The economic impact of outsourcing a city’s manufacturing jobs

Leigh Goessl's image for:
"The economic impact of outsourcing a city's manufacturing jobs"
Image by: 

Outsourcing is a practice used by businesses which has become par for the course. Most larger companies today engage in some form of outsourcing. There are many sound financial reasons why businesses opt to outsource manufacturing because it is helps maintain profitability.

As with any decision there are always going to be levels of tradeoffs that impact society on a mass or individual level. The trend of outsourced manufacturing has significantly impacted cities on a major scale in a variety of ways.

There are several primary areas of society impacted by outsourced operations and as a result this typically causes a local economic depression. When businesses outsource manufacturing, entire factories usually shut down and this has a significant ripple effect on the cities where the factories were located.

Here are a few of the major ways cities are impacted when a company shuts down shop and sends their manufacturing overseas:

Loss of jobs

When factories are shut down many manufacturing related jobs are lost. A few managerial positions may be held to oversee the outsourced operations, but the percentage of jobs kept domestically is relatively low.

Over the course of time outsourcing can actually increase jobs domestically because it gives the business an opportunity to focus on core competencies and grow, but these jobs typically aren't relocated in the places where former factories stood. Laid off employees are also not usually trained to take on newly created positions unrelated to manufacturing.

Real estate

Real estate is one of the aforementioned ripple effects. When large numbers of jobs are lost, people can't afford to pay the mortgages or rents on their homes or apartments and they are forced to move.

Even if they can afford to continue to make payments if they have two income households, this usually doesn't last indefinitely because at some point the laid-off employees go out and seek work.

It is rare a new manufacturing based outfit will take over an old factory, instead typically the buildings sit empty and no new manufacturing jobs are created. People will often relocate to another area where they can find work.

Small businesses

When large companies shut down manufacturing in an area this has a direct effect on the local small businesses. No more busy lunch hours for restaurants, take-out or other food service from the patronage of former factory employees.

Local shops loose a large portion of their customers because people either no longer visit the areas surrounding the former factory or cannot afford to spend since so many jobs have been lost. When a big company pulls out operations, all the smaller companies which were dependent upon the patronage of employees are financially affected.

Outsourcing is a volatile subject and one that is oft the cause of great debate. There are many necessary reasons why some businesses engage in this practice, but this doesn't mean there aren't significant effects from this decision.

Local economies where former manufacturing giants once resided are significantly hit by the decision to outsource these operations and as a result cities which may have once prospered essentially begin to look like "ghost towns". Some cities manage to bounce back by attracting new businesses into the area, but seldom are they manufacturing jobs.

What begins to happen is other kinds of businesses eventually may crop up and people get retrained to take those kinds of jobs. New people move into the area and cities may see a rebirth; some cities recover quickly, others take a long time.

While the future is often uncertain for some of the cities impacted by outsourcing, one thing is for sure, outsourcing of manufacturing does have a significant effect on the cities where factories used to call home.

More about this author: Leigh Goessl

From Around the Web