Outsourcing: White Collar Protectionists

One of the widely held tenets of free trade is that as countries advance, lower paying, capital intensive jobs move off shore and higher paid, knowledge jobs are created. Over the past few decades, this has largely held true. Things appear to be changing in recent years. Recent data has been showing that lower paying jobs are now replacing good manufacturing and information jobs.

From the Center for American Progress

PROBLEM - JOBS SHIFTING TO LOWER-PAID INDUSTRIES: According to a report released today by the Economic Policy Institute, "In 48 out of 50 states, jobs are shifting from higher-paying industries such as manufacturing and information to lower-paying industries such as retail and hospitality...In California, for example, the average pay in industries that are growing is $34,742, 40% less than the average wage in industries that are shrinking, $57,800."

PROBLEM – MORE LOWER-PAYING JOBS FORECASTED: The EPI report also found "the average wage of new jobs created during the 2004-05 period is forecast to be $35,855, significantly lower than the $43,629 average wage of those jobs lost between 2001-03. The annual wages lost in declining job sectors equaled $182 billion; advancing sector wages are expected to equal only $156 billion, a $26 billion annual shortfall in wages."

Efforts to preserve these high paying jobs is on the rise. A recent article in the Washington Post talks about a paragraph in the Presidents 2005 budget that

prohibits the federal government from awarding certain contracts to companies that will perform the work overseas. The measure expires at the end of September, and industry officials say few contracts are likely to be affected.

But the provision sets a precedent that information technology companies say could stoke a national backlash against them.

Is shifting high paying, knowledge jobs good for the US? Lower cost software, biotech, and call centers should, in theory lead to continued rising living standards here and lower consumer prices. But now that job loss is hitting home to the middle and upper-middle class, more and more people are getting upset. From the post article,

Critics say the trend contributes to the U.S. economy's "jobless recovery," along with the more extensive loss of manufacturing jobs transplanted overseas. Last July, for instance, U.S. firms shipped as many as 30,000 new service-sector jobs to India while eliminating some 226,000 in this country, according to a recent study by researchers at the University of California, Berkeley.

You could hire a programmer in Bangalore, India and a graphic designer in China today in just a few hours. You won't believe how easy it is, try: elance.com

Adam Smith

Comments

[tc]

The cover story of this month's Wired is about the movement of tech jobs to India. The New Face of the Silicon Age talks to out of work programmers in the US and employed programmers in India and ends with the idea "After a week in India, it seems clear that the white-collar jobs with any lasting potential in the US won't be classically high tech. Instead, they'll be high concept and high touch."

I am not sure that "high concept and high touch" is something the US should pin its hopes to - buuuuut it sounds quite a bit like what we are doing here in TPP. Here is a description of a job one of those out of work programmers found:

"He must understand the broader imperatives of the business and relate to a range of people. "It's more of a synthesis of skills," he says, rather than a commodity that can be replicated in India."

Maybe we are employable?

[Adam Smith]

Looks like the Bush White house has come out strongly for out sourcing, this is in strong contrast to Sen. Kerry's position that seems to be strongly, and vocally anti-outsourcing.

With our jobless recovery, this is sure to be a hotly debated issue. from">http://www.washingtonpost.com/ac2/wp-dyn/A26982-2004Feb9?language=printer">from the Washington Post

"Wading into an election-year debate, President Bush's top economist
yesterday said the outsourcing of U.S. service jobs to workers overseas
is good for the nation's economy.

"Shipping jobs to low-cost countries is the 'latest manifestation of the
gains from trade that economists have talked about' for centuries, said
N. Gregory Mankiw, chairman of the White House Council of Economic Advisers."

[Anup]

Outsourcing is good or bad dependin upon who you listen to.
For example, the following is according to Mckinsey. The benefits of offshoring to India:

The benefits of offshoring to USA.

The current trouble is with the last piece of the USA graphic. The $0.45-0.47 value from workforce reemployed is not being created. During the Clinton years, there were plenty of new jobs, so nobody noticed the trickle of offshoring. While offshoring may have increased since, the real problem has been lack of new jobs in the US. So, now everybody notices it. I wouldn't give it more importance than that.
The question gets tough, however, if you can't see where the new jobs are going to come from? Will the new jobs be offshored as well as an when they start to mature? If the answer is yes, then I don't think that anybody has answer to the problem.

[Tom]

A few more random articles on outsourcing via Salon's War Room '04.

One for Hardin...
"Bush Economic Report Praises 'Outsourcing' Jobs." from the Pittsburgh Post-Gazette.

And one for Anup...
"Outsourcing win-win for India, US: Bush aides" from the Indian Express.

