Laws Against Outsourcing - Are They Necessary?

Often laws are passed to prevent or contain the undesirable effects of an economic activity. But sometimes the laws are more motivated by political considerations than economic benefits. The perfect example of this is outsourcing laws. The U.S. introduced outsourcing laws in 2005 in most of its 50 states in order to check the growing trend of outsourcing.

The most common argument against outsourcing is the resultant loss of jobs. These laws were passed to ensure that businesses kept their operations mainly in the U.S. and laid off fewer people. Instead of helping the businesses, these laws have cost local governments millions of dollars to ensure that their businesses did not leave the country. New Jersey and Indiana have paid amounts close to a million dollars more than necessary to ensure that their work is not outsourced in order to appease the anti-outsourcing lobby.

The first attempt at blocking outsourcing was made in 2004 when the Senate passed the Consolidated Appropriations Act which provides for statutory spending by different government departments. Section 233 of the act is entitled “Impact on Jobs in the United States” and requires that none of the funds appropriated by the act may be obligated or expected to provide financial incentive to a business enterprise to relocate outside the country if it is likely to reduce the number of its employees in the U.S. The act further provides that an activity or function of an executive agency that is converted to contractor performance under Office of Management and Budget Circular A-76 may not be performed by the contractor at a location outside the U.S. except to the extent that such activity or function was previously performed by federal employees outside the country. This meant that a government contract acquired by a private corporation could not be outsourced or relocated to a legal entity outside the U.S. if such inducement is likely to reduce the number of employees in the U.S. This rationale for the act is that the source of government projects is public money.

Leaving emotional issues aside, the main question is: Is outsourcing so undesirable that the government has to introduce laws to prevent outsourcing?

The answer is no.

Outsourcing has not resulted in Americans losing jobs. When the laws against outsourcing were passed, more Americans were employed since the recession ended in 2001 and unemployment was also falling. Outsourcing represents less than 1 percent of gross job turnover.

Preventing outsourcing is an attack on economic freedom of U.S. businesses. Economic freedom is necessary for economic growth, new jobs, and higher living standards. Outsourcing means efficiency – more final output with lower cost inputs – lower prices for all U.S. businesses and Americans in general. Lower prices lead directly to higher standards of living and more jobs in a growing economy.

The situation today is different from the time these laws were passed. Today the U.S. economy is on the verge of recession. However it would be wrong to blame outsourcing for its woes. The subprime crisis, housing and stock market crisis were not caused by outsourcing. Outsourcing has virtually nothing to do with the increase in gas prices. Jobs are being lost in all countries including those the opponents of outsourcing say are stealing the American jobs.

Instead on concentrating on emotive issues, had the government paid more attention to the real economic issues facing the nation, maybe the economy would not have been in the state it is in today.

11 comments to Laws Against Outsourcing – Are They Necessary?

  • Yes, outsourcing laws are necessary to lessen the overused of outsourcing. Outsourcing nowadays is really crowded, so it must have a law for this.

  • Ladijules

    Some outsourcing should be out right illegal. Such as any outsourcing that requires a person to share their personal information with someone outside this country. Identity theft is on the rise, yet my american bank requires me to share my VERY PERSONAL information (such as account numbers and social security numbers) with some person in India that can’t even speak english! Worse, those foriegn persons are forbidden by the bank to even confirm that they are in another country! This should be highly illegal. All financially and medically sensitive information should not be allowed to be outsourced to ANYONE outside this country! EVER!

  • Outsourcing laws could be a good idea in regulating outsourcing outside the country but it isn’t necessary that that these written laws should be against it.

  • Pinki

    I think laws are needed to limit and or control the number of jobs being outsourced and unnecessary outsourcing of jobs. I work for a multibillion dollar company and today a number of my co-workers were let go from their jobs due to outsourcing. I don’t think there is a need to outsource when we can cut cost here and still keep people on. I see so much waste in my own dept and company. Maybe if they would think to cut those costs first then they would need to oursource to reduce cost and produce lower cost products. And what good are these products when the population you sell these products to can’t afford to buy them becasue they don’t have jobs b/c they were out sourced.

    I think what should be done instead of passing laws against outsourcing the public should get together and banned from purchasing products from those companies that do outsource. Hit them where it hurts!!!!

  • wayne smith

    Outsourceing is the direct cause of gas price going up. Just simple supply and demand, we outsourced jobs to China and India caused their demand for oil to go up the result higher prices of gas. Second comment is simple the houseing crises hit in 2006 between 2001 and 2006 we outsourced 3.5 million jobs that weren’t comming back or replaced the result about 1 million forclosures . Look at a map of forclosures and a map where the jobs have been outsourced they almost match.

