Question

Problem 5

United States, now-a-days, outsources a lot of their computer programming works to countries like India and Bangladesh. This shift has undoubtedly led to severe reduction in wages for some programmers in the United States.

1. a) How is this wage cut possible when the overall wages of skilled labor are rising in the United States as a whole?

2. b) What argument would trade economists make against seeing these wage cuts as a reason to block outsourcing of computer programming to India and Bangladesh?

Answer 1

a) It is quite easy nowadays in United States to know about programming, and people can learn it easily on the internet, which is why wages are reducing as the demand is already being met from overseas and as those salaries are lower, companies also budget accordingly so that programming would turn out to be cheaper and provide the local labourers also the same salary range as offered to overseas employees.

b) Trade economists could make an argument regarding excess availability of programmers because of outsourcing. By focusing just on the domestic economy, the number of programmers could significantly reduce. And they would emphasize that companies should hire local talent first, ensuring they get jobs and the per capita income would increase so that there is less unemployment.