Here is the report referenced in the articles (thank you, Google):

Economic Report of the President

[kate]

It is interesting the Kerry has been so vocal about the need to protect jobs recently. (He did vote for most of the free trade agreements.) So, he's addressing audiences who don't want to lose THEIR jobs and Bush's stance is more educational. It's going to be a fascinating debate. It's going to be hard for a presidential candidate to to tell people "Even though free trade is good for the economy, not everyone can win. Too bad you have to lose." Kerry's original positions stressed protecting American workers by preventing a 'race to the bottom'. For Kerry this requires environmental and labor agreements (not universal standards like Kucinish supports) as well as free trade. Here's Kerry responding to Dean on Sept. 25th 2003 at Pace University in Lower Manhattan

DEAN: "Trade has to be fair to workers, not just multinational corporations. And I think Senator Kerry is insensitive to the plight of American workers who have lost their manufacturing jobs."

KERRY: "I'm not insensitive to the jobs. I'm desperately concerned about those jobs. But you don't fix them by pandering to people and telling them you're going to shut the door. You have to grow jobs. We need to increase our commitment to science in America, to venture capital, to the kinds of incentives that draw capital to the creation of jobs. Democrats can't love jobs and hate the people who create them. We need to encourage job creation and trade, but fair trade... "

So anyway, another interesting aspect of this free trade–protectionism–jobs conversation is that the education system in the US isn't exactly preparing Americans for the high-skilled jobs that free trade promises. (Unless you go to college, I guess - problems with cost? hmm) As Kristof mentions in Watching the Jobs Go By in today's NYT, "The latest international survey, called Trends in International Mathematics and Science Study, found that the best-performing eighth graders were, in order, from Singapore, South Korea, Taiwan, Hong Kong, Japan, Belgium and the Netherlands. The U.S. ranked 19th, just after Latvia. (India and China weren't surveyed.)" Trouble for trying to grow high-skilled jobs in the US?

[Adam]

In response to the where will the jobs come from question...

The Atlantic Monthly's State of the Union special has some interesting numbers. I recommend giving this a read.

What our children midght do for a living: Occupations wiht the largest potential for projected job growth:

Projected increase Med Wage
2000-2010

Food prep/serving +673,000 $14,500
Customer Service +631,000 $36,400
Nurse +561,000 $48,090
Retail Sales +510,000 $17,710
Computer Support +490,000 $39,100
Cashier (not gaming) +474,000 $15,420
Office clerk +430,000 $22,280
Security guard +391,000 $19,140
Computer Software eng +380,000 $70,900
Waitor +364,000 $14,150

and the losers...
Farmer/rancher
order clerk
teller
insurance claim processor
word processor/typist
sewing machine operator
dishwasher
switchboard operator
loan interviewer
computer operator

Trend is pretty clear. We'll create two kinds of jobs. One, highly creative and technical jobs (mainly coders in this estimate) and lower paid jobs that you can't really automate, McJobs, nurses, security guards.

We're rapidly losing anything that can be automated.

[Anup]

A">http://timesofindia.indiatimes.com/articleshow/496981.cms>A small frown in America

[Anup]

A">http://timesofindia.indiatimes.com/articleshow/496981.cms">A small frown in America

[Manish Jethani]

Would you hire someone at elance.com? I'm curious, because I don't see a lot of Indian professionals going solo. Most of them (us) want to work for large corporations.

[Anup]

Last Friday, Wall Street Journal carried a story from North Carolina where a town of furniture makers is fast loosing it's jobs to China.

...Furniture Brands, the largest residential furniture company in the U.S., had recently shuttered 17 other plants in the U.S. as part of a major shift toward importing more products from China. The shutdowns eliminated several thousand jobs and closed the plant Mr. Stanco, 39 years old, previously managed. Now Mr. Stanco oversaw another 335 workers, in a town so linked to making furniture that a 30-foot wooden chair rises above Main Street in tribute to the industry.

...Adding to the challenge for Mr. Stanco: His own company actively supports the Chinese push into furniture.

..."The weaker companies will disappear," the statement read. Furniture Brands would grow stronger, and "this will be good news for our thousands of domestic employees."

...Mr. Stanco and his managers took steps to make workers feel that their factory was going to be around awhile. He ordered workers to repaint machines. Several workers quipped that he was dressing things up to sell the factory to the Chinese. In meetings with workers, Mr. Stanco addressed fears that imports would kill their factory.

"How many of y'all think that no matter what we do, it's inevitable?" he asked. With some groups, especially those that included older, more candid workers, nearly all the hands went up.

