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What are the biggest reasons companies send jobs overseas? It has always been my impression that companies do this because regulations in the US are too strict,

by dgzl 8y ago

What are the biggest reasons companies send jobs overseas? It has always been my impression that companies do this because regulations in the US are too strict, and minimum wage is too high to support certain work.

zwkrt 8y ago
Saying that something moves to China because minimum wage is too high has always been an interesting topic for me. With a positive spin this argument becomes "the American government has set a standard of living which is too high to allow such manufacturing processes or subjective abuse of labor". Reducing regulations or lowering minimum wage would verly likely not result in a better standard of living, even though it would be most economically efficient for everyone to be working for peanuts 60hr/week. It seems to me that it is part of the governments job to say "yes this is economically feasible, but not socially acceptable." Outsourcing breaks this dynamic by introducing moral hazard--we can have our cake and eat it too. I think if there were a minimum global standard of living, most cheap plastic shit just wouldn't get made.
- dgzl 8y ago
  Brilliant comment, I've had this understand for a while myself. We can legislate ourselves to a higher standard of working/living, but the work then becomes a premium and will support fewer people, as outsourcing occurs, to automation and other workforce that doesn't demand such benefits. What does that make the person who demands a better working condition for themselves, but is fine that a percentage of work is outsourced to a sweatshop?
  - drak0n1c 8y ago
    Labor and wage regulations economically function akin to a "carbon tax" on labor. In addition to encouraging outsourcing, they are encouraging the early adoption of technological alternatives (robots/AI) that face no such restrictions.
- throwaway34241 8y ago
  The traditional model is that US employment is driven by fiscal and monetary policy. So the Gov. and central bank stimulate the economy until it reaches full employment, then put on the brakes when inflation gets too high. With this model, even if some jobs shift to China or are automated, that just means the central bank can step on the gas a little bit more, and employment and standard of living is unaffected. One problem with this model is structural problems where say jobs are being created but are in a different place than the ones being destroyed. People may be unwilling to move or it may be too expensive. They also could require different skills. Another issue is that the central banks are limited in their ability to lower interest rates (their traditional way of stimulating the economy and getting out of recessions). Fiscal policy (Gov. borrowing and spending) is not expensive at all now (the Gov. currently pays hardly any inflation-adjusted interest on the debt), but if interest rates were ever to rise substantially having a large debt could be a problem. Spending the money efficiently also could be a challenge and it's politically controversial to do it at all. Personally I think something like a UBI is probably a good idea to insure against things just imploding. In the event of a recession they could just increase it to stimulate the economy, which probably can happen a lot faster than infrastructure projects etc. And if automation accelerates, it may be tough for large numbers of people to adapt quickly (even if they eventually do).
crispyambulance 8y ago
The short answer is that corporations have decided to externalize production as much as possible into global supply chains. It's cheaper, it buys you flexibility and it makes "re-tooling" for other product lines a matter of switching suppliers. There are many excuses that allow a company to end-up in a situation where they're little more than finance, product/sales/marketing management, and scm-specialists sitting in cubes with headsets on "hitting their numbers". I find it all very sad and unsustainable in the long term. If China eventually "eats our lunch" economically, we will have richly deserved it as a nation.
Gpetrium 8y ago
It is a combination of factors that lead to this, I will just give you a quick example, please note that I will not cover all factors. * Product X is made by 3 companies in the US. It costs them $20 to make the product and it is sold for $30-33. * Government increases minimum wage, which leads the cost to go up to $23 (e.g. cost of raw material is impacted, labor, etc), the producers increase the price to $33-35 while still taking a personal hit in their returns. * Unexpected economic disruption or shortage in a certain raw material leads to increased costs to $25 and increased consumer price to $36-38 * Government implements a new legislation that impacts customer demand negatively and increases cost of production to $28. This leads to increased consumer price to $39-40 Throughout this process, supply/demand dictates that the increase in prices may impact negatively the demand for the good produced. * One of the companies realize that it can produce the goods in a country called Melo for $5. It shifts a good portion of its production there, allowing it to sell the goods to consumers for $20. * Customers sensitive to price will flock to the cheapest good. All the other companies decide to move their production to Melo country to remain competitive. In part, consumers are willingly exchanging a few jobs here and there so that they can get goods & services at a cheaper price. Economics is full of trade-offs, understanding them is essential for a country's long-term success.
- dgzl 8y ago
  So essentially you're saying, between rising minimum wage, other government involvement, various economic reactions, competition between companies, and the customers desire for cheaper products drives production overseas? If American society insists that we legislate ourselves into a more comfortable environment (higher min wage, better working conditions) then I think we'll have to accept that certain production will just never happen here. What other reasons can we identify?
  - deleted 8y ago
    [deleted]
  - vkou 8y ago
    > I think we'll have to accept that certain production will just never happen here. It can happen here, if you break with neo-liberal economic dogma, and institute equalization tariffs on imports.
drak0n1c 8y ago
I don't see why you're being downvoted. Regardless of whether it's good or bad, regulations on resource extraction, manufacturing, wages, unions, pollution, among many other business practices are the reason why those jobs went abroad as soon as other countries stabilized with their own market economies. Even the most mundane industries were operating in the US just fine up until the mid 1900s. You can rightfully critique and regulate the golden goose, but there is a point at which it becomes incapable of producing as many golden eggs as other countries.
- dgzl 8y ago
  I also don't see why you are being downvoted. America used to be talked about the same way China is talked about now. What other reasons can we find?
throwaway34241 8y ago
I think the argument that a large percentage of people in the US need to lower their wages to 'compete' with developing countries is not true, and even making that argument is more likely to lead to trade barriers erected than wages being lowered. The problem with the simple model of free trade where workers just lose (why pay $10 in the US instead of $2 in Mexico etc) is that they do not pay workers with dollars in Mexico, they pay pesos. The dollars actually stay in the US. What the total effect of free trade is depends on what happens to those dollars. Are they being used to buy US goods, investments, government debt (then what is the government doing) etc.
- Latteland 8y ago
  Why does it matter that someone pays with dollars and at a certain point that is translatted into pesos. By the way, not all industries work this way, a fair number of them use us dollars (more than just oil). The fact that you pay in pesos eventually means if pesos lose value internationally you could pay them less (but dollar cost is the same). But that's not guaranteed.
  - throwaway34241 8y ago
    It matters because the dollars stay in the US and something must happen with them. So it's not like we are just sending them money and getting nothing in return. As soon as they are exchanged for pesos, that means someone else bought dollars and is going to do something with them. Some industries are priced in dollars but the only major country where people actually spend dollars (without exchanging them) is the US. A trade deficit means overall the other country is buying more investments instead of goods. But those investments are in the US. To actually spend the money somewhere else they would need to exchange it again. And those investments in the US aren't inherently a bad thing. If it's just buying US government bonds and the government not doing anything productive with that money it might be a bad thing though.

