ethically defensible to outsource production?

Question

Under what condition is it ethically defensible to outsource production to producers in the developing world who have much lower labor costs when such actions also involve laying off long term employees in the firm’s home country?

Answer 1

No one possess a right to a job unless they are the most competitive. Labor costs are usually a very small factor in outsourcing decisions. It is unethical to fail to outsource if someone can provide a better service at a lower price.

As to why labor costs are not that important I will provide an example. In the midwest United States, in rural areas, labor is scarce and therefore very valuable. However, the United States has a lot of available capital. Therefore capital is relatively cheap. So farms in the midwest employ expensive machinery in lieu of people. Likewise, India is teaming with people but short on capital. So farms in India employ significant amounts of cheap labor and little machinery. Assuming both have the same output, then the trade between capital and labor is irrelevant.

Usually, low cost labor is cheap because it is not very productive labor. The median citizen of the United States produces 200 times more product than the median citizen of Botswana in a given representative work hour. That median citizen is also paid about 200 times better. Regardless, if you look at pay as a function of units per hour, both people tend to get the same pay.

The US has a number of advantages over most foreign markets. Both historical cultural attributes such as willful inventiveness that is well supported by intellectual property law and learning processess such as TQM and the ISO processess mean that Americans add productivity every single year beyond every prior year. Americans have increased their hourly productivity about 11 fold since the beginning of the Industrial Revolution. Most countries have not done so.

If you are not the most competitive, you have no right to a job. It is unethical to permit a poor performer to continue in a competitive market, it weakens the rest of the economy.