...In early November, the plant suffered another blow. On the instructions of his supervisors, Mr. Stanco gathered 28 workers in a conference room and told them they were losing their jobs. The company, citing soft demand, was shutting down the rough-cutting portion of the plant. That function would be handled at another plant, with daily deliveries to Mr. Stanco's operation. Several weeks later, he had to lay off another 28 workers.

That same month, Mr. Holliman, the company's chairman, made it even more clear that his company intended to eventually import most of its wooden furniture. "We just can't compete, and will bring that product in," he told stock analysts.

Approaching Christmas, Mr. Stanco's plant was running only four days a week. The final productivity score for 2003 was 97.2. Two weeks later, Furniture Brands shut down two more plants 100 miles down the road in its Drexel Heritage division.

Mr. Stanco's plant was spared again, and he got off to a good start for the year, notching a 104.2 efficiency rating for January.

But even if he keeps up that pace, Mr. Stanco knows it still might not be enough. Company executives say they're pleased with his work, notably the plant's Bogart pieces, and they hope to avoid additional closures in the near future. But they won't say for sure whether his plant will survive.

The trouble in my mind is this: What do you do with these workers. You can say that we can invest in training and skills upgrades. However, the bottom of the pile white collar jobs are going out as well. As one of the comments on a blog said something to this effect: "When I lost my job in manufacturing, you told me to get computer skills; Now when I have lost my computer related job, what do you want me to do?"

A week before this article appeared, the Journal had carried an op-ed by Carly Fiorina (Chairman of HP) on Feb 13th. calling for investments in the next generation of industries:

"There is no job that is America's God-given right anymore." Now, more than ever, other nations are developing the skills to compete for jobs that would have historically been done by Americans. We shouldn't assume that they won't make an effort to win them. But we should work to keep America what it has always been: the world's most resourceful, productive and innovative country.

...we must focus on developing next-generation industries and next-generation talent -- in fields like biotechnology, nanotechnology and digital media distribution; around issues like IT security, mobility and manageability -- that will create long-term growth and jobs here at home, while raising all of our living standards in the process.

Listen carefully to the list of issues: IT security, Mobility and Managability.

This forces me to really take the argument, that the current trade policies may force a bimodal distribution of jobs and income here in the US (the really well educated and rich vs. less educated and poor), seriously. We can talk about investing in the next generation, but what about the population that is already in their 40's and 50's?

In any case, how do you explain the following:

The survey is more than a month old, but a related news story appears in today's USA Today.

High-income Americans have lost much of their enthusiasm for free trade as they perceive their own jobs threatened by white-collar workers in China, India and other countries, according to data from a survey of views on trade.
The PIPA poll shows that among Americans making more than $100,000 a year, support for actively promoting more free trade collapsed from 57% to less than half that, 28%. There were smaller drops, averaging less than 7 percentage points, in income brackets below $70,000, where support for free trade was already weaker.

The same poll found the share of Americans making more than $100,000 who want the push toward free trade slowed down or stopped altogether nearly doubled from 17% to 33%.

I am really confused.

[Paul Morais]

You guy's seem to have cut thru all the b.s and gotten down to the core issue. Will there be new jobs to replace the lost ones and will they be as good? When I graduated from the Ivy League in '81 being a computer programmer meant having unquestionable employment opportunities. Now we know that's different.
Just remember as you discuss this issue; you guys are the cream of the crop and will survive any economy. But do you really want to see the rest of the country have to earn a living as your caddie or maid?

[Info Tech Guy]

I suppose that I would be called a "protectionist" by some. I don't buy the outsourcing arguments. For a limited time corporations can see increased profits and run up their stock values when the U.S. economy is stimulated by low interest rates and tax cuts. But reality will set in. Over the past few months it has become clear that white collar knowledge age jobs are not being created in any meaningful numbers in the U.S. And, of such jobs that are created, the BLS does not even have the means to track how many are filled by Americans and how many are filled by non-citizen "guest workers" in the U.S. under the H-1b and L-1 "non-immigrant visas". I speak from first-hand experience when I say hundreds of thousands of NIV workers are now in the U.S. and many new jobs in the Information Technology field are being filled by NIV workers (who will work for Third World wages while living in the U.S.) Eventually this sham economic recovery will falter as interest rates increase with the trade deficit and the national debt. The new car spending spree and new housing purchases will cool off. The home equity loans and credit card loans must be paid. Look at our alleged recovery in another 14 months and see if the rapid clip of outsourcing hasn't cut deeply into the middle class. The best jobs in America are being "cored out".

[Anandakumar A.V.]

I need a computer operato job. I know computer operationsm, Typing also

[excel development]

Is there a job for a computer company apple, or any other, where you test out their products, and feedback to them,so they give you products free to tty/test out and feedback to them...like a job.