No Agreement On Outsourcing: Is It Helpful Or Harmful To U.S.?
BY J. BONASIA
INVESTOR'S BUSINESS DAILY
By now, everyone has seen the concerned TV news anchors reporting day after day about all the jobs that America is losing to places like China and India.
It's true that more U.S. firms, needing to watch expenses, are moving their service jobs to countries with low labor costs. This practice, dubbed "offshoring," can save companies about 40% on their total costs of operation.
But some researchers and politicians are saying the media drumbeat may be out of synch with what's really happening — that offshoring will actually lead to more U.S. jobs.
Why the controversy? Unlike the loss of U.S. factory jobs in the 1980s and 1990s, offshoring is affecting white-collar workers, particularly in the information technology field. These are jobs that Americans didn't expect to see exported.
Critics want new policies to protect U.S. service jobs. Proponents, on the other hand, say outsourcing helps the economy as a whole. But they concede it causes pain for individual workers who get laid off.
Better Than Unemployment
Two main themes have emerged. First, the cost-cutting benefits of offshoring all but ensure the practice is here to stay. Second, both sides agree the government should help to retrain displaced workers.
A business tax credit could pay to retrain computer programmers. Those workers could move up the ranks into systems integration or data management, says Catherine Mann of the nonpartisan Institute for International Economics. She says that's a better plan than paying for unemployment.
"This investment tax credit recognizes that what we can do for the betterment of the whole economy is keep people in their companies where they are, and move them up the ladder," Mann said.
Various trade groups and think tanks have issued a flurry of conflicting studies in recent weeks. Politicians, of course, are weighing in.
Democratic presidential candidate John Kerry has railed against offshore outsourcing on the campaign trail. But this week Laura Tyson, former chair of the National Economic Council under President Clinton, downplayed the impact of offshoring.
Speaking for the Kerry campaign, Tyson said the offshore trend has caused "a relatively small fraction" of the 2.2 million net jobs lost while President Bush has been in office.
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Last month, Treasury Secretary John Snow spoke out in Ohio. He defended outsourcing as a plus for the economy.
Meanwhile, Secretary of State Colin Powell came under fire from officials in India. Powell sought to assure the Indian government that the U.S. would not block the outsourcing of jobs to that country.
What The Numbers Mean
Speaking in North Carolina, Federal Reserve Governor Ben Bernanke also defended outsourcing. Fed governors tend not to be aligned with either political party.
Researchers, too, have been pumping out data to support each side of the debate. To date, some 400,000 jobs have been sent offshore, says Forrester Research. It expects that number to rise to 3.3 million jobs by 2015.
The Economic Policy Institute says U.S. jobs in software-producing industries fell by 128,000, or 10%, from 2000 to 2004.
The nonpartisan think tank, which does economic analysis of the labor market, says software jobs in other fields shrank by 154,000, or 5%, from 2000 to 2002.
The problem comes in gauging what these numbers really mean, says Stephen Roach, chief economist at Morgan Stanley.
There still is not enough conclusive data about the true scope or effects of offshoring, Roach wrote in a note this week.
"We're largely flying blind in assessing the current and prospective magnitude of this important transformation of the U.S. labor market," he wrote.
The domestic job market has not rebounded significantly after 27 months of economic recovery. That fact concerns economists. Private nonfarm jobs are tracking 8.3 million workers below the profile of the typical hiring cycle, says Morgan Stanley.
Roach says outsourcing "should not be minimized as a contributor to America's jobless recovery."
Scapegoating
Yet a new study sponsored by the Information Technology Association of America says offshoring created 90,000 net new jobs at home last year. That study, prepared by Global Insight, says the trend should result in 317,000 net new jobs by 2008.
ITAA attributes the job gains to a ripple effect through the economy. American companies and consumers have benefited from the cost savings of outsourcing, resulting in new IT jobs, says Harris Miller, president of ITAA.
Politics and the media have caused some people to scapegoat offshoring for the slow jobs growth, says Miller.
"It's easier to blame foreigners, rather than looking at more abstract things like economic cycles, or the bursting of the dot-com bubble," he said. "Contrary to a lot of press and political hype, global competition and sourcing creates more jobs and better paying jobs for American workers, and it creates more IT jobs in the U.S."
Yet the U.S. branch of the Institute of Electrical and Electronics Engineers, a professional group, says the number of U.S. IT workers has declined by 8% since 2000. That group says unemployment is at an all-time high among computer scientists, systems analysts and electrical engineers.
Threatening Tech
IEEE-USA has called for limits on the outsourcing of government contracts. It also cites security concerns about sending sensitive data overseas. And the group says outsourcing may threaten the nation's technology lead in the long run.
Businesses have the right to obtain products and services wherever they see fit, says John Steadman, president of the IEEE-USA. But he says that's not the real issue.
"The issue is more around security, and taxpayers paying to benefit overseas companies or workers," he said. "We think it is reasonable to expect Congress to take steps to keep those jobs onshore." |
