more than native residents, and because immigrants create native-born unemployment.

Low Skilled Labor

Immigrants (especially illegal immigrants) hurt American job prospects.

When low skilled jobs are being outsourced and offshored, the demand for low skilled labor plummets. This causes a decrease in the demand for low skilled labor.

When we add more low skilled immigrant workers, we increase the pool of applicants. This causes an increase in the supply of low skilled labor.

When the demand for low skilled labor decreases, and the supply for it increases – we reach an oversupply.

When oversupply occurs, wages are diminished and jobs become more scarce.

Low skilled labor, disproportionately black/hispanic/poor whites – must handle the main burden of this effect.

Their skills are no longer in demand, and there are more applicants – making it much harder to get a job. And when they do get a job, the wages and benefits are poor.

According to census data, the average income for high school drop outs was 25k. Because of a large influx of similar immigrant dropouts, the wages have been dropping by $800 to $1500 each year. This is because of the over-supply of labor effect.

The argument “they take the jobs Americans don’t want” is moronic. The native black unemployment rate is currently double the white unemployment rate. Similar for native Hispanics.

I’m sure they just want a job at all. Even if it pays low, if it grants the ability for promotion and learning new skills – it would be a worthwhile job. But it’s hard for them to compete considering the competition from immigrants and outsourcing. Especially when you consider the additional following two issues:

Additional Issues with Low Skilled Labor

1. Immigrants on visa are practically indentured servants. They require the sponsorship through a company. If they get fired, they may lose their status to live here. This makes them forcibly-dedicated workers. They tend to do whatever is necessary to keep the job, even if it is harsh or unfair. Whereas a native born worker could just leave and find another job. This results in companies finding it better to hire H1B workers, because they know they can retain them for the duration of the employment almost always – or the worker will face deportation or unlawful residency.
2. Illegal immigrants can undercut wages or benefits. A company can hire an illegal and not pay them a complete salary or benefits package. Whereas with a native, this would be illegal and result in a lawsuit. However, illegals can’t bring this to court so they essentially become reliant on the job, regardless of what it pays. This result further depresses wages, and incentivizes companies to hire illegals over natives to further support their bottom-line.

High Skilled Labor

Both low-skilled and high skilled labor are affected by immigration. Most immigrants have low skills, so it tends to “appear” more to effect low skilled labor.

However, there is plenty evidence to support it effects high skilled labor as well.

First we must consider the ultra-wealthy natives.

Highest Class of Native Workers

This 30 year economist covers it well.

The total wealth redistribution from the native losers to the native winners is enormous, roughly a half-trillion dollars a year. Immigrants, too, gain substantially; their total earnings far exceed what their income would have been had they not migrated.

The native losers being every single native that doesn’t benefit directly from cheaper labor costs from immigration.

The native winners being the very few that do benefit from it.

So it’s clear why businesses and top political professionals support this – because it lines their pockets at the expense of the “losers”.

High Skilled Labor Workers

But what about just the high skilled labor force – not the ones that benefit directly, but also have better skills such as STEM grads, engineers, etc?

Two issues:

1. They pay much higher taxes, because immigrants disproportionately use social services. Because of more government assistance payouts, the native population has to pick up their bill.
2. Loss of high skilled jobs by high skilled immigrants.

The taxes issue is rarely discussed. Higher taxes means lower wages, lower wages means lower job prospects in the future because of less capital accumulation to fund entrepreneurship.

The increased strain on government earnings also reduces job prospects. Since the government has to pay more in assistance, the government has less to use to fund research experiments (which creates jobs), fund beneficial government construction/infrastructure work, and other similar job creating prospects.

The overtaking of high skilled jobs is not talked about often either. The argument that immigrants take jobs Americans don’t want is not very strong when considering high skilled immigrants. Who wouldn’t want a 90k a year job in a field they enjoy?

We have seen a large increase in the number of immigrants working in the high-skilled fields such as computer science, data analysis, federal employment, and similar job opportunities.

This results in a clear depreciation of job opportunities for high skilled native workers. It also increases competition for these American workers, making it much harder to find employment because now they are not only competing against natives – but against immigrants, H1B workers, and sometimes even high-skilled illegal immigrants.

