14 Million Jobs - Gone in the blink of an eye

Date: Wednesday, November 12, 2003 1:52 PM

JOB DESTRUCTION NEWSLETTER

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The Forrester Research study on outsourcing has made quite a stir in
the media. Their statistics are now quoted whenever offshoring is
discussed. The Forrester Research study concludes that 3.3 million
white-collar jobs will be permanently sent overseas by 2015, the
leading category of which will be I.T. workers.

A new study done at UC-Berkeley's pegs the number at 14 million, and it
may be the more accurate of the two studies. Keep in mind that
Forrester promotes offshoring, so they have a vested interest in
downplaying how bad things will be - of course 3.3 million jobs is
scary enough!

One of the most insightful comments in the article concerns why so many
of these jobs being offshored is white collar:

Think of it this way: It's easier to set up a service
job in terms of organizational and logistical issues at
the other end. These jobs require office space, a computer
and a telephone. To set up a steel plant requires a whole lot
more complicated coordination. Supply networks have to be set
up, and there are a whole lot of other issues.

Business service jobs are organizationally, logistically,
structurally simpler to set up.

There are also worst-case/best-case scenarios:

worst-case scenario: wages will adjust downward significantly,
so that it becomes competitive again not to outsource the jobs
and to have them done here.

best-case scenario: there's continuing innovation. There's
creation of new sectors in a dynamic economy. New firms are
established. Higher-paying, value-added jobs are created.
So, basically, a repeat of what happened when the manufacturing
outsourcing gathered steam. That's the best possible outlook
that one can look forward to.

http://www.salon.com/tech/feature/2003/11/05/outsourcing_report/index.html
(This article is a hassle to view online, but if want to you must allow
cookies and click on the one day pass)

Gone in the blink of an eye

Berkeley researchers declare 14 million U.S. jobs are at risk of being
outsourced.

By Katharine Mieszkowski

Nov. 5, 2003 | If every white-collar job that could be easily
outsourced to Russia, China and India goes the way of the
customer-service call center, 14 million positions will be eliminated
in the United States, according to "The New Wave of Outsourcing," an
academic study released in late October.

Researchers Ashok Deo Bardhan and Cynthia A. Kroll at the Fisher Center
for Real Estate and Urban Economics at UC-Berkeley's Haas School of
Business calculated that some 11 percent of all U.S. occupations are
"vulnerable" to outsourcing.

While Bardhan and Kroll stress that this figure represents the "outer
limit" of how many white-collar jobs could soon migrate from the United
States, their research also notes just how easy it is to relocate
operations that require little infrastructure. The incentive to do so
is huge: An American computer programmer is paid, on average, $60,000
to $80,000, while a coder in India makes $5,880 to $11,000.

The report highlights in bright color two pressing questions. In this
century, will Silicon Valley become the faded symbol of a
race-to-the-bottom global job market in the same way that Flint, Mich.,
and its fading car-manufacturing factories did in the last? Or, will
globalization bring new opportunities to developing economies that
desperately need them? Salon spoke with Bardhan on the phone from his
office in Berkeley, Calif., about the implications that outsourcing has
for the U.S. labor market and the world.

You refer to a widely quoted figure from Forrester Research that states
3.3 million jobs are likely to be lost in the U.S. to outsourcing by
2015. But you suggest that Forrester's estimate is low. Can you talk
about why you think it's a conservative prediction? And how you came up
with your own numbers?

Usually, we look at the economy along verticals, along industrial
sectors. [This time] we decided to analyze it along occupational lines,
since computer programmers exist in the computer industry, but they're
also employed in the banking sector and elsewhere.

We went through all the 800-odd occupations that make up the U.S. labor
market. Then we used a kind of heuristic, a rough-and-ready algorithm,
to see what occupations are the most vulnerable to outsourcing. The
attributes that we used are things like there is no face-to-face
customer-service requirement. The job should be Internet enabled. It
should have high information content. There should be a significant
wage differential between the U.S. and abroad.

We narrowed it down to those occupations where already some outsourcing
has either occurred or is being planned. Then we added up. What are the
total number of jobs in these occupations?

That's how we have arrived at the 14 million figure. I want to stress
that we really don't want to make too much of this 14 million figure.
People are really getting scared.

The main issue here is simple, really. These are white-collar jobs that
are vulnerable to outsourcing. One way of looking at it is: If one
payroll job can go, so can another.

And, then, looking at it from the other side, which countries are
acquiring all these outsourced jobs? Together, the three large emerging
markets -- India, China and Russia -- produce nearly three times as
many science and engineering graduates each year as the U.S. Now, the
educational levels at least at the basic science and engineering
graduate level are pretty good. In the case of India, you have the
additional advantage that English is the main language of business,
communication and media. You also have a kind of institutional
similarity in many cases. For example, India has, broadly speaking, the
same legal system and similar accounting standards.

Then you have these really large wage differentials. When you have a
wage differential of five to 15 times between the U.S. and these
countries, and if the job can relatively be done at the same level of
skill and productivity, there's no question that it makes the job
market here vulnerable in the medium term.

So do you think the outsourcing of white-collar jobs is actually being
under-hyped by the media?

We have done a kind of forward-looking paper. The chances of being
wrong are pretty high in this kind of a situation. If you were to look
at where the whole situation stands today, I wouldn't say that a lot of
jobs have gone already. The entire India business-process outsourcing
sector employs around 250,000 in jobs like accounting and legal
research. I'm separating the software aspect from this business-process
sector.

And the 250,000 jobs that have been created in India, I wouldn't say
that they were jobs that existed in the U.S. It's not as if it was a
one-to-one transfer of jobs.

