© Josh Sager – November 2012
In the last several decades, the American labor market has been drastically altered by increases in corporate outsourcing—manufacturing and production jobs which once acted as the backbone of the middle class have been shipped overseas. Outsourcing is a serious problem for the employment prospects of the American worker, and action is required to prevent the USA from continuing to hemorrhage jobs overseas.
I propose a very simple disincentive to outsourcing: Extend the federal minimum wage to every worker who works for an “American” corporation, regardless of where they are employed. If a corporation wants to be considered “American” and enjoy the benefits that come with that label, they should be required to pay the American minimum wage to everybody who works for them.
American corporations outsource for the very simple reason that it is often far less expensive to produce goods in countries with lower labor costs than the United States. In countries like China and India, the labor laws and worker protections are so lax that corporations are able to produce their goods at a fraction of what they would cost to produce in the United States. Outsourcing to countries with lax labor protections allows corporations to cuts costs on the wages and benefits that they pay their workers, as well as avoid having to comply with the worker safety protections of more developed countries (ex. OSHA regulations).
Why Corporations Outsource:
In the United States, the federal minimum wage is $7.25 an hour, which translates to approximately $1160 per month (assuming 40 hour days on all weekdays). In addition to the wages offered to employees, businesses are mandated to contribute money to workers’ Social Security and provide basic healthcare packages. Federal labor laws and workers unions (where applicable) prevent corporations from forcing workers to work excessive hours or in dangerous conditions. While many workers rights groups say that American labor laws are antiquated and need to be improved, it remains true that they are more stringent than those of many other countries.
China has no centralized minimum wage, and leaves its provinces to decide upon their minimum wages. The province with the highest minimum wage is the Shenzhan province, which has a minimum monthly wage of 1,500 yuan (In USD, this translates to $240.55 a month for full time workers). The Jiangxi province is the province with the lowest minimum wage, weighing in at a terrible monthly wage of 870 yuan (USD equivalent of $139.52). In addition to the low wages, China has no requirements that employers provide benefits to their workers, and there are few labor laws that protect workers from abuses.
The wide disparity in labor costs between China and the United States illustrates just why it can be extremely profitable for a corporation to outsource labor. Rather than pay Americans to produce goods, many corporations find it more profitable to produce goods in countries where labor is cheap and then transport the goods back to the USA for sale—the increased profitability that comes with outsourcing labor more than makes up for the increased transportation costs that stem from getting outsourced products back to the states. While outsourcing is not viable for some goods (ex. goods which require specialized skills to produce), it has been prevalent in the low-skilled labor sectors of textiles, customer service, and industrial fabrication.
My Anti-Outsourcing Proposal
In order to reduce the incentives for corporations to outsource, I propose extending the American federal minimum wage (currently $7.25/hr) to every worker of a corporation incorporated within the United States. If a corporation wishes to be considered an “American business”, they would be required to pay all of their workers the American federal minimum wage, regardless of where on earth the workers are producing the goods.
In order to pass this initiative, federal legislation would need to be passed to change the requirements for a business to be incorporated in the USA. Such a change would be very difficult politically and would require a significant transitional period (to allow corporations to restructure and account for new labor costs), but it is possible. At its basic level, this law would parallel the Corrupt Foreign Practices Act—a law which prevents American Corporations from engaging in bribery while doing business in foreign countries—in that it would require American businesses to follow certain American business laws while functioning abroad.
By requiring that all corporations which are incorporated within the United States to pay their workers $7.25 an hour (or the foreign currency equivalent), this initiative would severely dampen the incentive to outsource; while these corporations would still be able to utilize the lesser worker protection regulations and safety standards of the country which they outsource to, they would still need to pay their foreign workers higher wages if they wished to be incorporated within the USA. If this requirement were to be enacted, corporations would be forced to choose between three options:
- Producing goods within the United States and complying with all labor laws.
- Outsourcing labor and paying foreign employees the equivalent to the American minimum wage in their country’s currency.
- Incorporating their corporation in another country and foregoing the classification as an “American company”.
Regardless of which of these three options that the corporation chooses, the result benefits the American worker. If the corporation picks the first option and chooses to stay in the USA (or move back to the USA), this law has acted as a buffer against outsourcing and was a success. If the corporation chooses to take the second option and decides to simply pay more to outsourced labor, then they will still outsource jobs, but they will be less competitive than they would be without this law—this would help disincentivize further outsourcing and would help American companies compete with outsourcers.
