This is an example of applied economics. Two different personal cases of outsourcing work.
I had a job for website development – make a menu of my other website on biographies more mobile friendly.
I could have tried to do it myself, but it would have taken several hours. I’m better off specialising in writing economics rather than trying to do everything. Therefore, I outsourced the job on Upwork.com. You give job details and people from around the world can submit bids. Within a day, I had 20 offers, all with good ratings. The most popular bid was $200 – usually from countries like UK and US. I would have paid $200, but one person from Ukraine offered $45. So I decided to offer him the job.
Often we think if someone charges a higher price, they are better quality. But, in this case, I didn’t think it applied.
- He had just as good ratings as those offering $200.
- From my perspective, there was no way of evaluating whether people charging $200 would do a better job than $45.
- The job was quite simple, clearly defined.
Therefore, I chose the lowest offer of $45.
The chap did a very good job. Within a day, the fix was made, and I was happy. I paid a $10 bonus because I was happy to get a job for $55, that otherwise, I may have paid $200 for.
This global outsourcing is good for reducing costs of business. Good for workers in lower-income countries. But, in theory, should be reducing wages of developed economies – or at least reducing the gap between high-paid and low-paid.
But, also, it is creating work which otherwise wouldn’t have been there. A few years ago, I would not have considered this kind of job in the first place.
At the other extreme, I have a simple bricklaying job in my garden to make a raised garden planter. I have used the internet to find local bricklayers/odd job man. But, this outsourcing is proving really difficult. When I contact local bricklayers and odd-job men – it is very hard to get anyone to respond. They just ignore you because they are so busy. In Oxford, there is a shortage of bricklayers. I know because I have a front door extension which has taken over 3 months and still not completed.
I wish the market for outsourcing brick-laying was as competitive as the market for website development. But, in the Oxford building trade, geographical immobilities give monopoly power to the local builders. They can charge higher prices and decide what jobs to take on.
In that instance of outsourcing web-fixes. The market for web-development is close to perfect competition (thousands of firms, perfect information, normal profit). I had the freedom to choose developers from around the world and award the job to the firm offering the lowest price. There are hardly any barriers to entry.
Maybe the implication is that if you want a good well-paid job – train to become a bricklayer and not a web developer. As a bricklayer, you are safe from automation and global competition. With IT you are competing with the whole world.
If I chose the Ukrainian developer at $45 for 3 hours work. How come, so many web-developers in UK and US continue to charge $100 an hour?
Well, for other more complicated jobs, customers may still prefer to employ a local company who understand nuances of the job. When I have pursued more complicated development of economicshelp.org, I tend to use UK companies. The hourly rate is high, but I have developed relationships with the companies and trust them to make useful suggestions to improve site speed, offer better payment gateways. So, in that sense, there are still geographical barriers, even in a market which, in theory, is global.
Recently, I worked with a company Silicon Dales (which I highly recommend) They are more pricey than the cheapest developers on the internet. But, they made suggestions I wouldn’t have thought of – suggestions I wouldn’t have got from outsourcing to the cheapest company. In the search for better web-speed, hosting and ease of use – price is only one factor. I was willing to pay higher price to get better service.
I got so fed up of not being able to get a bricklayer I bought some ready cement and tried to make a stone wall myself.
All I can say is now I really understand the logic of specialisation and division of labour. I was useless at building and the wall will probably fall down and I’ll have to get a specialist to come and fix it.