Shipping Out White-Collar Jobs
Amid the furor, remember the fundamentals
Do the math. A computer programmer in the US costs IBM $56 an hour; a programmer in China would be about $12.50. If you were Big Blue, wouldn't you shift those jobs overseas?Skip to next paragraph
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The business practice known as "outsourcing" that already has whittled down and reshaped American manufacturing is spreading to high-tech and service jobs. Computer programming, back-office functions like billing and claims processing, and customer service are increasingly handled by educated English speakers in India, China, and the Philippines. Alarm bells are ringing across America as cheap high-speed communication enables jobs once deemed impervious to foreign competition to migrate abroad.
The country must awaken to this issue and carefully examine what looks like a new wave of restructuring brought on by globalization. But that's no reason to leap from bed and pull on a protectionist storm coat, as many politicians are doing.
Legislation that would restrict the use of offshore contractors by state and local governments is pending in 20 states. The US Senate recently approved an amendment that excludes certain government contractors from offshore work. Last week Republican lawmakers, the media, and Democrats jumped all over an upbeat White House interpretation of outsourcing as good for the economy. And Democratic presidential candidate John Kerry has made the matter a question of patriotism, dubbing outsourcers "Benedict Arnold CEO's."
But the folly of trying to control the free flow of capital and labor can be seen in this example: Indiana's governor recently reneged on a $15 million deal with an Indian software company; the company underbid its US competition by $8 million. Now taxpayers have to make up the difference.
The jobless recovery adds emotion to this issue. But just when the rhetoric is flying, it's helpful to stop and review a few core economic principles. Competition is good - if sometimes difficult - for America. It strengthens US businesses. It pushes them toward innovation and the creation of value-added jobs. If this weren't true, the US would not have become the world leader in agriculture, manufacturing, and information technology and services.
A 2003 study by the consulting firm McKinsey & Company points to the global economic benefits of US outsourcing of white-collar jobs. For every dollar now spent in India on US business processes, India nets at least 33 cents in taxes, wages, and revenues. That creates wealth, and has helped India nearly double its imports from the US since 1990.
American companies save 58 cents on every dollar of offshore work. That money can be used to invest in new technology - the next big thing. This in turn creates new jobs. Meanwhile, India ships back cheaper tech products to the US, which allows more businesses to install these products and increase their productivity.
But let's descend from the mountaintop of economic principles to the valley of displaced workers: Real people, losing real jobs. First, the country needs more study of the potential size of this trend. Intel chief executive Craig Barrett pictures an endless supply of educated workers in Russia, China, and India, and zero job growth in his own backyard of Silicon Valley. Forrester Research predicts that 3.3 million white-collar jobs will be lost to offshoring by 2015. But the Institute for International Economics sees information technology jobs expanding, not contracting.
It makes sense to apply the nation's trade adjustment program - which helps people who have lost manufacturing jobs to free trade - to the newly affected service sectors. McKinsey suggests companies use some of their 58 cents-per-dollar savings to compensate displaced employees for 70 percent of missed wages until they are reemployed, and offer them health insurance subsidies for up to two years.
To improve their skills and prepare for those value-added jobs, the displaced may need retraining. But this is not the government's strong suit. What about providing businesses not just a tax credit for capital investment, but one for human investment?
Blocking the natural flow of capital and labor will hurt America's competitiveness. Investment in innovation, education, and displaced workers themselves helps ease the adjustment.