Wednesday, November 12, 2008

Obama, Outsourcing and How steps to prevent job losses may go wrong for US workers and be positive for outsourcing vendors?

Obama's coming to power has again raised the bogey of impact on outsourcing. I believe, that given the massive rhetoric by the President-Elect in the run up to election, and pre poll promises he would have to take some steps against outsourcing like cutting tax benefits for companies that outsource or for example $3000 incentive for every job kept onsite. While that would impact sentiment in the short term, I believe that this may actually turn out to be a positive development. 

I am fairly confident that Obama will take some notional steps in the form of financial penalty against outsourcing of jobs and believe that these would be positive for the industry. let me give you an example of how this could be positive. 

One of the problems that creches face is that parents show up late to pick up their wards. And, tradionally they would have to make a lot of excuses and a have a lot of explaining to do. Creche management would threaten to deny enrolment to kids and this causes a lot of duress to the parents and most of them alter behavior. 

In an experiment (from Freakonomics by Steven Levitt), a creche decided to impose financial penalty on parents arriving late. The expectation was that fear of losing cash would cause them to show up on time. However, the result was opposite of that expected. More parents started to show up late as they were quite happy to pay a fine. The fine made showing up late legitimate and obliterated guilt. Cost of guilt was way higher. It now was a simple 'opportunity cost' decision for the parents. 

So if the president only puts notional monetary penalties (Strict penalties are any ways ruled out, as the economy cannot afford it) the companies would be free of guilt while cutting onsite staff as the decision on whether to outsource or not would be purely economic and thus likely to favor greater outsourcing. 

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