Posted on 03/27/2004 11:18:08 AM PST by arnoldfwilliams
At first glance, current macroeconomic indicators seem to support the suspicion that outsourcing is destroying jobs in the United States. The past two years have witnessed moderate growth and astonishing productivity gains, but overall job growth has been anemic. The total number of manufacturing jobs has declined for 43 consecutive months. Surely, many observers insist, this must be because the jobs created by the U.S. recovery are going to other countries. Morgan Stanley analyst Stephen Roach, for example, has pointed out that "this is the first business cycle since the advent of the Internet -- the enabler of a new real-time connectivity to low-cost offshore labor pools." He adds, "I don't think it's a coincidence that this jobless recovery has occurred in such an environment." Those who agree draw on anecdotal evidence to support this assertion. CNN's Lou Dobbs routinely harangues U.S. companies engaged in offshore outsourcing in his "Exporting America" series.
Many IT executives have themselves contributed to this perception. When IBM announced plans to outsource 3,000 jobs overseas this year, one of its executives said, "[Globalization] means shifting a lot of jobs, opening a lot of locations in places we had never dreamt of before, going where there's low-cost labor, low-cost competition, shifting jobs offshore." Nandan Nilekani, the chief executive of the India-based Infosys Technologies, said at this year's World Economic Forum, "Everything you can send down a wire is up for grabs." In January testimony before Congress, Hewlett-Packard chief Carly Fiorina warned that "there is no job that is America's God-given right anymore."
That last statement chills the blood of most Americans. Few support the cause of free trade for its own sake, out of pure principle. The logic underlying an open economy is that if the economy sheds jobs in uncompetitive sectors, employment in competitive sectors will grow. If hi-tech industries are no longer competitive, where will new jobs be created?
INSIDE THE NUMBERS
Before answering that question, Americans need to separate fact from fiction. The predictions of job losses in the millions are driving the current outsourcing hysteria. But it is crucial to note that these predictions are of gross, not net, losses. During the 1990s, offshore outsourcing was not uncommon. (American Express, for one, set up back-office operations in India more than a decade ago.) But no one much cared because the number of jobs leaving U.S. shores was far lower than the number of jobs created in the U.S. economy.
Similarly, most current predictions are not as ominous as they first sound once the numbers are unpacked. Most jobs will remain unaffected altogether: close to 90 percent of jobs in the United States require geographic proximity. Such jobs include everything from retail and restaurants to marketing and personal care -- services that have to be produced and consumed locally, so outsourcing them overseas is not an option. There is also no evidence that jobs in the high-value-added sector are migrating overseas. One thing that has made offshore outsourcing possible is the standardization of such business tasks as data entry, accounting, and IT support. The parts of production that are more complex, interactive, or innovative -- including, but not limited to, marketing, research, and development -- are much more difficult to shift abroad. As an International Data Corporation analysis on trends in IT services concluded, "the activities that will migrate offshore are predominantly those that can be viewed as requiring low skill since process and repeatability are key underpinnings of the work. Innovation and deep business expertise will continue to be delivered predominantly onshore." Not coincidentally, these are also the tasks that generate high wages and large profits and drive the U.S. economy.
As for the jobs that can be sent offshore, even if the most dire-sounding forecasts come true, the impact on the economy will be negligible. The Forrester prediction of 3.3 million lost jobs, for example, is spread across 15 years. That would mean 220,000 jobs displaced per year by offshore outsourcing -- a number that sounds impressive until one considers that total employment in the United States is roughly 130 million, and that about 22 million new jobs are expected to be added between now and 2010. Annually, outsourcing would affect less than .2 percent of employed Americans.
There is also reason to believe that the unemployment caused by outsourcing will be lower than expected. Gartner assumed that more than 60 percent of financial-sector employees directly affected by outsourcing would be let go by their employers. But Boston University Professor Nitin Joglekar has examined the effect of outsourcing on large financial firms and found that less than 20 percent of workers affected by outsourcing lose their jobs; the rest are repositioned within the firm. Even if the most negative projections prove to be correct, then, gross job loss would be relatively small.
Moreover, it is debatable whether actual levels of outsourcing will ever match current predictions. Despite claims that the pace of onshore and offshore outsourcing would quicken over time, there was no increase in 2003. In fact, TPI Inc., an outsourcing advisory firm, even reports that the total value of business process outsourcing deals in the United States fell by 32 percent in 2003.
There is no denying that the number of manufacturing jobs has fallen dramatically in recent years, but this has very little do with outsourcing and almost everything to do with technological innovation. As with agriculture a century ago, productivity gains have outstripped demand, so fewer and fewer workers are needed for manufacturing. If outsourcing were in fact the chief cause of manufacturing losses, one would expect corresponding increases in manufacturing employment in developing countries. An Alliance Capital Management study of global manufacturing trends from 1995 to 2002, however, shows that this was not the case: the United States saw an 11 percent decrease in manufacturing employment over the course of those seven years; meanwhile, China saw a 15 percent decrease and Brazil a 20 percent decrease. Globally, the figure for manufacturing jobs lost was identical to the U.S. figure -- 11 percent. The fact that global manufacturing output increased by 30 percent in that same period confirms that technology, not trade, is the primary cause for the decrease in factory jobs. A recent analysis of employment data from U.S. multinational corporations by the U.S. Department of Commerce reached the same conclusion.
