Wow! Who would've guessed that as more and more jobs flow into India that their cost of living expenses would inflate as well? What this means for all who care is that at the end of the day it's going to be harder for India to be the low cost producer of things. If they get to the point where the standard of living increases so much that they are on par with the United States then frictional costs alone will stop the outsourcing to India. Like Zane has said (I really wish permalinks worked on his blog) before, this outsourcing thing has costs associated with it that are not so easy to quantify. Part of India's economic advantage in IT outsourcing, like Zane has mentioned, is the government support, the group cohesiveness, and the lack of viable alternatives for Indian people outside of IT. But the key driver in my opinion is the relatively low cost of living. This has arisen due to widespread poverty, keeping basic goods at a minimum level and causing high-end goods to be sold at a relative discount to their values stateside.

However, taking the extreme idea that everyone in India becomes a tech support worker, or IT professional, or something else in the industry, everyone will be making about the same amount of money and they will still have the same amount of resources. They will have to import more products from other countries and pay a higher premium than they do now for the goods produced internally. In short, everyones time in India will be worth more so they will have to pay more to their neighbor to get him to spend time on something, whether it be providing a service or creating a good.

My basic contention on outsourcing in general is that it removes a lot of the inefficiencies inherent in a closed, isolationist system. This is all well and good when you are being abused economically by the system, and not so good when you are the abuser. I don't see a day when American programmers or managers, or accountants or anyone else makes $0.00/hour, but I do see days where they make less on a comparative basis than they do today. I would even be willing to concede that they may make more than they do today, but I am almost 100% certain that the level of year-over-year growth in salaries will fall.

Remember, things that don't seem plausible probably aren't. Regression to the mean is almost always inevitable.

12:17:08 PM  #