Because the economy is the biggest concern for voters in the upcoming U.S. presidential election, it would not be too long before the outsourcing enemy of American jobs was pulled out of the closet. The newest dance partner for outsourcing is insourcing - once could say the ying and the yang of job discussions. Outsourcing, as a result of being a topic of much discussion, is the most well known. Insourcing is new to the American discussion, but it is not a new concept for businesses. President Obama is expected to discuss the role of insourcing in job creation, meaning that U.S. businesses should bring back jobs that have been outsourced. There is another type of insourcing, which is when a company takes advantage of wage gaps in the labor market to move jobs - labor arbitrage - and that happens in country from State to State.
Labor arbitrage is the main reason for outsourcing because companies are able to take advantage of the low wages paid to foreign workers in foreign countries. The purpose of a business is to provide a return to shareholders or owners of the business. Higher returns requires lower costs. Too often, the outsourcing takes on moral and ethical perspectives that blurs the understanding of "why" businesses use this practice. Labor arbitrage is a cost cutting mechanism that is directly correlated to the consumer cost of goods and services. Higher labor costs mean a higher consumer cost. Outsourcing also gives businesses a greater talent pool. The United States is not a global leader where education intersects with the needs of businesses. That is why engineering or computer work is sent overseas among other areas.
Outsourcing is difficult to manage and often entails a lot of paternalism to ensure that the same work is being done overseas that would have been done here. The cultural differences alone can create public relations nightmares for businesses - child workers or sweatshop conditions. Businesses engage in outsourcing to remain competitive and profitable. The same applies to insourcing by businesses in the U.S. from State to State to take advantage of wage gaps. In states like California and New York, there are knowledge centers like San Francisco and New York City that have high costs of living, which then require higher wages. Those higher wages are then passed along to consumers. A business in San Francisco or New York can locate to a labor market with same or similar skill sets in another State and reduce its labor costs immediately.
Labor arbitrage is the main reason for insourcing - same as outsourcing. This is where the "Right to Work" campaigns come into play. Labor unions increase labor costs thus the cost of goods manufactured in one State can vary widely from another State. Labor arbitrage could result in a widening of the have and have nots in the sense that the U.S. will create little Mexicos, little Indias, or little Chinas in the U.S. Although, unlikely to happen to such an extreme, the degree is dependent on whether supply exceeds or is equal to demand in lower wage States. Not every State is a viable candidate for labor arbitrage so the higher the demand for lower wage workers combined with a lesser supply results in driving up labor wages. Williston, North Dakota is a perfect example of the scarcity principle - low unemployment, high demand for labor, and a commodity subject to trading volatility.
Where quality of life and living standards begin to erode is when the labor demand and supply are equal or supply exceeds demand. Americans can freely move between States and U.S. territories - jobs are a reason to move. Jobs attract workers and workers increase the demand for everything from housing to food to consumer goods and services. The potential is little money left over for retirement or educational ambitions. If a business leaves, then the local workers are vulnerable because "getting by" is not "getting forward". Insourcing and outsourcing is nothing if not a discussion about divergent interests. It is too simplistic to frame the argument on an "in" versus "out" basis. There is a downside to outsourcing that American workers need to understand in order to capitalize and benefit permanently rather than temporarily because of some tax credit morsel tossed out by U.S. politicians.
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