Wharton’s Stefano Puntoni finds that consumers react more strongly when local jobs are moved overseas compared to other reasons for collective layoffs.
For years, companies have trimmed workforces in the name of efficiency — citing automation, cost pressures, or decisions around outsourcing vs. offshoring. But not all layoffs are seen in the same light.
Though often used interchangeably, outsourcing refers to hiring an external firm to perform tasks, while offshoring means moving those tasks abroad — a distinction consumers don’t overlook.
The paper’s core insight is rooted in what the researchers call the “social contract”: the unspoken expectation that firms should support the communities they operate in. When a company cuts domestic jobs and moves them overseas, consumers often view it as a betrayal of that norm — even if the move makes business sense on paper.
“We found significantly more negative conversations about collective layoffs when they were about offshoring than about automation,” said Puntoni, in an interview with Wharton Business Daily.
Reputational Costs of Outsourcing vs. Offshoring
Across nine studies and more than 35,000 real and simulated cases, the researchers found clear patterns in how people react to different kinds of layoffs. First, offshoring prompts a stronger backlash than internal restructuring, automation, or outsourcing.
The effect is magnified when the company is domestic and its customers are local — in other words, people expect companies from “here” to look after “us.” A U.S.-based firm laying off workers in Illinois and opening a facility in Vietnam will likely face more reputational fallout than a Swiss multinational doing the same — even if both decisions are rooted in the same logic of cost control.
The research, published in the Journal of Consumer Research in January, offers a cautionary note to companies used to framing layoff decisions as purely financial. While shareholders might reward a leaner cost structure, the public takes a longer, more emotional view — especially when job losses are seen to undermine the social fabric of a community.
“Companies and citizens hold an implicit social contract with one another,” said Puntoni, co-director of Wharton Human-AI Research. “The problem with the collective layoff is that it’s clearly a violation of that social contract. That’s why people don’t like it,” he added.
These findings matter because consumer sentiment moves markets. At a time when social media can amplify a backlash overnight, and where brand values are closely scrutinised, reputational risk can show up in eroded trust and lost sales.
Puntoni noted that even Reddit, the social media platform known for its tight-knit forums and often unruly debates, offers consumers valuable signals. “Consumers are clearly not oblivious,” he said. “This is something that we hear about in the news all the time, and that’s bound to shape how they react to a company’s behaviour, for better or for worse.”
And while the financial benefits of offshoring are often immediate and measurable, the reputational costs may surface more slowly — through declining customer goodwill, media criticism, or regulatory attention. Choosing between outsourcing vs. offshoring is not just a matter of cost; it is a matter of public perception.
Ongoing Pressure From Consumers and Lawmakers
The research suggests that companies too focused on quarterly earnings may be overlooking a slower-burning, but equally material, risk. When the iconic jeans maker Levi’s began offshoring production in the 1980s — culminating in the closure of its last U.S. factories in 2003 — it faced heavy criticism over job losses in towns once central to its brand, such as Warsaw in Virginia.
There are political implications, too. Offshoring has long been a flashpoint in debates about trade, national identity, and inequality. Recent calls in the U.S. Congress to penalize companies that move manufacturing abroad — including proposals to revoke tax breaks — show how offshoring remains a political pressure point, even today.
For firms already under scrutiny from regulators and lawmakers, consumer backlash adds a second front. That is particularly relevant in regions where calls for “reshoring” jobs are gaining traction. In the U.S., the CHIPS and Science Act — which came into force in 2022 and includes about $53 billion to boost domestic semiconductor production — reflects growing political momentum to reshore critical industries and reduce reliance on foreign supply chains.
Perhaps the most striking implication of the research is this: How a company saves money matters. Consumers draw distinctions. Automating a plant is seen as inevitable, or at least excusable — a nod to progress, however uncomfortable. But offshoring is read as a deliberate choice to favour margins over people.
