Question

"Increased outsourcing to India by firms in the United States and other developed countries has driven up the wage of some Indian skilled workers by 10% to 15%."

Source: Adam Geller, "Offshore Savings Can Be Iffy," San Francisco Chronicle, June 21, 2005).

With the aid of a supply-and-demand diagram, briefly explain the effects (if any) of increased outsourcing in the market for American skilled workers given the information reported above. Make sure to discuss the effect on the number of people employed.

Answer 1

Outsourcing has led to wage increases for some skilled workers in India and may affect American skilled workers through decreased demand and wage pressure, though high-skilled sectors may see less impact due to comparative advantages and intra-industry trade.

Step-by-step explanation:

Increased outsourcing by firms in the United States to countries like India has driven up wages for some skilled workers in India by 10% to 15%. This phenomenon can affect the market for American skilled workers in several ways. As outsourcing activities increase, the demand for certain skilled labor within the U.S. may decrease, leading to a downward pressure on wages for these roles, especially if they can be effectively filled overseas. Concurrently, there can be an increase in demand for high-skilled workers in sectors where the U.S. has a comparative advantage, such as the technology and pharmaceutical industries.

However, the U.S. market maintains a level of resilience, as indicated by an extensive amount of intra-industry trade with other high-wage economies. This indicates that while low-skilled workers face increased competition internationally, the impact may be offset by the strength of trade in high-skilled industries. Another factor is the potential for the creation of new industries, and for job training and development to replace outsourced roles. Without such adaptation, there could be increased unemployment and weakening support for globalization in developed countries.