This is an election year in the United States, and the offshore outsourcing of jobs is proving politically contentious. Its most vociferous opponents contend that corporations betray their employees by shipping work overseas. Yet research shows that, on the whole, the economies of developed countries benefit from this phenomenon.¹ So do those of developing countries, where new jobs alleviate poverty, improve general living standards, and provide the means to address health and environmental challenges.

In reality, the process of global economic integration—of which offshore outsourcing is a highly visible component—diffuses the best business ideas and management tools, intensifies competition, and sparks innovation. It thereby leads to lower prices and higher wages as well as bigger profits that companies can reinvest in new business opportunities.

Of course, the fact that economic integration benefits the global economy as a whole doesn't mean that it benefits all workers and companies. On the contrary, offshoring can destroy the jobs of workers in developed economies, and incumbent companies in developing ones can lose out to more efficient foreign competitors during the transition to modern production methods. Those hardest hit can face major dislocations and a loss of status.

But understandable as the protectionist reaction to these hardships might be, it is misguided, since it would forestall not only the problems but also the benefits of offshoring. Less understandable, perhaps, is the failure of corporations and governments to do more to ease the suffering of its victims. Companies and policy makers together have the power and the responsibility to help workers deal more flexibly and painlessly with employment changes.

In healthy economies, companies create new jobs—often with higher wages and higher value added to the economy—for most of the people who lose their old ones. Companies can make it easer for their workers to adjust by committing themselves to continual on-the-job learning and retraining programs. Policy makers can assist them by offering tax credits or other incentives for companies that hire and train displaced workers. Generous severance and relocation packages can help as well.

So too can wage insurance. Lori Kletzer and Robert Litan of the Brookings Institution have developed an insurance proposal for workers displaced by trade in manufactures.² Building upon this work, the McKinsey Global Institute estimates that for as little as 4 to 5 percent of the savings gained from offshoring, companies could insure most full-time workers for up to 70 percent of any difference between the wages they received on jobs they lost and the wages they might receive on their new jobs—if indeed these jobs paid less. Companies could also offer health care subsidies for up to two years.

The loss of employment isn't the only problem. In the United States, when people lose their jobs, a large part of the stress they undergo stems from the loss of pensions and health care coverage. A broader commitment by companies and policy makers, working together, to increase the portability of health care and pension plans would go a long way to ease the transition for people coping with change.

By making any country's labor force more flexible, these policies would allow global economic integration and wealth creation to proceed more smoothly. Protectionism, in contrast, may save a few jobs in the short run, but it stifles innovation and job creation in the long run. Facilitating rather than stopping change must be the goal. To reach it, the public and private sectors will have to collaborate closely—a theme running through this issue of The McKinsey Quarterly, in articles that address the way public-policy makers can strike a delicate balance with the private sector to encourage economic growth.