The New York Times recently published a story denouncing the use of outsourced foreign workers by American retail company, Toys ‘R’ Us, a phenomenon which had led to 67 domestic U.S. employees losing their jobs. Most of them had had 10 or more years of experience before being laid off (Preston, The New York Times, 2015).
But who was replacing these U.S. resident employees? The answer lies in the quickly expanding phenomenon of outsourcing. Multinational companies are turning to foreign skilled workers for many reasons, including the lack of domestic workers who are “skilled enough” as well as the potential for cheaper employment abroad. By employing staff of higher quality and skills, the company is getting a better return out of the same amount of employees, making itself significantly more economically efficient. This is similar to the purchase of parts abroad to cheapen the production process, based on laws of comparative advantage. According to Investopedia definitions, outsourcing “creates an incentive for businesses and companies to allocate resources where they are most effective, and that outsourcing helps maintain the nature of free market economies on a global scale” (Outsourcing, Investopedia). From a capitalist and economic point of view, outsourcing is quite obviously a step forward. But can the same be said for replaced workers? And for those nations sending their workers abroad?
In the case of Toys ‘R’ Us, foreign workers were hired from the India-based outsourcing company TCS (Tata Consultancy Services; photo of Mumbai office shown in picture below), with the help of a temporary work permit given out by U.S. immigration known as the H-1B visa. This visa “allows US companies to employ foreign workers in specialty occupations that require theoretical or technical expertise in specialized fields” (H-1B Visa, workpermit.com). Only 85,000 such permits are distributed per fiscal year. This visa does not come without its conditions, and companies that use it must ensure that the use of it will not in any way affect the working conditions or wages of American workers (workpermit.com). What can be said, then, of American workers who have just been replaced by foreigners of supposedly higher skill than them? The argument goes that, because of their advanced age compared to the industry, they are less capable of learning the rapidly evolving technologies and thus will not do as well as the new batch of workers coming in from India.
This outsourcing system has certain downsides in India, as well. Taking a job abroad through an H-1B visa represents a significant investment in the global economy on the part of Indian workers. They will be able to find higher-paying jobs with potentially better working conditions and may be able to send remittances home, thus also improving the living standards of those they left in India. However, this also ties in to the bigger phenomenon that development studies academics have come to call a brain drain: the highest skilled workers are taking jobs elsewhere, and leaving their country with a narrower skilled population to choose from. This leaves local Indian companies unable to compete with larger multinationals that are taking said workers away from them.
As outsourcing companies are expanding throughout the world, India in particular, many developing countries are facing the same problem. Outsourcing is one of the most significant emerging systems of the global labor market, and has successfully institutionalized what was once simply considered voluntary movement of skilled workers for better economic opportunities. Although this is a key to success for many multinational companies, it represents a source of fear for less skilled workers in the home countries of these companies. It also leads to decreased influence and ability to compete for smaller multinational companies that are not able to take advantage of such a system, such as those based in developing countries where economic opportunities are not as attractive.