What about the service sector? Again, the data contradict the popular belief that U.S. jobs are being lost to foreign countries without anything to replace them. In the case of many low-level technology jobs, the phenomenon has been somewhat exaggerated. For example, a Datamonitor study found that global call-center operations are being outsourced at a slower rate than previously thought -- only five percent are expected to be located offshore by 2007. Dell and Lehman Brothers recently moved some of their call centers back to the United States from India because of customer complaints. And done properly, the offshore outsourcing of call centers creates new jobs at home. Delta Airlines outsourced 1,000 call-center jobs to India in 2003, but the $25 million in savings allowed the firm to add 1,200 reservation and sales positions in the United States.
Offshore outsourcing is similarly counterbalanced by job creation in the high-end service sector. An Institute for International Economics analysis of Bureau of Labor Statistics employment data revealed that the number of jobs in service sectors where outsourcing is likely actually increased, even though total employment decreased by 1.7 percent. According to the Bureau of Labor Statistics Occupation Outlook Handbook, the number of IT-related jobs is expected to grow 43 percent by 2010. The case of IBM reinforces this lesson: although critics highlight the offshore outsourcing of 3,000 IT jobs, they fail to mention the company's plans to add 4,500 positions to its U.S. payroll. Large software companies such as Microsoft and Oracle have simultaneously increased outsourcing and domestic payrolls.
How can these figures fit with the widespread perception that IT jobs have left the United States? Too often, comparisons are made to 2000, an unusual year for the technology sector because Y2K fears and the height of the dot-com bubble had pushed employment figures to an artificially high level. When 1999 is used as the starting point, it becomes clear that offshore outsourcing has not caused a collapse in IT hiring. Between 1999 and 2003, the number of jobs in business and financial operations increased by 14 percent. Employment in computer and mathematical positions increased by 6 percent.
It is also worth remembering that many predictions come from management consultants who are eager to push the latest business fad. Many of these consulting firms are themselves reaping commissions from outsourcing contracts. Much of the perceived boom in outsourcing stems from companies' eagerness to latch onto the latest management trends; like Dell and Lehman, many will partially reverse course once the hidden costs of offshore outsourcing become apparent.
If offshore outsourcing is not the cause of sluggish job growth, what is? A study by the Federal Reserve Bank of New York suggests that the economy is undergoing a structural transformation: jobs are disappearing from old sectors (such as manufacturing) and being created in new ones (such as mortgage brokering). In all such transformations, the creation of new jobs lags behind the destruction of old ones. In other words, the recent recession and current recovery are a more extreme version of the downturn and "jobless recovery" of the early 1990s -- which eventually produced the longest economic expansion of the post-World War II era. Once the structural adjustments of the current period are complete, job growth is expected to be robust. (And indeed, current indicators are encouraging: there has been a net increase in payroll jobs and in small business employment since 2003 and a spike in IT entrepreneurial activity.)
Offshore outsourcing is undoubtedly taking place, and it will likely increase over the next decade. However, it is not the tsunami that many claim. Its effect on the U.S. economy has been exaggerated, and its effect on the U.S. employment situation has been grossly exaggerated.
(Excerpt) Read more at foreignaffairs.org ...
Of course it is.
The outsourcing that is currently taking place undermines our most productive value-added industries and erodes the standard of living of the American Middle Class, substituting low-skill-low-wage service sector employment in it's wake. This loss of skill and expertise will eventually jeopardize our National Security.
Financed by the global cororatists' insistance that we remain addicted to imported OPEC oil.
Right. Exaggerated. Somthing tells me this person has never receved his last unemployment pitance and three more job rejection notices in the same batch of mail.
Same thing buggy whip makers said when it was predicted that automobiles would revolutionise the world as well as data recall experts said when computers took their jobs too. Its painful when your the victim, but if all your looking is at you and not the big picture, then what the point of even looking at the economy?
Considering that outsourcing is a consequence of the over-regulation, there's no sense quibbling about it. We're talking the same thing.
Irrelevant analogy. Even our creative high-tech industries are being outsourced.
Bommer loves you.
Bommer loves you.
He is happy for you.
See how he expresses his love and happiness for you!
Take a friend of mine, Mike. Mike used to design thermonuclear warheads. However that work has been outsourced. To China. We sent them the models, the fancy-shmancy equipment, the whole factory floor, the blueprints and the pink prints and the yellow polka dot prints.
Mike is out of work.
But look -- his business was just like the old buggy-whip makers! It's good we gave this archaic technology to China! It's obsolete, antique, worthless. Buggy Whip!
It's painful for Mike, but if all Mike looked at is Mike and not the big picture, what's the point of even looking at the economy?
Like, I said, TLI -- Bommer loves ya!
Hmmm. I thought that's what free markets were all about. No one can plan or control the "big picture." Free markets are driven by the decisions of millions of individuals based on the information that they have at hand. It very well may be that the guy next door who has been looking for a job for the last six months has better information than an economist sitting in an office studying statistics.
Looking out for your own self-interest is one of the bedrocks of free trade. That's all he's doing, looking out for himself, and that's precisely what he should be doing.
close to 90 percent of jobs in the United States require geographic proximity. Such jobs include everything from retail and restaurants to marketing and personal care …
marketing, research, and development …
There is no denying that the number of manufacturing jobs has fallen dramatically in recent years, but this has very little do with outsourcing and almost everything to do with technological innovation.
…structural transformation: jobs are disappearing from old sectors (such as manufacturing) and being created in new ones (such as mortgage brokering)
Nonsense. China controls their markets completely. So does India. The list goes on and on. There is no global free market. It's an unbelievably big lie.
In a free market, the average citizen in India, China or elsewhere could buy an American-made product. In such a free market, Americans could keep jobs because their products could be sold throughout the world without massive barriers to those sales which are currently in place. In the world we live in, only America allows free access. There is not a country on earth that gives access to markets as we do.
THERE IS NO FREE MARKET AND THAT IS WHY AMERICA IS BEING SCREWED!
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