Unformatted text preview: matters
to you—productivity matters too. So it
must be the case that Indian labor is as
productive as U.S. labor—but just costs
less. I can see why you are doing what you
are doing. If I were in your shoes, and had
to answer to the stockholders, I would
probably do the same thing.
So here’s the deal: I will work for the
same wage you are paying the software
engineers in India. Here is my phone
number and e-mail address.
I hope to hear from you soon.
Software engineer from Montana
But even though e-mails like this one
are rarely sent, if the message in the letter
is the same message on the minds of
enough American software engineers, you
can be sure the president of the company
is going to hear it. He or she might not 15 (390-427) EMC Chap 15 11/18/05 9:12 AM Page 405 hear it in an e-mail, or on the phone, but
he or she will hear it in board meetings.
U.S. companies have a monetary incentive to learn what wages they have to pay.
If many American software engineers will
work for the same wage as Indian engineers, then U.S. companies will be aware
of this fact. Then they will hire Americans
because often the cost of setting up an
operation overseas is expensive and problematic (especially problematic if foreign
government issues must be worked out). The Costs of Offshoring Are
Easier to See than the
Our economic discussion of offshoring
mentions some benefits and costs to offshoring. One huge cost came to the software engineer who ended up earning $700 a
week instead of $1,000 a week. Some benefits came in the form of lower prices for consumers. In addition, we learned that
offshoring is a two-way street.
The biggest practical problem with offshoring is that the costs are much easier to see than the benefits. For this reason, many
people come away thinking that offshoring
is nothing but costs.
Think of yourself watching the TV news
one night. A news reporter tells you the story
of our software engineer from Montana who
went to college and then couldn’t get a job as
a software engineer earning $1,000 a week
because so many U.S. companies decided to
hire Indian software engineers instead. The
news report makes the picture easy to see.
The software engineer from Montana on
your screen is a real person—just like you. If
you are an empathic sort of person, you can
feel some of the pain and heartbreak that she
must be going through.
What you don’t see at that moment on
television, or perhaps read about in the newspaper the next day, is that just as U.S. companies offshore jobs to India, some foreign
companies offshore jobs to the United States.
In other words, you don’t see the American
who is working for a foreign company. His or
her story is rarely told on the TV news.
You also don’t see the lower prices that
often result from offshoring. As far as you
know, prices just keep going up and up and
up. So where are the lower prices that offshoring is creating for American buyers?
The problem here is that two things are
As she shops,
why might this
American consumer fail to realize that she will be
the process of offshoring if she
decides to make
the purchase? Section 1 International Trade 405 15 (390-427) EMC Chap 15 11/18/05 9:12 AM Page 406 happening at the same time, which make it
difficult to see what is happening to prices
because of offshoring. The first thing that is
happening is that the Fed, which we discussed in an earlier chapter, is busy raising
the money supply (most months). The
increased money supply is putting upward
pressure on prices. At the same time, offshoring is putting downward pressure on
prices. The problem, however, is that net
prices keep rising because the money supply effect pushing prices upward is stronger
than the offshoring effect pushing prices
downward. It is as if the money supply
raises the price of a good $3 at the same
time that offshoring lowers the price $1.
What will be the end result? It’s going to
rise by $2. (Think of a person throwing
buckets of water on a fire. The fire still
flames, but not by as much as it would if no
water had been thrown on the water.)
If all we can really see are the costs of offshoring, then it is likely that many Americans
will rally against it. They might vote for
politicians who speak out against it, they
might march in the street against U.S. companies that practice it. Would their behavior
be different if they saw the whole picture
instead of only the cost side of the picture? Defining Terms
c. balance of trade
d. absolute advantage
f. specialize Reviewing Facts and
2. Suppose the United
States can produce either
90 apples and 20 oranges
or 80 apples and 30
oranges. What is the
opportunity cost of producing 1 apple? 406 Chapter 15 International Trade and Economic Development QUESTION: I think that if your job were on the line, you would be more antioffshoring than you seem to be. Isn’t it
easy for someone to talk about the benefits (to others) of offshoring if he or she is
not the one losing a job?
ANSWER: You bring up an interesting poi...
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