Economic Reasons for Job Migration Seem to Be Changed

[Dave Farber <dave () farber net>]

Economic Reasons for Job Migration Seem to Be Changed

February 15, 2004
 By STEVE LOHR





The chairman of President Bush's Council of Economic
Advisers, N. Gregory Mankiw, stepped forcefully last week
into an issue that has touched off an escalating, often
strident, political debate: the migration of jobs, ranging
from call center operators to computer programmers, to
lower-cost countries like China and India.

The movement, known as offshore outsourcing, is growing,
Mr. Mankiw acknowledged. But he said it was "just a new way
of doing international trade" and "a good thing" that would
make the American economy more efficient and would free
American workers to eventually get better jobs.

History suggests that Mr. Mankiw may be right. The American
economy has adapted to unsettling new waves of competition
in the past.

Still, many industry executives, analysts and academics -
not distraught American workers alone - say the nature of
the economic challenge appears to be fundamentally
different this time.

The differences, they say, include the kinds of jobs
affected by outsourcing, the number of jobs potentially at
risk and the politics of developing an effective policy
response.

Globalization and technology are amplifying the impact of
outsourcing. For decades, American foreign policy has been
to urge developing nations and Communist countries to join
the global economy in earnest. Now they have, and vast
numbers of skilled workers have joined the world labor
force, seemingly overnight. Countries like China, India and
Russia educate large numbers of engineers. Add the
low-cost, nearly instantaneous communication afforded by
the Internet, and an Indian computer programmer making
$20,000 a year or less can replace an American programmer
making $80,000 a year or more.

"The structure of the world has changed," said Craig R.
Barrett, chief executive of Intel, the Silicon Valley
company that is the world's leading computer chip maker.
"The U.S. no longer has a lock on high-tech, white-collar
jobs."

But that does not mean that such jobs are about to
disappear from the United States. Statistics on the current
job flight are estimates. Forrester Research in a
frequently cited study, predicted in late 2002 that 3.3
million services jobs in America would move offshore by
2015, about 500,000 of them in computer software and
services.

For all the alarm that report generated, a shift of that
size over the next 11 years would be small, given that the
American labor force has more than 130 million workers and
normally creates and destroys millions of jobs every few
months.

Many American workers are worried that outsourcing is just
beginning, and they fear that in an information-age economy
all kinds of jobs are potentially at risk. Not only anxious
workers in the United States take that view. Nandan
Nilekani, chief executive of Infosys Technologies, an
Indian outsourcing company, declared at the World Economic
Forum last month, "Everything you can send down a wire is
up for grabs."

Another difference, some analysts say, is that during the
1980's, the interests of American workers and companies
were more closely linked than they are today. From 1984 to
1986, the American semiconductor industry lost $4 billion
and shed 50,000 jobs in the United States.

"But now, it is the workers who are suffering and not the
companies," said Ronil Hira, an assistant professor for
public policy at the Rochester Institute of Technology.
"The companies outsourcing jobs overseas are profitable and
mostly gaining market share. There's no gun to their head
this time, no real motivation to address the issue."

Beyond jobs shifted, the broader impact may be to put
pressure on the wages of many technical workers in the
United States, who increasingly live under the shadow of
foreign competition.

Chris Neustrup, a software engineer from Walnut Creek,
Calif., has seen every boom and bust in Silicon Valley
since he graduated from the University of California at
Berkeley in 1969. As a seasoned programmer-for-hire, who
constantly kept adding to his portfolio of skills, Mr.
Neustrup was never out of work for long, and in good years
he routinely made $100,000 or more.

But this time, he said, it was different. After 25 months
without work, Mr. Neustrup was hired two weeks ago by
Emanio, a private software company in Berkeley. The pay is
less than he used to make, but he counts himself lucky in
this job market. His experience is part of a picture that
puzzles economists and policy makers. The economy is
growing nicely, corporate profits are rising, and yet job
growth remains frustratingly sluggish, even among skilled
workers. Some politicians and labor advocates say offshore
outsourcing is a betrayal of American workers and support
bills to curb it.

Mr. Neustrup, who lives with the turmoil in the high-tech
job market, takes a more balanced view. "It's great for
these developing countries to move up and adopt this
technology," he said. "The trouble for us in the U.S. is
that we're at the top of the ladder getting squeezed. And
I'm not sure there is a good answer."

The heat of the political debate over outsourcing keeps
rising. State and federal bills that would limit the flow
of jobs abroad have proliferated. Senator John Kerry, the
front-runner for the Democratic presidential nomination,
castigates "Benedict Arnold companies and C.E.O.'s" for
moving jobs overseas. Last November, Indiana pulled out of
a $15 million contract with an Indian company to provide
technology services because of objections to outsourcing.
The National Foundation for American Policy, a research
group, says 30 bills are pending in 20 states to curb the
use of offshore contractors by state and local governments.


