Why are Indians worth less than Americans? (and other outsourcing thoughts)

A recent reply I wrote to a friend of mine brought this question up in my mind. Whenever outsourcing is brought up, all that is ever discussed is how an American looses his job. What about the jobs that Indians, Chinese, or South Americans are gaining? What is it with this “Us vs. Them” mentality? People worry and fret over the possible lowering of the standard of living of the displaced worker. I find it odd than no one ever talks about the number of opportunities available to the American worker. I feel certain that what the Indian gains is far more than the American looses in the short term, and that they both come out ahead in the long term. Despite all of the outsourcing, our unemployment figure stands at 5% and our GDP keeps rising. How is this possible?
The GDP part is simple. First off, we are paying less for the same goods and services, leaving money left over for other things. This is equivalent to getting a raise and is the definition of a rising GDP. The second is that we have, if not the most, among the most productive workers in the world. The combination of high levels of skill and high levels of technology make for an unbeatable combo. But surely the reduction in wages offsets the gains from cheaper goods, right? Not a chance. The extra money that is gained from outsourcing is the source for creating new jobs. That money is spent, much of it in the domestic economy. The more motivated and entrepreneurial minded people out there will make themselves rich by taking risks and being rewarded (and some will fail and be ruined) while the rest of the people will get jobs paying them what their labor is worth.
Aha! This is why outsourcing is bad, the new job doesn’t pay as much! Once again, people get paid what their labor is worth. If their wages go down, it is because their skills are no longer valued as highly. This may sound harsh, but there isn’t any better alternative. A popular idea is to pay people more than their labor is worth. The value is not determined by previous wages or union laws, it is determined by what people are willing to take to do that job. For many lower skilled assembly jobs, that wage is set in China or India through competitive wage pricing (i.e. the wage is better than their alternatives). More and more IT work is also being done over there as well due to the ease of shifting the work. If the American workers in these newly devalued jobs lobby congress to pay them what they used to get paid, guess who gets to take up the slack? We do, either through direct payments of the good (made possible by government eliminating competition such as imports), tax subsidies (like much of agriculture), or a large number of extra unemployment benefits (like in states that have mandatory union hiring laws) all the while depriving someone in a desperately poor country that would do just about anything for a job. Where’s the justice in that? We get to support someone or some business above and beyond what they are worth just so we can keep a poor country poor? Like I asked before, why are Americans worth more than Indians? Why do they deserve to be supported and not someone that is willing to work for every dollar they earn? Clearly the most equitable thing to do is to let people earn their money. This presents people with a powerful incentive to keep their skills desirable and allows for the most efficient and therefore least expensive means of making goods. As a side benefit, we can help poor countries climb their way into prosperity. It’s a win win situation in the medium to long term, and it is the ONLY way to insure continued innovation and growth for both countries. So what moral grounds can someone argue against outsourcing? No really, I’m very curious…


5 replies on “Why are Indians worth less than Americans? (and other outsourcing thoughts)”

So, someone who gets laid off should feel good about having their job given to a poor Indian? Okay. As someone who’s never had an apartment or house to pay for, I think your perspective is rather unique.

Also, I wasn’t aware it was our responsibility to fix other nations employment problems.

My problem with all your recent arguments is that they’re just concepts. Yes, wouldn’t it be nice if everyone on the globe had their own job, and got paid what that job was “worth”. But they don’t. And losing your job sucks, no matter how much someone else will benefit by it. Working at WalMart for $7.50 an hour when you can work at Safeway for $15 sucks. Just because you don’t have any other options doesn’t mean that the system works.

Yes, I probably look at things too personally, but I think we both err on opposite sides of the scale.