If a corporation wishes to continue outsourcing at low wages, they would lose their incorporation within the United States and would need to re-incorporate in another country. In losing their classification as a domestic company, these corporations would have restricted rights to spend money in our political system, be ineligible for some government contracts, and could easily be excluded from government stimulus/research grants for the development of new technology. Depending upon the country which the corporation re-incorporates to, there is also the potential for various trade issues that would complicate a business’s operations and would make it even more desirable to remain American.
To further increase the leverage of the “American company” label, I would suggest the following:
- All foreign corporations must pay their American taxes upon making a profit, as opposed to upon repatriation of funds—this would prevent corporations from moving domestic profits abroad and avoiding taxes on them.
- Regulatory bodies (ex. the FDA and USDA) would be required to scrutinize foreign products more stringently than their American counterparts—this would be a massive disincentive to drug and agricultural companies giving up their American incorporation.
- Bar all foreign corporations from spending money on Super-PACs (currently, they are allowed just as long as they give American groups direct control over the funds).
Demanding that all corporations which claim to be American to pay the American minimum wage is effective at punishing outsourcers, yet specifically targeted enough to avoid hitting small businesses. As small businesses in the United States (ex. a neighborhood restaurant) don’t usually utilize outsourcing, this initiative has no directly negative affect on them—it is likely that the price of goods will go up due to a decrease in outsourcing, but this will be compensated for. Small businesses would gain a competitive advantage over large multi-national businesses and would be able to compete on a much more equal scale then they do now (currently, large businesses are able to outsource more to low-cost countries and undercut the costs of small businesses).
While the requirement that American businesses pay the American minimum wage to their workers, regardless of where the workers are employed, may seem radical, it is a very viable solution to our outsourcing problems. Such a law would not violate current free-trade agreements and would use market pressures to attack outsourcing rather than overt bans. Corporations would still have a choice to outsource or not, but they would face disincentives if they chose to outsource production. Best of all, corporations which are currently giving their workers our minimum wage and which are actually making an effort to help their employees will be only marginally affected by this law; only those who have tried to exploit their workers would suffer consequences and face a radical restructuring.
This is a perfect example as to why economic issues should be left to economists and not to social progressives.
I mean…wow. Not only would it be difficult to enforce a minimum wage onto the workers of other nations that aren’t under our jurisdiction (and the legal complications that would go with that), but if American corporations don’t take the minimum wage labor, British or Chinese companies will.
Sure, let’s bankrupt American companies and make them weak as shit. I’m sure that benefits workers.
I agree with you Shake. While the concept is interesting, there are so many areas still left untouched. He should have touched on the purchasing power parity theory. It would give an understanding of how a global minimum wage would not work.
I agree, a global minimum wage would destroy outsourcing, and stabilize job markets internationally, not to mention force corporations to play a little more fairly. Some people claim it would be hard to enforce, but I doubt it. Simply don’t let companies that don’t meet the minimum criteria sell their product in the U.S. Enforcement problem solved.
The only thing I would change is the “American” corporations thing. We shouldn’t do business with ANY corporation not willing to play fairly.
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better idea: civil war — it took a civil to stop slavery – it will take a civil war to stop outsourcing
also – I want payback against the corporations who hate america
Thanks for this great article Josh! I liked your suggestion for bringing about federal control over all those American companies that are outsourcing jobs to other countries. I completely agree with your suggestion that compelling the companies incorporated in USA to sticking with the American minimum standard wages irrespective of their manufacturing unit location could be a good disincentive technique to stop outsourcing. To make this happen the Federal government should put in place a monitoring mechanism to get hold of such companies and make them fall in line.
I had been in a situation when I had to consider the use of a call center to handle my inbound calls and have been weighing out the ‘pros’ and ‘cons’ typically discussed in articles and blogs written about these issues. A website called outsource-consultants.com has been recommended to me as a company that provides brokerage service between businesses and call centers connecting them based on the expressed needs of the business and the competencies of the call center. Apparently, the service is paid for by the call center so that my business has no cost for the service. Do you know anything about this? Any information is helpful – thanks again!