by dgzl 8y ago

zwkrt 8y ago

Saying that something moves to China because minimum wage is too high has always been an interesting topic for me. With a positive spin this argument becomes "the American government has set a standard of living which is too high to allow such manufacturing processes or subjective abuse of labor". Reducing regulations or lowering minimum wage would verly likely not result in a better standard of living, even though it would be most economically efficient for everyone to be working for peanuts 60hr/week. It seems to me that it is part of the governments job to say "yes this is economically feasible, but not socially acceptable." Outsourcing breaks this dynamic by introducing moral hazard--we can have our cake and eat it too. I think if there were a minimum global standard of living, most cheap plastic shit just wouldn't get made.

dgzl 8y ago
Brilliant comment, I've had this understand for a while myself. We can legislate ourselves to a higher standard of working/living, but the work then becomes a premium and will support fewer people, as outsourcing occurs, to automation and other workforce that doesn't demand such benefits. What does that make the person who demands a better working condition for themselves, but is fine that a percentage of work is outsourced to a sweatshop?
- drak0n1c 8y ago
  Labor and wage regulations economically function akin to a "carbon tax" on labor. In addition to encouraging outsourcing, they are encouraging the early adoption of technological alternatives (robots/AI) that face no such restrictions.
throwaway34241 8y ago
The traditional model is that US employment is driven by fiscal and monetary policy. So the Gov. and central bank stimulate the economy until it reaches full employment, then put on the brakes when inflation gets too high. With this model, even if some jobs shift to China or are automated, that just means the central bank can step on the gas a little bit more, and employment and standard of living is unaffected. One problem with this model is structural problems where say jobs are being created but are in a different place than the ones being destroyed. People may be unwilling to move or it may be too expensive. They also could require different skills. Another issue is that the central banks are limited in their ability to lower interest rates (their traditional way of stimulating the economy and getting out of recessions). Fiscal policy (Gov. borrowing and spending) is not expensive at all now (the Gov. currently pays hardly any inflation-adjusted interest on the debt), but if interest rates were ever to rise substantially having a large debt could be a problem. Spending the money efficiently also could be a challenge and it's politically controversial to do it at all. Personally I think something like a UBI is probably a good idea to insure against things just imploding. In the event of a recession they could just increase it to stimulate the economy, which probably can happen a lot faster than infrastructure projects etc. And if automation accelerates, it may be tough for large numbers of people to adapt quickly (even if they eventually do).

