Two sides of call center outsourcing and their effects to US employment

Two sides of call center outsourcing and their effects to US employment

March 3, 2014

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Call center outsourcing, or any type of offshoring activity, has positive and negative effects on US employment, according to a research conducted by the University of California, Berkely (UC Berkely) and the Massachusetts Institute of Technology (MIT).

On the good side, outsourcing bolsters the American labor force by generating additional jobs in the mother country. Sending work overseas enables businesses to gain industry expertise and penetrate foreign markets, thus giving way to their expansions both in overall revenues and local manpower count.

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Its disadvantage, the study said, is that the job sorting only favors workers with high-paying positions, while manual laborers suffer. The research also noted that the majority of companies engaged in outsourcing is under the production sector, which means that subcontracting activities have implications on US manufacturing.

“While offshoring appears to be complementary to US employment in that it is associated with a relative increase in higher-paid jobs, it could be undermining lower-wage jobs,” said UC Berkeley economics professor Clair Brown, one of the researchers behind the study. The professor disclaimed, however, that in their initial study (based on 2010 stats), they didn t estimate how globalization has affected the total number of domestic jobs.

High-cost outsourcing

One of the study’s findings contests one common assumption about outsourcing: nearly the majority of outsourced jobs go to local firms in the United States, and barely a quarter of the total sent-out jobs goes to offshore locations.
A break down of the gathered numbers inferred that:

  • Domestic outsourcing concentrates on IT services, transportation, and facilities maintenance.
  • An average of 6% of business functions of manufacturing companies are outsourced locally, while 10.5% are outsourced abroad.

“The portrait that emerges is of two economies - an entirely domestic one made up of small firms and public organizations, and another one consisting of large firms with much deeper global engagement,” explained MIT’s Tim Sturgeon, coauthor of the research.
Moreover, most of these overseas jobs don t go to low-cost manufacturing, back office, and call center outsourcing destinations like India and China. Instead, they are sent to high-cost countries in Western Europe and to Canada. This trend further fortifies two truths about the practice of outsourcing:

  • Service quality is prioritized over cost efficiency.
  • The belief that offshoring erodes US employment is overblown and unsupported.

The researchers forecasted that the US economy will grow along with outsourcing and offshoring activities. Brown said, “The recovery allows companies to restructure and expand through more offshoring and outsourcing, instead of just rehiring and returning to old practices. This could certainly affect US jobs adversely. We would need to conduct a follow-up survey to understand how companies structure their businesses globally and domestically.”

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