Collapse of the U.S. Economy

Why Are American Jobs Heading Overseas?

March 30, 2010

eHow - Many Americans fear that companies eliminating U.S. jobs and moving them to overseas locations is a permanent fixture of the modern economy. This trend, sometimes referred to as "offshoring," has eliminated many American manufacturing jobs for decades. More recently, a growing number of so-called "white collar" jobs in information technology and other sectors once considered immune to this trend have relocated to India, China and other countries. Companies move jobs overseas for a variety of reasons, including labor costs and the quality of workers overseas.

Labor Costs

For many companies, overseas locations offer labor forces willing to work for lower wages than American workers. This factor has led to many manufacturing companies closing their U.S. factories and relocating their operations to Latin America, Asia and other locations. For decades, many American cities saw their manufacturing bases dry up, while workers in overseas factories produced the apparel, shoes, industrial goods and consumer electronics that Americans once produced. The relocation of American manufacturing operations overseas lowered labor costs and increased profits for many U.S. companies, while lowering prices for American consumers.
Unfortunately, American workers who once had reliable, well-paying manufacturing jobs found themselves scrambling for other work--often taking jobs that paid less and offered less generous benefits.

Educated Work Force

American firms move jobs overseas for reasons other than the lower labor costs in other countries. In the past decade, many information technology firms began offshoring jobs in this sector, attracted by the better-educated work force in places such as India and China. The U.S. education system trails other nations in producing college graduates with the scientific and mathematical knowledge needed for success in the modern information-based economy. Further, continued technological improvements around the world, such as the digitization of information and the improved bandwidth, have made it easier for software, medical technology and other companies to relocate operations overseas.

Study

A 2004 white paper from Sen. Joseph Lieberman of Connecticut cited a series of factors driving employers to move U.S. jobs overseas. Reasons included improved high-speed technology, low-cost labor in other countries, educated labor forces, favorable business climates overseas and proximity to large consumer markets in such countries as India and China, two leading beneficiaries of the offshoring of U.S. jobs.

Tax Break

A 2005 article from the Brookings Institution in Washington, D.C., suggested that the U.S. tax code may actually encourage companies to move American jobs overseas. Authors Lael Brainard and Robert E. Litan pointed to a provision that allows companies to defer taxes on foreign earnings as a possible incentive for businesses to move operations and jobs out of the United States.

Size

The authors of the Brookings Institution article noted that little reliable data exist to measure precisely the number of jobs that have moved overseas. They cited a report by Forrester, an Information technology consulting firm, which suggested that the number of jobs relocated overseas could grow to more than 3 million by the year 2015.

Prevention/Solution

Brainard and Litan suggested a series of policy prescriptions in response to the trend of moving American jobs overseas. These include removing tax code provisions that may encourage offshoring, as well as reducing the nation's over-reliance on employer-paid health insurance, which drives up business costs and provides another incentive to relocate. They also recommended action to improve the American education system at all levels, ensuring that American students from elementary school to college receive sufficient instruction in mathematics, the sciences, engineering and technology.