crispyambulance 8y ago

The short answer is that corporations have decided to externalize production as much as possible into global supply chains. It's cheaper, it buys you flexibility and it makes "re-tooling" for other product lines a matter of switching suppliers. There are many excuses that allow a company to end-up in a situation where they're little more than finance, product/sales/marketing management, and scm-specialists sitting in cubes with headsets on "hitting their numbers". I find it all very sad and unsustainable in the long term. If China eventually "eats our lunch" economically, we will have richly deserved it as a nation.

Gpetrium 8y ago

It is a combination of factors that lead to this, I will just give you a quick example, please note that I will not cover all factors. * Product X is made by 3 companies in the US. It costs them $20 to make the product and it is sold for $30-33. * Government increases minimum wage, which leads the cost to go up to $23 (e.g. cost of raw material is impacted, labor, etc), the producers increase the price to $33-35 while still taking a personal hit in their returns. * Unexpected economic disruption or shortage in a certain raw material leads to increased costs to $25 and increased consumer price to $36-38 * Government implements a new legislation that impacts customer demand negatively and increases cost of production to $28. This leads to increased consumer price to $39-40 Throughout this process, supply/demand dictates that the increase in prices may impact negatively the demand for the good produced. * One of the companies realize that it can produce the goods in a country called Melo for $5. It shifts a good portion of its production there, allowing it to sell the goods to consumers for $20. * Customers sensitive to price will flock to the cheapest good. All the other companies decide to move their production to Melo country to remain competitive. In part, consumers are willingly exchanging a few jobs here and there so that they can get goods & services at a cheaper price. Economics is full of trade-offs, understanding them is essential for a country's long-term success.

dgzl 8y ago
So essentially you're saying, between rising minimum wage, other government involvement, various economic reactions, competition between companies, and the customers desire for cheaper products drives production overseas? If American society insists that we legislate ourselves into a more comfortable environment (higher min wage, better working conditions) then I think we'll have to accept that certain production will just never happen here. What other reasons can we identify?
- deleted 8y ago
  [deleted]
- vkou 8y ago
  > I think we'll have to accept that certain production will just never happen here. It can happen here, if you break with neo-liberal economic dogma, and institute equalization tariffs on imports.

drak0n1c 8y ago

I don't see why you're being downvoted. Regardless of whether it's good or bad, regulations on resource extraction, manufacturing, wages, unions, pollution, among many other business practices are the reason why those jobs went abroad as soon as other countries stabilized with their own market economies. Even the most mundane industries were operating in the US just fine up until the mid 1900s. You can rightfully critique and regulate the golden goose, but there is a point at which it becomes incapable of producing as many golden eggs as other countries.

dgzl 8y ago
I also don't see why you are being downvoted. America used to be talked about the same way China is talked about now. What other reasons can we find?

throwaway34241 8y ago

I think the argument that a large percentage of people in the US need to lower their wages to 'compete' with developing countries is not true, and even making that argument is more likely to lead to trade barriers erected than wages being lowered. The problem with the simple model of free trade where workers just lose (why pay $10 in the US instead of $2 in Mexico etc) is that they do not pay workers with dollars in Mexico, they pay pesos. The dollars actually stay in the US. What the total effect of free trade is depends on what happens to those dollars. Are they being used to buy US goods, investments, government debt (then what is the government doing) etc.

Latteland 8y ago
Why does it matter that someone pays with dollars and at a certain point that is translatted into pesos. By the way, not all industries work this way, a fair number of them use us dollars (more than just oil). The fact that you pay in pesos eventually means if pesos lose value internationally you could pay them less (but dollar cost is the same). But that's not guaranteed.
- throwaway34241 8y ago
  It matters because the dollars stay in the US and something must happen with them. So it's not like we are just sending them money and getting nothing in return. As soon as they are exchanged for pesos, that means someone else bought dollars and is going to do something with them. Some industries are priced in dollars but the only major country where people actually spend dollars (without exchanging them) is the US. A trade deficit means overall the other country is buying more investments instead of goods. But those investments are in the US. To actually spend the money somewhere else they would need to exchange it again. And those investments in the US aren't inherently a bad thing. If it's just buying US government bonds and the government not doing anything productive with that money it might be a bad thing though.