In tandem with the rising economic prowess of China and India, the fears of market spectators and the working public have been emerging, and not unduly, in both the United States and Europe. Indeed, in the US the “outsourcing” of jobs has become a salient concern for the public and policy-makers alike, and has subsequently figured prominently in the American political-economic discourse. Simultaneously, however, our advanced-industrial counterparts in continental Europe have exhibited markedly less worry about the possibility of losing jobs overseas. Some explanations for this phenomenon rest in the different macro-economic orientations espoused by the US and many of the mainland nations of Europe, and, by extension, in the disparate micro-economic policies we engender. Particular differences in policy between the social market economies (SMEs) of Europe and the American liberal market economy (LME)** exist in the areas of codetermination, job security and skill formation, all of which lie at the heart of the outsourcing scare for Americans.

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Employee participation in corporate decision-making, or “codetermination,” is a common, and often significantly regulated and legally-guaranteed, aspect of the European business community, particularly in continental and Nordic SMEs. Similar processes, of course, occur in the US; however, they do not enjoy the legal protection or regularity of those in their European SME counterparts, nor do they have the benefit of a tradition of other collective economic-governing processes (like industry-wide wage bargaining), which are common throughout European SMEs. (To elaborate, where these processes do occur in some form in the United States, as in Wisconsin, they maintain a seemingly precarious existence, vulnerable to political whims.) Consequently, workers in SMEs have a greater say in corporate decision-making, especially in the areas of personnel hiring, firing, and redeployment, work and holiday scheduling, design of pay systems, workplace organization, company training, and layoff “social plans” (116). On top of that, workers often play strong roles as consultants in planning future capital investments. Economic theorists, including Wolfgang Streeck, argue that codetermination bodies contribute to micro-economic, or individual firm, efficiency in a number of ways, including: improving the quality of decisions, facilitating the implementation and increasing the perceived legitimacy of those decisions, lowering absenteeism rates, rationalizing human resource policies, and perhaps most notably for our causes, increasing private investment in personnel training, or improving “human capital” (117-118). Drawing from this then, it is clear that a company which: a) consults its workers in planning capital allocations (which would potentially include capital expansion in developing countries like China or India), b) must get approval from its workers on personnel changes (which include layoffs and any labor changes, an often necessary precursor to outsourcing jobs), and c) which subsequently has an incentive to invest in the training of workers (and thus, has a higher proportion of extant “skilled” workers) would be demonstrably less likely to ship operations out of country. Conversely, where corporate codetermination is less prevalent, as is the case in the United States, outsourcing would, predictably, be a more common phenomenon and could imaginably raise more concern as the natural by-product of affecting more people.

Another critical distinction between European SMEs and the United States is the level of employment security measures in each. Typically, SMEs have much higher levels of employment security than their LME counterparts, a fact that has been solidified in SMEs by decades of governmental legislation, regulatory practices and collective bargaining arrangements, most of which are wholly absent in the United States. These differences have resulted in a measurable gap between the average tenures of employment in SMEs relative to the United States. In fact, European SMEs have an average employment duration of about 9.65 years, compared to the American average of 6.7 years (120). Although firms can, and have, shed a great deal of labor forces in these European SMEs, "there can still be little doubt that the legal provisions and institutional practices associated with the social market model make it more difficult and expensive to get rid of workers" (121). And though, admittedly, any legally-protected level of employment security can have negative repercussions (as in restricting new entrants into the work force and reducing overall market efficiency), it does provide for higher management-to-worker, or intra-firm, trust and creates an incentive for a higher degree of private investment in “worker training because workers can be expected to stay with [a] company" (121). Undoubtedly, as Pontusson notes, "[s]ome degree of employment security is necessary…to ensure that individuals invest in industry-specific skills” (122). Considering the disparity between the liberal United States and social Europe in employment security and its subsequent effects on firm behavior, it is safe to conclude that where these measures are observed, investments in human capital are more common. Indeed, employment security, by its very nature, prevents easy (and inexpensive) laying-off of labor forces and therefore creates a rational disincentive for firms to shift operations out of country.

