Why is outsourcing part of the category of structural unemployment

Structural unemployment refers to the situation in which there are job openings available, but workers are unable or unwilling to fill them due to a mismatch between their skills and the jobs that are available.

In this article, we will examine how outsourcing can contribute to this phenomenon.

Outsourcing is often used as a cost-cutting strategy by businesses seeking to outsource certain tasks or processes to other countries or companies where labor costs are lower. While this may seem like a reasonable solution, it can also lead to job losses for workers in the country where the outsourcing takes place.

One reason why outsourcing can contribute to structural unemployment is that it often involves the transfer of skilled jobs from developed countries to developing countries. This transfer of skills and knowledge can create a situation in which there are fewer skilled workers available in the developed country, but more skilled workers available in the developing country.

However, this can lead to job losses for workers in the developed country who no longer have access to these jobs. For example, if a company outsources its software development to a company in India, it may not need as many software developers in its own country.

This can result in a decrease in the demand for software developers in that country, leading to job losses and higher levels of structural unemployment.

Another reason why outsourcing can contribute to structural unemployment is that it often involves the transfer of low-skilled jobs from developed countries to developing countries. This transfer of jobs can lead to a situation in which there are fewer low-skilled workers available in the developed country, but more low-skilled workers available in the developing country.

As a result, companies may be able to outsource certain tasks or processes at a lower cost by hiring workers from the developing country. However, this can also lead to job losses for workers in the developed country who no longer have access to these jobs.

In addition to contributing to structural unemployment, outsourcing can also have negative effects on the economy and society as a whole.

For example, when companies outsource jobs to other countries, they may be required to invest in infrastructure and technology in order to support the operations of their overseas subsidiaries. This investment can create new jobs in the developing country, but it may also divert resources away from other areas of the economy.

Moreover, outsourcing can lead to a loss of intellectual property and knowledge transfer. When companies outsource certain tasks or processes, they often transfer ownership of the intellectual property associated with those tasks or processes to their overseas subsidiaries. This can make it more difficult for the company to protect its intellectual property and can also lead to a loss of knowledge and expertise within the company.

Finally, outsourcing can lead to cultural and social divides between countries. When companies outsource jobs to other countries, they may be required to invest in infrastructure and technology in order to support the operations of their overseas subsidiaries. This investment can create new jobs in the developing country, but it may also divert resources away from other areas of the economy. Moreover, outsourcing can lead to a loss of intellectual property and knowledge transfer. When companies outsource certain tasks or processes, they often transfer ownership of the intellectual property associated with those tasks or processes to their overseas subsidiaries. This can make it more difficult for the company to protect its intellectual property and can also lead to a loss of knowledge and expertise within the company.

In conclusion, outsourcing can contribute to structural unemployment by creating a mismatch between the skills and jobs that are available. It can also have negative effects on the economy and society as a whole, including the loss of intellectual property and knowledge transfer, cultural and social divides, and diversion of resources away from other areas of the economy. As such, it is important for companies to carefully consider the potential benefits and drawbacks of outsourcing before making any decisions about where to source their labor.