But, as I said, we are looking forward, and there is no question that
we are probably in the early stages of business-services outsourcing.

The U.S. economy lost a fourth of its manufacturing jobs in the last
two and a half decades. In around 20 or 25 years, around 25 percent of
U.S. manufacturing jobs have gone, a significant part due to
outsourcing.

You argue that it's likely that something similar will happen with
white-collar jobs even more quickly. Why?

Think of it this way: It's easier to set up a service job in terms of
organizational and logistical issues at the other end. These jobs
require office space, a computer and a telephone. To set up a steel
plant requires a whole lot more complicated coordination. Supply
networks have to be set up, and there are a whole lot of other issues.

Business service jobs are organizationally, logistically, structurally
simpler to set up. If you already have trained accountants in India,
transferring accounting jobs there requires setting up an office with
good telecom links to the U.S., computers, and basically you're ready
to go.

So, how big a factor do you think that outsourcing is in the so-called
jobless recovery that the U.S. is experiencing right now? There have
been these great reports about the overall growth of the U.S. economy
in the third quarter this year, but then people are still struggling to
find work here.

That's a good question. I think that it is a factor. I don't want to go
overboard and say it's a significant factor. Because we still don't
know: If the jobs were not being created there, would they be created
here? That's the question that you're asking, and it's really a
difficult one to tell right now.

You write that 25,000 to 30,000 jobs were outsourced from the U.S. to
India in July of 2003. How did you come up with those numbers?

That figure was came from U.S. firms announcing the establishment of
offices and facilities and centers. In India, the media gave an
estimate of how many jobs were being created because of that. It
doesn't mean that it created them right away.

I was there last July, and every day there were major U.S. firms saying
so-and-so firm plans to open a payroll-and-accounting office in
such-and-such an Indian city, which would be employing around 3,000
people or 4,000 people. Big numbers are being bandied about.

We didn't want to make too much of that. But the reason why it was
included in the opening introduction of our report is that this was
going on at the same time that layoffs were going on in the U.S.

That's the significance. So, in that sense, there's no question that
part of the jobless growth is because of that. But would it have made a
big difference? I'm not so sure. The U.S. is a huge economy, after all.

Do you think that there is a xenophobic element in the fact that some
people are claiming: "Oh, I can't find a job because all the jobs are
going to India." Do you think that is in play in the U.S. discussions
about this phenomenon?

That's again a good question. Tough times always bring out xenophobia.
This is actually a situation where a lot of the companies and
businesses seem to be doing OK. The economy is growing, but the jobs
are not growing. You would expect to see even more kind of xenophobia
in a job environment like that, I suppose.

People should understand that in a free-market system in the context of
a globalizing world, and with large wage differentials, I dont see
how this phenomenon can be contained, short of major legislative
action.

Do you think that it's likely there will be protectionistic measures in
the U.S. which will have any impact on outsourcing?

Here's the issue: I think that one has to realize that there are some
difficult times ahead. And we don't want to sound kind of unsympathetic
at all. This is the impression that a kind of cold-hearted reading of
the report might give.

But protectionism is not the answer. I think that the American people
should lobby for increased funding for education, for training, so that
there is constant innovation and dynamism in the economy, which keeps
creating higher-value jobs.

That's what happened when manufacturing outsourcing took place, right?
You had all these service-sector jobs that were created. You had
software. You had dot-coms. A lot of people got jobs there.

You need something like that this time. That's the only way to stay
ahead of the game.

At the end of your report, you make several remarks about possible
likely impacts on the U.S. job market because of this phenomenon. One
is migration of unemployed U.S. white-collar workers to lower wages for
service-sector jobs.

That's the worst-case scenario, because ultimately the job market has
to adjust. Or, the wages will adjust downward significantly, so that it
becomes competitive again not to outsource the jobs and to have them
done here.

Or, the best-case scenario is, there's continuing innovation. There's
creation of new sectors in a dynamic economy. New firms are
established. Higher-paying, value-added jobs are created. So,
basically, a repeat of what happened when the manufacturing outsourcing
gathered steam. That's the best possible outlook that one can look
forward to.

In one chart, you list San Jose and San Francisco as two of the areas
in the U.S. most vulnerable to this phenomenon. Can you talk about why
that is, and how big an impact you think that this will have on Silicon
Valley?
http://www.frbsf.org/publications/economics/letter/2003/el2003-33.html

In the case of San Jose, it's very clear it's because of the
higher-than-average presence of those vulnerable, outsourceable jobs,
particularly in the computer-related sectors -- the programmers, the
database administrators.

In the case of San Francisco, it's that plus some of the business
support jobs: the back-office business jobs -- accounting, payroll
clerks.

In a place like San Francisco you have a whole lot of jobs connected to
the business and the finance world, so quite a few of those are
vulnerable, too. There's a disproportionate number of these vulnerable
jobs. The other factor, of course, is that the wages are significantly
higher than even in the rest of the U.S.

As is the cost of living.

Yes. But if let's say a firm were looking to cut costs, and if they had
a number of offices all over the country, they might get rid of this
one first. If you wanted to outsource those operations abroad,
obviously it's better to cut costs at the most expensive location.

So, say you're somebody who is living in San Francisco and working in
one of these jobs that's potentially vulnerable to outsourcing. What
advice would you have for this person?

Oh boy. Let me ask you a question: What would you have said to a
blue-collar worker back in the '80s and '90s?

I don't know. What did people say?

The talk at that time throughout the country was that retraining needs
to be done.

People need to acquire new skills all the time. In a fast-paced
globalizing world like ours we are all liable to be obsolete in the
blink of an eye.

About the writer
Katharine Mieszkowski is a senior writer for Salon Technology.
km@salon.com

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