Wednesday, October 22, 2003

Chart Focus: October 2003 - The Real Economics of off-shoring

Interesting graph, even if I do not quite understand the math. What is not clear, is how much revenue was actually sent to India. Step #2 seems to imply it was $0.24 (Revenues + Taxes), step #3 implies that it was $0.42($1-Cost Savings of $.058). I do not know how to reconcile these. Moreover, the original definition of a $1 spent in US seems unclear - is that the salary? before or after taxes? Step #4 - Value from reemployed american worker is less than half of $1. Does that mean in order to increase the global pie we have to take a 55% salary cut? Why does not the graph include lost US federal and state revenue? Moreover, why does not it take the multiplier into the account? As I recall from my Economics class, US multiplier was incredibly high, somewhere around 5. I would imagine that India's multiplier is a lot lower, at best in the 3-4 range. Would not that change the results of the graph dramatically, at least as measured in absolute US Dollars?

Can someone enlighten me and point out my mistakes please?


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