  • Justin

    Outsourcing should be strictly limited and unfortunately the places that primarily practice it cannot be counted on to police themselves. This means that the government needs to lay down legislation to force them to.

    Corporations and their CEO’s are only looking to their own bottom line and wallets with little concern for their employees. If they don’t hit their 20% increase in profits over last quarter, guess what…more employees in the US will get laid off. Even if they could increase more by cutting a relatively few higher executive’s insane salaries by a small amount, they will just lay off a few dozen/hundred/thousand lower-end workers. Their work still has to be performed by someone because unlike the majority of executives who could be outright fired with no impact to the company, the lower end worker’s job had measurable productivity that will need to continue to be accomplished by someone. This usually means outsourcing.

    That 25k a year the US employee was making just gets replaced by half a dozen foreign workers for less than 10k a year. Sure they may do a worse job overall even with the increased amount of people to do that one person’s job, but they don’t care about that…the $ has increased Now. Little thought is also paid to the fact that the majority of their customers are from the US and they just took away the money that would later be sent right back to them as their employees were also their customers. This means that in future quarters they won’t hit their margins and just have to lay off more people and further perpetuate the cycle.

    We’re already at the point where our country is falling behind technologically and even our astronauts are going to have to start hitchhiking just to even get into orbit. How many more cities in India are we going to let our US corporations build from nothing while our population begins to starve and economy collapses?

    IT jobs are dwindling away to practically nothing, so what kind of message are we sending our younger generations? How are they going to see any benefit in pursuing careers that require them to be intelligent and use their brains if those are the type of jobs that have the highest risk of being lost?

    I think if there were laws that required the majority of a US-based company’s employees to be in the US for them to operate and have their corporate offices and executives based out of the US, then we’d see a massive improvement in our economy in the long run. Companies like HP that outsource close to 90% of their workforce need to be held accountable.

    Either that or convince their accountants that there’s more profit to be made by insourcing their workforce and outsourcing their executives :)

    Oh poor Mark Hurd took a 5% decrease in his multi-million dollar salary while taking a few thousand away from people who don’t even make 30k to ‘avoid laying people off’. Then they give the employees a ‘bonus’ which is really just the money they should have made had their pay been left alone. Afterward, they still make the lower wage, and good ole Mark starts laying people off again.

    So glad that Ron Rittenmeyer ran EDS into the ground so he could cash out to HP and have Mark lay all of the US workers off. There’s no way they could understand having Any US employees considering every single one of their production factories is in India.

    It’s funny considering HP used to be a client of EDS and now they own us. I still call myself an EDS employee and would be ashamed to say I work for HP.

  • Mark Nesser

    We need to stop outsourcing and hemorrhaging Oregon’s job base. We don’t need to give tax breaks to those who keep there jobs in the US, we just need to tax those companies who are giving our jobs away to other countries! We need to take action, before unemployment gets much worse. At least pass a law like the the “Consolidated Appropriations Act of 2004″, except this time instead of being aimed at Government let it be aimed at US businesses & companies.

  • Donita Eckrote

    The larger and more geographically separated an organization becomes, the more it benefits from third-party it managed services.

  • Kory D

    I was appalled at a recent response I got to a complaint I made to this company about not being able to understand their out-sourced employees at a Philippines call center. When I explained that the call center employee had a poor grasp of the English language i got this response from Mediacom: Thank you for your recent e-mail to our Customer Service Department. “I apologize for the inconvenience. We are an equal opportunity employer, so you will encounter Customer Service Representative’s of different ethnicities from time to time.” Now companies are playing the race card to justify hiring foreign workers to replace American workers at home!

    I would be glad to share the orginal email from Medicaom with anyone who would like to see it.

    Kory Darnall

    Davenport, IOWA

  • Emmanuel Tabones

    To outlaw or restrict outsourcing is to ultimately designate private sector jobs as a political entitlement which will inevitably contribute to economic stagnation, due to lower productivity and also inefficiency. In order to be globally competitive, businesses need the freedom to decide how to properly allocate business costs, without interference from third parties who care less about the status of these companies. It could also encourage similar sentiments in countries where labor costs are higher than in the U.S (like in Europe), and discourage the outsourcing of jobs into the U.S.

  • IDTheftReview

    The outsourcing industry is definitely on the rise these days. However, because there is no law that actually controls this industry, a lot of scammers see it as an opportunity to implement their fraudulent tactics. For example, identity theft, a very popular crime everywhere, may be done by asking unsuspicious victims to provide personal information. With the lawlessness regarding outsourcing, identity theft may just worsen in the next few years.

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