Outsourcing Fact Sheet

     During the 2004 presidential race, �Benedict Arnold� corporations were put on notice by Sen. John Kerry (D-Mass.). Multinational corporations, a perennial whipping boy in caucus rooms and newsrooms, were accused of fecklessly shipping American jobs overseas and pocketing the proceeds. Even respected CNN business anchor Lou Dobbs has railed against outsourcing for years, chiding corporations in his book, �Exporting America.� As Kerry soon learned, the issue is much more complicated than it seems. (Kerry�s disclosure forms revealed he was heavily invested in companies relying on foreign labor.) Overall, globalization is good for America because jobs sent abroad are replaced with better, higher-skilled jobs at home. Still, Americans are anxious about their job security.

     Outsourcing allows businesses to maintain a competitive pricing structure while competing with foreign companies. Most don�t realize that U.S. businesses are at a steep disadvantage with foreign companies because of the heavy domestic tax burden. Because of the U.S. tax structure, it is more profitable for companies to work from abroad than in the U.S. (That�s why DaimlerChrysler is organized in Germany, instead of the U.S.) Despite outsourcing several jobs, Cisco Systems has not reduced its domestic payrolls because its work force is available for more complex work, earning better pay in the process. Of course, free trade is a two-way street. Manufacturing jobs are insourced to the United States, especially in the southeast.
 

Facts

• Foreign corporations have outsourced jobs to some 5.4 million Americans.

• Insourced jobs support an annual payroll of $307 billion and pay, on average, 31% more than all U.S. companies.

• Foreign companies heavily invest in the American manufacturing sector. 34% of the jobs at U.S. subsidiaries are in manufacturing � more than double the proportion of manufacturing at all U.S. companies.

• U.S. subsidiaries manufacture in America to export goods around the world, accounting for more than 20% of all U.S. exports.

• New foreign direct investment (FDI) in the U.S. totaled $39.9 billion in 2003.

Relevant Studies

• �Ten Myths about Jobs and Outsourcing.� Tim Kane, Brett D. Schaefer, and Alison Acosta Fraser. The Heritage Foundation. April 1, 2004. Ten facts to put the outsourcing debate in perspective. http://www.heritage.org/Research/TradeandForeignAid/wm467.cfm

• �Job Losses and Trade: A Reality Check.� Brink Lindsey. Cato Trade Briefing Paper No. 19, The Cato Institute, March 17, 2004. An in-depth analysis on the effects of innovation and free trade on the job market. http://www.freetrade.org/pubs/briefs/tbp-019es.html

• �International Trade and American Jobs.� Joint Economic Committee, U.S. Congress. June 2, 2004. Congress looks into the �real story about how trade impacts our economy and labor markets.�  http://www.heartland.org/Article.cfm?artId=15408

• �Kerry Blames Corporate Tax Code for Shipping Jobs Overseas.� Fact Check.Org, Annenberg Public Policy Center. July 28, 2004. A debunking of the campaign rhetoric over outsourcing.  http://www.factcheck.org/article225.html

Advisors/Experts

• Tim Kane, Bradley Fellow in Labor Policy, Heritage Foundation. 202-675-1761, [email protected],
• Bruce Bartlett, senior fellow , National Center for Policy Analysis. 972-386-6272, [email protected]
• Daniel Griswold, director, Center for Trade Policy Studies, Cato Institute. 202-789-5200, [email protected] 

Free Market Project � Updated June 2005 � www.freemarketproject.org