Perhaps counter-intuitively, specialized personnel training typically increases in times of economic downturn in SMEs (as a firm has an incentive to increase efficiency by eliminating underproductive, redundant employees), leading Streeck and others to argue that employment security provides for "internal flexibility," or the facilitation of adopting "new technologies, organizational change, and redeployment of workers" (122). This ultimately correlates to the final, and perhaps most critical distinction between the US and continental Europe - there exists a significant disparity in the relative skill profiles of American and social European work forces. By several measures, European workers in SMEs outperform their American counterparts in terms of productivity and degree of training, making them more competitive in a globalized market (131-141). This higher productivity is likely the result of a confluence of factors. For one, in free market situations (which LMEs more closely approximate), there is no assurance that companies can benefit from an investment in "human capital" or personnel training, as there is no guarantee, or often even reasonable assurance, that workers will stay with a company, after training is completed. For instance, if companies train workers with general, or industry-wide, skill sets, there is no guarantee that other companies won't "poach" those workers by offering them higher wages and superior benefits after they have been trained by another company. Thus, therein lies a free-rider dilemma in which no firm has the incentive to shoulder the costs of comprehensive training for their workforce (131). Consequently, firms in LMEs have a tendency to invest in narrow, firm-specific skill training for their workers, leaving it up to individuals to acquire more relevant and specific skill sets on their own; an option that might not be financially possible for lower-income individuals or new entrants into the labor market (131). As competitors in the global market, "industry-specific training" is particularly important for those workers with a high-school level education and below (131). Needless to say, as this problem compounds, a country will be left dealing with an over-abundance of under-skilled labor - a problem increasingly affecting the United States.

Noting that, SMEs like Germany provide a combination of vocational training and apprenticeships to better equip workers with the necessary and general skill sets needed to maintain competitiveness, especially in sectors that compete with developing economies (like those of China and India), while employing the mechanisms mentioned above, like codetermination and industry-wide wage bargaining, to ensure that firms do not use poaching techniques to steal away skilled laborers from each other (131-132). In contrast, "American firms typically invest less in worker training than comparable European firms" and "productivity gains yielded by a certain amount of training investment tends to be smaller in the United States” (132). This problem could itself be a reflection of flagging educational standards, as Americans are increasingly lagging behind their European counterparts in performance on formal coursework, a fundamental component of German vocational training (133). Using adult literacy as a measure, SMEs vastly outperform LMEs (and particularly the US) in the quality of "unskilled labor" (135-136,140). As Pontusson notes, "SMEs are characterized by a more compressed distribution of educational achievement and higher standards at the lower end of the skill hierarchy than LMEs. Arguably, the latter features makes it easier for SME firms...to achieve productive growth with unskilled workers" [emphasis added] (140). This is critical as emerging economies compete most prominently in the area of unskilled labor. Essentially, not funding education and vocational training presents a strong constraint on productivity growth for the United States.

Undoubtedly contributing to this discrepancy, the US spends considerably less on primary and secondary education, especially in the way of public funding, than its European SME counterparts (135). The almagamation of these factors have resulted, observably, in a deficit of skilled American workers, relative to the European labor forces, particularly in sectors that are competitive with the rising, and cheap, labor force of developing economies.

In short, as European countries become increasingly more modernized by means of a greater investment in industry-specific skill sets and public financing of education, their work forces will continue to be more productive and thus, valuable to firms. This, by extension, will make them more competitive relative to countries like China, and increasingly the United States. And although European workers are paid more (which would mean there might be less jobs in the short-run), this level of training will allow SMEs to let go of underproductive sectors more easily, allowing for a continually higher and more sustainable level of productivity and growth. As mentioned above, the United States has a prevalence of low-wage, unskilled labor, which provides a powerful disincentive against modernization, or conversely put, a strong, rational impetus to hold onto underproductive sectors – the same sectors which, again, are now in competition with developing economies, where similarly-skilled labor is much cheaper and more prevalent.

Accumulatively, unless serious inroads are made towards increasing the general aptitude of American unskilled workers, while increasing the prevalence of industry-wide training for workers in these sectors, outsourcing will expectedly maintain a prominent position in the ever-growing realm of American economic anxiety.

**The cited analyses and data were all from one source:
Pontusson, Jonas. Inequality and Prosperity: Social Europe vs. Liberal America. 1st ed. Ithaca, NY: Cornell University Press, 2005. Print.

The differences between SMEs and LMEs are, most substantively, that SMEs are characterized densely organized business communities, strong union presence, and extensive public provisions of social welfare programs, whereas LMEs are characterized by a lack thereof. Also, in the case of social welfare, LMEs typically adopt means-tested poverty relief or social insurance program, whereas SMEs tend to favor universalistic benefits.

Social plans differ from severance packages in several notable ways. For a discussion of their differences please reference Pontusson, pages 114-141.