Senator Kerry introduced federal legislation last November
that would require call center operators to disclose where
they are located.

The Senate recently passed a bill sponsored by Republican
Senators Craig Thomas of Wyoming and George V. Voinovich of
Ohio, that prohibits the use of offshore workers on some
government jobs. The House has not voted on any similar
bill.

These steps, some economists warn, are part of a misguided
drift toward protectionism that would increase costs to
consumers, make American businesses less competitive and
risk more trade conflict.

"This anxiety about outsourcing is not a bad thing, as long
as it forces you to make the right choices," said Jagdish
N. Bhagwati, a professor of economics at Columbia
University. "You have to move on and upgrade your skills.
We have no choice. And America, as probably the most
innovative society in the world, does a pretty good job of
it."

That process has begun, as companies and people enhance
their skills. The result is new hiring, even as other jobs
move offshore. Intel has added 1,000 software engineers in
China and India in the last two years, but it has added
even greater numbers in the United States.

I.B.M., the world's largest computer company, is also doing
both. The company says it plans to transfer 3,000 jobs
overseas, many of them white-collar jobs like computer
programmer. But I.B.M. also says it intends to add 4,500
employees this year in the United States, including
programmers and software designers with specialized skills.


The people in demand, says Hershel Harris, vice president
for strategy in I.B.M.'s software unit, are those who are
fluent in technology and in how technology can be applied
to solve problems in particular fields of business or
science.

Mary Trombley, 27, was hired last year by the I.B.M.
software group as an engineer in San Jose, Calif. She was
an English major at the University of Michigan, which she
attended from 1994 to 1998, making her part of the first
generation of college students with wide-open access to the
Internet. She got enough of a taste for technology that she
decided to change course. "It looked exciting and I jumped
in," she said.

At I.B.M., she is a "human factors engineer" who helps
tailor software tools for companies in the life sciences,
retailing and financial services industries so they can
more easily sift through vast databases to quickly mine
useful nuggets of information. She works with programming
languages, C++ and Java, but her main focus is a level
above the code itself. "It's understanding a customer's
needs and business strategy, and then translating that into
solutions," Ms. Trombley explained.

After two years of slight declines, the number of
professional software developers - people who design, build
and code programs - rose in the United States last year to
2.35 million, according to IDC, a research company. Today,
America has more than four times as many software
developers as India, and nearly seven times as many as
China. But the recent growth rate, and projected growth, is
far higher in those well-educated, developing nations. The
United States is continuing to add high-skill jobs, like
Ms. Trombley's, but others are being lost.

Maintaining and upgrading older software on mainframe
computers is the kind of job at risk from offshore
outsourcing. James Fusco, a mainframe programmer from East
Brunswick N.J., worked for AT&T for 13 years. In 1999,
seeking to cut costs, the company farmed out much of its
data center operations to I.B.M.'s global services unit.
Mr. Fusco and his coworkers showed up at the same offices
in New Jersey, but suddenly they were I.B.M. employees.
Their work, improving and updating mainframe billing and
marketing applications, was the same, but one project after
another was handed off to programmers in India and Canada.
In May 2002, Mr. Fusco and many of his colleagues were laid
off, their jobs casualties of outsourcing.

"We were not treated like real I.B.M. employees," Mr. Fusco
said. "No attempt was made to retrain us to help us get
other jobs."

Mr. Fusco is one of the plaintiffs in a class-action suit
against the Department of Labor that seeks to extend the
government's trade adjustment assistance program, dating to
the 1960's and most recently revised in 2002, to software
programmers. The plaintiffs have been told by the Labor
Department that, because software is not a tangible
"article," they do not qualify for financial assistance and
retraining for jobs lost to foreign competition, as
manufacturing workers do. Efforts are under way in Congress
to change the law.

But even those who joined the class-action suit do not seem
to resent the foreign workers who are doing their jobs. "I
loved my job and I was good at it," said Ron Beyer, 54, a
senior programmer from near Gun Barrel, Tex., who made
$80,000 a year. "But it's time to move on, and find
something else, something that can't move offshore."

Mr. Fusco, 50, found a job last November as a systems
administrator at a small company in New Jersey, at a pay
cut from the $65,000 salary he earned at I.B.M. With the
federal assistance and retraining he is seeking, Mr. Fusco
said he might consider training for another field.

"A year ago, I would have gone for newer computer skills,"
he explained. "But I'm not sure that programming is a smart
thing to get back into. It can be done remotely."

http://www.nytimes.com/2004/02/15/business/15JOBS.html?ex=1077798027&ei=1&en=1e48ccab0ef41f9c

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