No, you’re right, getting laid off sucks on a personal level. It disrupts your life and screws everything up. But we can’t get bogged down with this when trying to form policies that affect everyone in this and other countries. And you’re right about everyone on the globe not getting paid what they’re worth. There are a lot of governments that prevent their citizens from working by either restricting entry into businesses or they are a “thugocracy” and simply take things and property from the citizens whenever they feel like it. Here in the US, there is little barrier to entry into business and almost zero controls over what job you can have. If we assume that people take the best job they can, then they do indeed get paid what their labor is worth. If they feel that they are not getting what we deserve, they find another job, who hasn’t done that? Sure, a guy flipping burgers would really like to get paid $20 bucks an hour, but his skills are not valued at that level, by ANYONE. SO I’m a little confused by your example, if you COULD be making $15 an hour at Safeway, then why aren’t you? Oh, because Walmrt “drove” them out of business? Actually, we drove them out of business by preferring the less expensive option. This is how the market sets values of labor, through revealed preference. If you want to see what something is worth, look at what people are willing to pay for it. It isn’t a matter of what people should be paid, it is what they do get paid.

That leads me to my next point, the idea of the system “working”. The system does what it does, there is no control over it and there is no one person running it. When left to its own devices, things will basically work they way I mentioned in the original post. When you start screwing with it, all sorts of inequities and misallocated resources start to occur. There is a prevailing thought that if we could “fix” things by protecting certain workers or businesses that otherwise would suffer (in the short term I may add), that things would be better. If you prevent things from occurring naturally, someone else will suffer through lost jobs or higher taxes. We have to “work” with this system because that’s all there is.

All you can do is take economic things personally, that’s one of the beauties of this. No one really cares (even me at some level) about how my place in economy affects the whole economy. The economy is not something that is created in DC, it is created by the billions of decisions made by everyone in it every day. All people can do is look out for themselves, and if that were allowed to happen in all countries, poverty would be dramatically reduced, much like it has been here. Pulling countries out of poverty happens naturally if their governments allow it, it isn’t anyone’s “responsibility”. This is how we have become the most prosperous, most industrious country in the world with the highest standard of living. Our government does a minimum of screwing around with the economy (at least as compared to other countries) and the long term effects have been amazing. Countries that have embraced this like Chile, New Zealand, South Korea, China, the Philippines, and now India see immediate results when they embrace the “system” instead of trying to control it. You’re on a roll Jenny, I think this will be the third post you’ve made in a row that inspires me to create another blog post:-)



Nice response Jenny. I have not had the courage to bring up the obvious inconsistencies in Isaac’s lifestyle/living choices Vs. his trumpeting of free market & anti subsidy dogma.

Isacc’s position is in a word “unique”. Maybe having to pay rent or a mortgage would force him to rethink some of his assertions that Americans (not to mention all of mankind) are doing better than they have ever done in the past. We both know from experience that it takes two or more incomes to afford a house in recent years, where our parents generation were able to handle the task with just one breadwinner in the family.


Re: Bravo…

What exactly are the inconsistencies in my lifestyle/living choices vs. my free trade arguments? Are you saying that since I do not have a mortgage or rent an apartment that somehow my arguments aren’t valid? Is that the best you can do as a rebuttal? If hard times is what constitutes validity, fine. How about working in a dead end retail job for 8 years with no chance of advancement while rents and housing goes through the roof? How about essentially giving up three years of salary in what should be my prime working years to go to school? How about taking on debt to do it on top of not earning very much money? Why am I defending myself? All of us have made decisions and we are living with the consequences. My decision saves me a ton of cash and yours cost you plenty, but no one forced anyone to make those decisions. I can guarantee you that you derive quite a bit more satisfaction from your living situation than I do. Why you think I’m living in the lap of luxury is beyond me, I live in someone’s basement with a handful of possessions and I do not make very much money despite the fact that I work my brains out. Do either of you really think that I would think differently if I were paying a substantial rent, that somehow I would think that things worked differently? You can call me many things, but I am not an idiot… If you want to make statements here, try to stick to relevant facts, and do me a favor and save your condescending remarks for someone else.

Here’s some links that show what I consider to be the obvious advances in standard of living over the years. A rather startling statistic is the mortality rate of older people, it has dropped a lot…
This last one raises the important question of how your carrear changes ver time. Ask your parents how well off they were in their early 30’s. I think you’ll find that they earned more and more as they got older, just like you and T. will…


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