The Great Shakeout

Date: Sunday, August 03, 2003 12:17 PM

JOB DESTRUCTION NEWSLETTER

www.ZaZona.com

Free-trade advocates have an agenda that is not discussed very often in
the mainstream media but occasionally we can get glimpses of their
plans by peering into obscure websites.

The economists interviewed in this article think that it is necessary
to scare and intimidate American workers in order to force them to
accept lower salaries. Fear will be generated by mass layoffs and job
insecurity. Ultimately Americans will be coerced into accepting a
global wage scale determined by multi-national corporations. In this
version of corporate utopia, workers in China will make the same salary
as workers in the United States for similar job functions.

In a recent paper, I coined the term "global labor auction" to describe
how the intent of Free Trade Agreements is to pit workers throughout
the world to bid against each other for work. Corporations will reap
greater profits as labor costs spiral downward. Karamouzis, a research
director at Gartner, invented a similar term to describe this
phenomenon - "prevailing global wage".

These quotes vividly describe what American workers will experience in
this new world of corporate globalism:

* "In the long term, if you can make enough workers feel insecure about
their jobs, corporations [may] be able to put a pretty powerful brake
on wage growth," says Josh Bivens, an international economist at the
Economic Policy Institute.

* Ultimately, workers will be paid the prevailing global wage, not the
prevailing U.S. wage, contends Frances Karamouzis, director of research
at Gartner.

* "So, we lost 47% of our jobs, right?" Kosters says. "That's not the
right way to think about this. The right way is: we got much more
efficient and released the workforce to do more interesting things."

http://www.nasvf.org/web/allpress.nsf/0/73DE300E463948ED86256D52004BF407?OpenDocument

Will the Great Shakeout Take Its Toll?

06/27/2003
By:
Evelyn Ellison Twitchell
Barron's
New York, NY
http://www.wsj.com Categories:
7 Economic Development

Preview:
Barron's Online has spent this week looking at how outsourcing and
consolidation are reshaping our economy. This fundamental restructuring
of U.S. industry may look great from the boardroom and on Wall Street.
But there's likely to be real pain lower down the food chain.

Article:

Barron's Online has spent this week looking at how outsourcing and
consolidation are reshaping our economy. This fundamental restructuring
of U.S. industry may look great from the boardroom and on Wall Street.
But there's likely to be real pain lower down the food chain.
The job losses we've seen so far have created high anxiety from the
factory floor to the executive suite. Longer term, restructuring and
global competition could limit the wage growth of white-collar workers
in the same way it did to their blue-collar counterparts when
manufacturing began moving outside the U.S. a generation ago.

And some areas of the country that rely heavily on vulnerable
industries like call centers and data-processing facilities may feel
the pinch, too.

"This is going to be one of the biggest macroeconomic shifts in the
overall U.S. economy in the next ten years, no questions asked,"
contends John McCarthy, Forrester Research's group director of
research.

His prediction that 3.3 million U.S. services industry jobs will move
offshore over the next 15 years has set off alarm bells and garnered
lots of media coverage.

Gartner Research also forecasts that some 80% of U.S. corporations will
have at least considered offshore outsourcing by next year.

Meanwhile, though mergers and acquisitions have dropped sharply since
the stock market bubble burst in 2000, Federal Trade Commissioner
Mozelle Thompson tells Barron's Online M&A activity should pick up when
the economy revives.

"The big AOL/Time Warners might not come down the path, but you might
see more consolidation in middle-market companies," Thompson says.

That certainly won't lower employees' stress levels.

Alexander Horniman, a specialist in organizational behavior and
psychology at the University of Virginia's Darden Graduate School of
Business Administration, says workers often feel a sense of loss and
betrayal in the wake of job-killing mergers.

"When I began work, you expected that if you worked hard and kept your
nose clean, you'd retire from that company," Horniman says. "That's all
changed. It's take care of yourself first, because it's quite likely
nobody is going to take care of you."

Outsourcing also is heightening workers' insecurity.

"You have to worry that you're next," says Paul Osterman, a labor
economist and professor at the Massachusetts Institute of Technology's
Sloan School of Management.

And that could actually drive incomes down.

"In the long term, if you can make enough workers feel insecure about
their jobs, corporations [may] be able to put a pretty powerful brake
on wage growth," says Josh Bivens, an international economist at the
Economic Policy Institute.

