Will Health Care Reform Affect Outsourcing?

Filed in archive Opinions & Insights on March 15, 2009

© kimberlyfaye

In a recent Huffington Post article, Fritz Hollings, former senator from South Carolina. The article calls for broad, sweeping changes in tax and trade policies, changes that would, no doubt, make many of the readers of this site uncomfortable. However, he also makes a very interesting point about the way that the U.S. funds its own social safety net, and how that funding creates additional pressure for outsourcing/offshoring.

Unlike most of the industrialized world, the U.S. does not fund the bulk of health care and social security programs through value added taxes or other consumption or income oriented taxes. Instead, it suggests (with health care) or mandates (with social security and Medicare) that employers become responsible for all or a part of these costs.

This approach was fine in a non-globalized economy, where production was difficult to move and where there was a great disparity between skill sets and raw material availability. These costs could not be avoided. However, in our current world, this approach (according to Mr. Hollings) has killed U.S. jobs by encouraging offshoring to markets where individuals bear the bulk of the costs of the social safety net. This argument makes some economic sense.

It also create a critical question - will a move away from employer-funded health care and retirement adversely affect offshoring? It certainly cannot erase wage disparity (in fact, it will probably increase it), but it may reduce the overhead costs of keeping work within the country. If so, it may have an even greater effect than the proposed tax policy changes.

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