Offshoring is the process in which US companies set up production (service) outfits abroad where they employ local workers; some US facilities are closed or curbed and US workers are laid off. This is followed by (combined with) a second stage in which a part of the laid-off workers are rehired and production is expanded. Here several strategies are possible, including expanded domestic consumption of services, expanded exports or a coordinated growth.

We have built an input-output macro-model of the national economy, utilizing US government data published by BEA (Bureau of Economic Analysis, US Department of Commerce). The model consists of four sectors: manufacturing, services, government and individuals, and uses about 55 parameters.

As economic indicators, we considered four balances (income minus expenditures): the personal, corporate, government and international balance. We investigated the effect on these balances of several control parameters, such as the labor outsourcing ratio, the foreign-to-domestic wage ratio, the income replacement ratio and the rehiring ratio. We performed extrapolations from the reference model, by a combination of algebraic analysis and computer simulation.

Our main findings are:

1. Under off-shoring, the corporate balance is improving while the foreign trade deficit and the government deficit grow; the personal balance is decreasing and there is a rearrangement between wage earners and share holders.

2. Any rehiring improves the government balance.

3. Rehiring to increase production solely for domestic consumption increases the foreign trade deficit and erodes the personal balance.

4. Rehiring to increase production for export improves all four balances but the export increment has to exceed the wages paid to foreign workers.

5. An ideal scenario is expanding production so that domestic consumption and export are coordinated to maintain a zero foreign trade balance.

Some results of this work have been presented as a plenary lecture at an IFAC Symposium on Computational Economics in Istanbul, Turkey.