Question

Explain why the short-term effects of outsourcing on U.S. wages and employment tend to be more ambiguous than the long-term effects.

Short answer

Domestic firms' labour outsourcing tends to reduce market wages and employment, whereas foreign firms' labour outsourcing tends to increase market wages and employment. Outsourcing, in the long run, allows both domestic and foreign firms to focus on producing goods efficiently.

Step-by-step solution

Introduction.

Foreign outsourcing tends to lower wages for low and medium-skilled workers while raising wages for highly skilled workers. Domestic outsourcing, on the other hand, tends to raise wages for low and medium-skilled workers while having no effect on high-skilled wages.

Labor outstanding by U.S. Firms.

Labor outsourcing by domestic firms tends to reduce market wages and employment, whereas labour outsourcing by foreign firms tends to increase market wages and employment.

As a result, the effects of wages and unemployment are perplexing in the short run.

Cause of short-term effects of outsourcing on U.S. wages and employment tend to be more ambiguous.

In the long run, outsourcing allows both domestic and foreign firms to concentrate on producing goods efficiently. This results in resource savings, which eventually increases the capacity of US residents to increase consumption.