I’ve long believed that the main purpose of outsourcing is not to save money by finding cheaper labor, but to save money by keeping labor costs down at home. In other words, it serves as a means of disciplining local labor so that they don’t make demands for increased pay or benefits. So I was not surprised to read about a report which confirms that “outsourcing costs more than in-house operations.”
In a similar vein, Max recounts the following story:
An econ professor I know likes to tell a story of his days as a Fed employee. At some kind of meeting new numbers were reported, to the effect that real wages had declined in a recent period. He recalls that a cheer went up among those present.
Outsourcing is about keeping labor costs down at home, not about saving money by moving abroad.