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Why Are Jobs Moving Out of the U.S.?

by Alejandro Russell

The Hackett Group, a worldwide strategic advisory firm, reports that India is the most popular destination for offshored jobs from the United States. The south Asian nation will receive 920,000 jobs, or 40 percent of alls offshored jobs from the United States by 2016, Hackett predicts. A total of 2.3 million jobs from the IT, HR and finance sectors will be offshored from the United States, Hackett says. Outsourcing these jobs will deprive many American workers the source of livelihoods. Firms are moving jobs out of the country for a few key reasons.

Cheap Labor

Cheap labor in countries such as China, India and Singapore has prompted many firms in the IT sector to move their operations to these countries. Low cost human capital benefits job-exporting companies with savings in payroll areas, as long as the offshore employees do quality work. Besides IT, other manufacturing jobs have been exported, as well.

Long-term Incentives

American multinationals have moved jobs out of the United States because of incentives from foreign governments. Examples of such incentives include hard cash, corporate tax holidays and affordable loans. In contrast, in America, companies have become sceptical about short-term incentives offered by various states. For example, Google declined a $260 million offer from North Carolina to expand a server farm near the Blue Ridge Mountains. Firms need durable incentives in the form of a good business environment, which they believe is available in other countries.

Tax System

The American international tax system influences the decision by American multinationals to offshore their services. It favors companies that operate in low-tax countries through reduced tax burdens on their foreign incomes. Low-tax destinations, such as Bermuda, have become attractive options for companies that wish to outsource their activities. Furthermore, multinationals move their activities abroad because of the possibility of reducing their tax burden on their domestic incomes. They adopt financial strategies that allow them to shift their income toward low-tax countries.

Expertise

Companies may choose to offshore certain jobs to other countries in search of managers and workers with a particular expertise, Multinationals may also outsource jobs in search of cultural expertise, which could be absent in the country. If an American company wants to sell goods or services abroad, having people from the offshore market involved in production can be beneficial. Countries all over the world differ from one another in terms of legal, medical and financial system. Such differences prompt multinationals to seek local labor to produce their products in their countries because they understand the system.