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Politics | U.S. Corporate Tax Policy (Part 2): Outsourcing the Labor‏


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People ask me on a regular basis why would a U.S. company want to take jobs from domestic citizens and ship them to foreign economies? Well like everything in this world, there are advantages and disadvantages of sending jobs overseas. If other countries have the ability to do something cheaper and possibly more productive overseas then we ought to let them do it and concentrate on what we as Americans can do best. Money saved from sending jobs overseas can be reinvested in the domestic economy to stir growth, attract talent, and innovate but that is conditioned on the basis they we use the saved capital for these purposes and not others. Let’s not mistake anything about it; the sole reason why U.S. companies send jobs overseas is to maximize profit by lowering cost and increasing productivity. This is pretty much the reason why they do a lot of things. I mean let’s be real, most companies are created to generate profits, whether they tell you or not. The country that offers businesses the most benefit wins sort to speak. Sending tedious jobs overseas helps companies focus their highly paid personnel on core business functions. The usage of “highly paid” personnel is debatable because like I mentioned earlier, one reason companies are so profitable in these tough economic times is because they’re paying employees less than they ever have as a share of GDP. And that, in turn, is one reason the economy is so weak: Those “wages” are other companies’ revenue. Prime example, jobs such as data entry, billing, accounting, processing of insurance claims and loan applications as well as processing U.S. income tax returns are being performed by cheaper paid workers overseas and the few employees that perform these activities here in the U.S. are being paid less than average from previous years. The advantages of sending professional service jobs overseas are huge cost savings. A 2008 study says “In 2004, a U.S.-based software programmer was paid an average annual salary of $70,000, whereas the same job performed by a programmer in India paid the worker only $8,000 per year. Now granted this was 8 years ago and the annual average salary for a S/W programmer now is $77,000 but the picture is quite clear that outsourcing jobs, tedious or specific, can benefit a company financially and operationally.

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Sending jobs overseas also helps to level out seasonal fluctuations and peak staffing problems. It increases innovation by not having to chase after it or force it. It minimizes risk and enables management retain control of strategic decision-making processes. Fewer and less stringent laws of other countries make running a business outside the U.S. much easier and much cheaper.

Other reasons why companies send jobs overseas are the escalating health insurance premiums, unionized strong-arming, and bloated salaries for idled workers –these matters also play a role in the disadvantages of jobs going overseas. The practice of non-compromise between management and unions also hurts the economy, by forcing companies to send work out of the country. Health care costs must be controlled, unions should compromise on salaries in economic downturns and tenured union workers should not be allowed to keep a job where they receive a high hourly salary whether they are working or not. This costs the country jobs because the cheaper alternative is to send jobs offshore.

A disadvantage of off-shoring jobs is that more work goes out of the country, in the interest of cheap labor, than work that comes in. The loss of domestic made products and the jobs that go with them, and the outsourcing of those jobs to countries where materials and chemicals are mostly unregulated could have the negative impact of harmful chemical substances coming into the country. This toxic waste could end up in our water and air as disposable waste, causing increased health issues. Along with lost jobs go lost health insurance benefits and the resulting effect is cyclical.

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Now as you can see the argument seems to be a bit lopsided on whether which route is optimal. This all depends on the situation, the economic environment, and the organizational structure. The question I ask you is: will lowering the corporate tax rate and streamlining the overall tax policy significantly reduce outsourcing over time while decreasing the unemployment rate here domestically or will this just allow companies to continue to take advantage of cheap labor while pocketing even more from the reduced tax burden?

Corbin Norman may be reached at his website: www.thegeniusway.me or via Corbin@pslovecharli.com. He is also active on Twitter and Facebook.

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