Adam Smith does it again
Posted on | May 2, 2004 |
I love it when there is real world evidence that the “invisible hand” free market system really works. The evidence this time stems from the outsourcing that has been occurring in the technology sector that last few years.
Everyone knows the story: Companies looking for cost savings outsource technology functions to firms in India. An outcry rises from our technology sector — especially those whose jobs were outsourced. And the outsourcing has made the technology sector a tough one to be in.
But, today I saw an article that confirmed what I already knew: that it wouldn’t be long before it would no longer be profitable to outsource.
It’s all in the economics. Indian technology workers are cheaper. U.S. companies send their work to India. The demand for workers is greater than the supply of such workers in India (i.e. a worker shortage). Indian firms scrapple with each other for the qualified workers available. How do they attract those workers? They increase salaries. Eventually, there will be no salary savings for U.S. companies.
Sure, according to the article, the Indian firms are not yet passing the salary increases on to their clients. However, the firms cannot take these increases directly from their pockets forever. Eventually, they will have pass the costs of higher salaries on to their U.S. clients.
When that happens, I have every confidence (well, because I know the economics of free markets work) that my technology sector colleagues will be heading back to work.
Comments
One Response to “Adam Smith does it again”
May 3rd, 2004 @ 10:27 am
In the long run, yes. But as wage prices increase in India companies will find alternative countries to ship jobs to. India has already seen some of their high tech jobs off-shored to many countries in Eastern Europe and the former Soviet Union.
So in the long run, as the living standards around the world increase, the likelihood of jobs leaving the US decreases. But in the short run, it sure hurts.