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August 2004

How outsourcing creates jobs in US

Rich Smith explains, in a article, how outsourcing results in more domestic jobs using an example of DVD players. Outsourcing essentially reduces price of the products and Law of demand and supply indicates that this should cause demand for those products to increase. This results in creation of more jobs in storing, selling, merchandising and transporting these products. It also creates more demand for complimentary products resulting in more jobs. For example, reduced price for DVD players create more demand for movies, albums and so on. Read the whole article.

Update: A study done by Public Policy Institute of California, and commissioned by California Assembly says that outsourcing has benefitted California by creating more jobs.

Daniel W. Drezner has more analysis on the California study.

See how a US county is wooing firms in Bangalore to establish and create jobs here.

Mises blog post points out how US engineers are taking control of outsourcing and earning handsomely.

Stupid Non-immigrant Visa rules and Jobs

Cafe Hayek has a nice post explaining the stupidity of preventing F1 VISA holders from doing off-campus work. This prevention gives lie to the claim that policy of restricting immigration is because immigrants might get attracted to Govt. dole.

The same stupid policy is regarding spouses of H1B visa (employer based visa) holders. Why can't spouses of H1B Visa work? There is no danger of them taking advantage of Govt. welfare schemes, since H1B explicitly requires employers to maintain prevailing market wages.

Talk about anti-competitive behavior and trusts!

Men and Women

Shanti Mangala talks about an personal incident which one of the lady apologizes for not being "very lady-like". While such an attitude definitely shows an ancient sexiest bias; some women are at the other end of the extreme. Maggie Gallagher makes an excellent point that many educated women keep whinning about relationships and men receive little appreciation for their contributions:
The problem is not that working wives want more help with household chores, or that all women want husbands deeply involved in family life. The problem comes when a culture of grievance (and the illusions of power it gives) replaces the cultivation of gratitude. Most especially, when appreciation, approval and affection get translated as "subservience" rather than love.

Update: Shanti asks if feminism is still relevant. Feminism as a movement, having accomplished its goals, is becoming irrelevant. It has developed a habbit of whinning and is now in the same league as Civil Rights movement in US.

Population and Growth

Few days back I wrote that India's population density is an asset. Yazad points out that idea of population control is slowly dying.

The Times of India analyzes the relation between population and prosperity.

All the countries that Times' article cites that have nearly the same population density as India's, but are prosperous than India, have a very high degree of urbanization. This might be the only explaination for the difference in prosperity. Urbanization has a networking effect and can create tremendous propserity. Our own example of Mumbai illustrates this point clearly. Mumbai has highly dense population and it is also extremely prosperous.

Importantly, India's population is younger compared to many European countries and others. With the looming retirement of large number of 'boomers" in US, and European countries, it represents a great opportunity. This nations will be requiring lots of services and we have young working population. Already, growth in BPO, IT services etc. is reflecting this.

Is Congestion in Toll Roads an Externality?

Marginal Revolution talks about potential of Toll Roads in reducing pollution and accidents. Various solutions like Congestion pricing and charging higher fees for bigger vehicles like SUVs and trucks, attempt to solve the problem only marginally. That is, it only considers each additional use of the Toll Road mile separately. If Congestion increases then higher fees are charged. But what about those drivers who are have already paid the Toll and are using the Toll Road? Don't their expectations about certain congestion level, risk of accident and speed when they paid their Toll count for something?

There is also issue of service level expected by drivers who subscribe to Toll Roads on a regular basis. In such cases, each additional marginal increase in traffic violates the implict or explict expectations that subscribers might have regarding traffic level, speed and accident risk. If certain drivers do care about congestion, accident risk level etc. then they could subscribe to the Toll Road use with combination of either fixed service level guarantees and fixed fees or variable fees depending upon the actual service level provided. In later case, Toll Road owners will have to balance the increased income from marginal traffic and loss of revenue from the subscription because of degration of service level. Will such an arrangement internalize the externalities involved?

Natural disasters and price-gouging

CafeHayek has a good post explaining that "price-gouging" is nothing but reflection of reality of lower supply and higher demand. Catallarchy points out fallacy of accusing merchants with the 'G' Word.

Mises's blog also points out the stupidity of controlling prices. The post has some very interesting Test Questions on the issue of "price gouging".

If certain goods are in demand after natural disaster strikes how can one expect to increase their supply by forcing lower prices?

In the comments section to Roderick Long's blogpost on Liberty & Power (mentioned above by Gil), Mark Fulwiler writes:

If you charge less than the competition, you are guilty of "unfair competition." If you charge the same as the competition, that's "collusion." If you charge more than the competition, or more than the government thinks is "fair," that's "price gouging"!

I believe the above quote is from Ayn Rand's "Capitalism: The Unknown Ideal."

I forgot where I read a letter to the editor saying something to this effect:

As long as needs of some are considered as a moral claim on others property there will be no freedom.

Common Knowledge praises price-gouging and correctly points out that criminalizing price-gouging serve to eliminate an option for people in need. Only an idiot will think that this helps the people in need.

Why there is crisis only in heatlh-insurance and not in say auto-insurance?

Via BusinessPundit, Wayne Dunn has a good post analyzing this question. The point is simple: The health-insurance crisis is purely because of third-party (employer) payer system.

Arnold Kling discusses how real hourly wage for production and non-supervisory workes fell because of increased health-insurance related expenditure per worker has increased to $3000 for the employers.

Also, more discussion at Angry Bear and Catallarchy on rising cost of employer-paid health-insurance and resulting decrease in wages as a fraction of total compensation.

Outsourcing, what Outsourcing? Here comes InSourcing

Heritage Policy Weblog has an excellent post on increasing phenomenon of InSourcing :
By now, everyone's heard of offshore outsourcing, by which American companies can obtain services from overseas. Less known, however, is insourcing, when foreign companies send jobs to the United States. For some time, insourcing has been growing more quickly than outsourcing, but it's still below the political radar. Here are the facts: U.S. subsidiaries of foreign firms employ 6.4 million Americans for a combined payroll of $350 billion. These jobs pay, on average, 19.1 percent more than the average U.S. job. About 34 percent of insourced jobs are in manufacturing. These subsidiaries count for 22.4 of U.S. exports. The number of insourced jobs grew by 7.8 percent per year, on average, over the past 15 years; the number of outsourced jobs grew by 3.8 percent per year, on average

See AdamSmith Institute's blog also for a good analysis.

The fact that Outsourcing is resulting in Insourced jobs in US should come as a no surprise to anybody who believes in basic Economic principles. Take for example, the announcement by InfoSys to setup US subsidiary and employ 500 people.

It's reverse BPO; US county woos Indian cos :

Samizdata also agrees that outsourcing is good for US economy overall.

The Economic Development Authority of Fairfax County (Virginia), a suburb of the US capital Washington, has opened offices in Bangalore and Tel Aviv to persuade Indian and Israeli firms to open offices in the county.

The county says its recruitment efforts could help quell the increasingly bitter political debate in the US over the migration of US jobs to India.

"There is a great concern (in the US) that high-end jobs are going to India because the costs are less," Gordon said.

"We are reversing that trend. We are bringing Indian companies here to create their jobs here."