The discussion usually veers to the fact that since these immigrants are high skilled, they are contributing to the economy.

However, they effect of the higher taxation and less job opportunities for natives cannot be overlooked. Why should we seek out high skilled immigrants in fields that America already has high skilled workers seeking employment?

When we seek out more high skilled workers – the result is the same negative effect as we mentioned for low skilled labor above. It creates an over-supply and further diminishes wages. It also makes it harder for Americans to find good, reliable employment. Because immigrants are also competing for those positions.

Just because we have more high skilled workers, doesn’t mean a magical button is pressed that results in more jobs. We need more jobs to handle the influx of workers, not more of the same workers!

Lawrence Summers said it well:

What is needed is a responsible nationalism — an approach where it is understood that countries are expected to pursue their citizens’ economic welfare as a primary objective but where their ability to damage the interests of citizens of other countries is circumscribed.

Foreign Imports (One-Sided Trade) Effect on American Jobs

According to the WTO, almost 40% of all American exports are involved in the global supply chain. This is done by way of comparative advantage, where each country manufacturers a component of the product based on their respective global manufacturing advantage.

Likewise, many imports (although at a smaller percentage – 31% max) are also involved in the American section of the global supply chain.

The end result tends to be an extraordinarily complex global network of manufacturers.

These comparative advantages make one country more cost-effective and better at producing one component, instead of one product.

This tends to be beneficial to both nations. However, not always completely 50-50 beneficial. If we only do 31% max, and they do 40% – we are lagging. Not mentioned in these numbers is the raise in each countries GDP and prices for each manufactured component, either.

Foreign Imports

I touched on this subject on my article about The Negatives of Globalism.

No one with any economic background would attempt to proclaim that foreign imports has no effect on jobs in the US.

The debate tends to arise based on how severe the trade deficit is vs the benefits arising from comparative advantage.

This is common sense stuff. If companies are able to make, manufacture, and transport a product into the US cheaper than a US producer could make it – the foreign import will be purchased more often.

It’s a cheaper product, and considering stagnant wages and less job opportunities, most people look for cost saving devices. Imports are one of them.

Since US companies can’t compete with the lower wages and regulations that foreign companies can do, they go out of business or have to sell higher priced products.

The end result is a reduction in the number of jobs in whatever field the imports are coming in, and less jobs in supporting industries.

Here’s an example:

American company A makes toothbrushes. Foreign company X makes toothbrushes. American supportive industry B makes the material for the toothbrush for company A to use in the manufacturing process.

It is cheaper for foreign company X to sell the products in the US cheaper than American company A. More people will purchase the cheaper product, so American company A goes out of business.

All the jobs at American company A are lost. However, American supportive industry B is also hit. Because foreign company X is using their own local company to create the base material for the toothbrush, the supportive company B in the US lost a manufacturing producer. This can further cause wage or job cuts.

This then makes a rippling effect, because now the industries supportive of the industry B may also take a hit. And so one and so forth down the line.

Trade is also a huge factor in considering wages, government spending, and jobs.

an increase in Chinese imports to the United States has inflicted tremendous harm on the wages and labor-force participation of U.S. workers in local markets that face direct competition with those imports.

Conclusion

Outsourcing/offshoring, immigration, and foreign imports all negatively effect American jobs and opportunities.

They tend to have a negative effect on both low skilled and high skilled native workers in some form. Whereas they all have benefits to the ultra-wealthy and top elites in the country.

It should be an easy conclusion to see why top business and political professionals tend to support and fund research into why immigration is beneficial to the country. Because it is beneficial: but only to them, not other natives.

Proposals to curb this tide include: trade tariffs or other restrictions, a ban or limit on a companies ability to outsource/offshore, and a reduction in immigration or enforce of existing immigration laws.

Regardless of how or when we fix these, because of the global supply chain beginning to dominate the world’s economy – we’re in for a rough future. Especially if a world war were to ever break out again, and the supply chain splinters.

Let’s hope common sense economic proposals can start to retract this tide to a inter-twined globalized economy, where native workers suffer and national security takes a huge hit.