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Outsourcing and Immigration

Nov 4, 2010 • Businesses, Demand, Supply, and Markets, Developing Economies, International Trade and Finance, Labor • 157 Views    No Comments

A recent economics paper provides a surprising solution to those who believe outsourcing is a problem.

The story, as explained by George Mason economist Tyler Cowen, involves the connection between offshore jobs and immigration. Traditionally, economists say that offshore jobs are great for efficiency because of lower costs. This new study implies that not only can we achieve lower costs here, but also we benefit because of the higher skilled jobs that new domestic facilities create.

For example, assume a factory that assembles widgets cheaply in a developing nation can bring its work back to the U.S. because of less expensive immigrant labor. In addition, it will need management and technical support to run the plant. The result? We can enjoy lower unemployment for different types of labor while unskilled immigrants fill a gap in domestic labor markets.

The Economic Lesson

Combating a 9.6% unemployment rate is complicated. We need to be aware of the mismatching and delays explained by this year’s economics Nobel prize winners, of the connection between immigration and outsourcing, and of the importance of innovation. How can a fiscal stimulus target these objectives? 

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