Ultimately, workers will be paid the prevailing global wage, not the
prevailing U.S. wage, contends Frances Karamouzis, director of research
at Gartner.

How much is that? Don't ask. An information technology specialist
working for an outsourcer in India earns from $20 to $30 per day; his
or her in-house U.S. counterpart would get $50 to $90 per hour,
Karamouzis's research shows. An entry-level programmer in China makes
30% to 50% less than one in Chicago, according to Forrester.

On the flip side, outsourcing gives companies the breathing room to
charge lower prices, offsetting the pressure on disposable income.
Indeed, U.S. standards of living actually have risen as a result of
international trade in the past, observes William Dickens, a senior
fellow in economic studies at the Brookings Institution.

"Our total income should rise when we succeed in doing things more
efficiently," suggests Marvin Kosters, a labor economist at the
American Enterprise Institute for Public Policy Research.

Yet, at the very least, new global competition could reverse the trend
whereby white-collar employees' wage gains outstripped those of
blue-collar workers.

Outsourcing of IT jobs also could reduce the allure of technology hubs,
such as Silicon Valley; Austin, Texas, and Research Triangle Park, N.C.

But Middle America may bear the brunt of it. Just as the globalization
of manufacturing devastated cities like Flint, Mich., the outsourcing
of service jobs may hurt communities in which call centers or
payroll-processing facilities are big employers.

"Appleton, Wisconsin; Fargo, North Dakota, Wilkes-Barre, Pennsylvania
-- those places will be very hard hit," Gartner's Karamouzis predicts.
"When you ask what the impact is, in a local place, it's huge."

Not surprisingly, there already are signs of a political backlash, as
several states consider laws to keep government jobs at home.

And with jobs scarce, U.S. workers may not be so eager to let
foreigners work here. There may be renewed calls for immigration
control and limits on H1B visas, which allow companies to hire
technical workers from abroad.

"There's a growing chorus of complaints among IT workers, in
particular, that somehow the H1B workers are eliminating jobs here in
the United States," observes Dan Griswold, associate director of the
Cato Institute's Center for Trade Policy Studies.

Still, he contends that even if 3.3 million jobs really do move
overseas in the next 15 years, as Forrester projects, that amounts to
only 220,000 jobs lost per year -- a fraction of the two to three
million jobs that typically disappear each year through normal changes
in technology and competition, he says.

In fact, the U.S. typically creates a net one to two million additional
jobs each year, Griswold says.

And as companies save money by outsourcing, they may able to reinvest
more and actually create jobs here.

The Bureau of Labor Statistics projects that computer and data

processing services -- an area ripe for outsourcing -- will be the
fastest growing industry in the U.S. economy between 2000 and 2010, as
employment grows by 86%.

"You can be hysterical about it, and that I think would be wrong,"
MIT's Osterman says.

Historically, the U.S. economy has found ways to move on to
ever-greater prosperity.

AEI's Kosters notes that about 3% of U.S. workers today are employed in
agriculture, down from around half the labor force a century ago.

"So, we lost 47% of our jobs, right?" Kosters says. "That's not the
right way to think about this. The right way is: we got much more
efficient and released the workforce to do more interesting things."

Indeed, for workers, the best recourse may be to acquire the skills to
move to higher-end jobs that are more difficult to replace, such as
upper-level management, creative jobs and those that require direct
contact with customers. Certain industries, such as health care and
leisure services, also may offer more opportunities as Baby Boomers
retire, Kosters points out.

But who is going to pay for all the retraining? Employers? Fiscally
strapped local governments? The federal government? Not likely.

At a Gartner conference on outsourcing in Los Angeles this week,
Karamouzis asked 150 IT service providers how media coverage of job
losses in the U.S. was affecting their decisions about overseas
outsourcing.

A full 80% said it was having no impact at all, suggesting that the
need to cut costs is outweighing any concern for the human toll -- or
the bad publicity it might create.

That wouldn't surprise McCarthy's Forrester, who predicted in his
study: "By the end of the decade, executive stature will be measured by
the size of the outsourcing contracts that they manage, not the number
of employees."

It's a different kind of empire building for a very different age.

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Rob Sanchez is board member of NAEA - www.NAEA.US

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