Offshore Outsourcing In America’s White-collar Industry
Introduction
For years, our current TV shows have been interrupted with commercials and solicitations begging those of us who live in The States to adopt a child in need of food overseas. They beg us to open our hearts and help those who are not as fortunate as us by opening our wallets and aiding the poor. And, in truth, as annoying or repetitious as it may be to see celebrities like Sally Struthers make their continual plea, it is certainly a cause that should receive notice. After all, no humans deserve to live below poverty level or go without the basic things they need for their children to thrive. However, too often our attention is being diverted overseas when there are just as many issues deserving concern accurate here in The U.S. Many children right here in The States go hungry or have parents that cannot afford to give them all they need to thrive in today’s society. The present rate of unemployment has not helped to alleviate this problem, but has instead contributed to it. However, one must admit that at any time, in any civilized society, it just seems a given that there is always some percentage of unemployment that seems inevitable for whatever variables are fervent. Yet, just as it doesn’t seem to make sense to send money and food to children starving overseas when there are children that do not have enough to eat right within the domestic continent, it also doesn’t make sense to provide jobs for citizens in other countries when many of us living in The States need these jobs to help their fill families. Despite this rationale, this is exactly what is occurring with the presence of offshore outsourcing. Taken even one step further, not only are jobs that could help “Americans” (even visiting ones) being sent overseas, but jobs are actually being taken away from people in this country to be outsourced to other countries, thus enhancing the American rate of unemployment. While one could argue that outsourcing only involves jobs that most people in the U.S. wouldn’t want to do anyway, such as menial tasks or low wage labor, this is no longer the case. The contemporary outsourcing trend has grown to include high-tech jobs that individuals go to school many years in order to qualify for, and then spend decades financing their student loans just to collect such a position. And, in the end, it is all for nothing. They end up in the unemployment line along side any other laborer that didn’t even bother bettering himself with an education in the first status. One then has to ask why this occurs. And the answer, of course, is financial: sending work overseas allows for cheaper labor costs. Yet, one must also ask: what is the stamp to the people who live in America? To the economy? To America’s competitive edge? And to the future? Perhaps, this outsourcing trend and its negative implications has been best summed up by an anonymous internet blogger and his “proposal for a solution”. In his blog he states: “Here is a noble belief to maintain the American economy humming. Let’s give a tax break to any and all products marked “Made in America” …for should we not reward American producers and manufacturers who stay loyal to the domestic United States and provide a future that at times has been swiped by political foolishness and corporate greed? We do business in terms of places throughout the world where the American business cannot even mention American names because the environment they operate in is extremely hostile towards Americans, themselves. Does this seem right? Are you buying products made in a foreign country that has policies hostile toward your own safety? You may– and most likely are– so I deem it’s time we all get on board and make “Made in America ” stand for something once again. I was made in America; you were made in America, what is the problem with buying other things made in America? ” (voteswagon.com, 2007). Of course, this individual is elaborating on the fact that “Made In America” once meant a source of pride. Products were manufactured in America, from start to finish, affording more jobs to workers in The States. In turn, individuals would purchase more products that were marked as “American Made”, contributing to the economy and the stability of the manufacturing employees and the families they supported. And, it should be said that even if not all of us were “made” in America, anyone who presently resides here is affected by any detriment to the U.S. economy, its people, and the climate that the two comprise. Nevertheless, should the blogger’s sentiment translate into action, the loss of sales profit that outsourcing companies would experience from such a movement would hardly make the savings in labor cost worth it. In regards to this, the following thesis addresses exactly this topic: offshore outsourcing. This paper discusses its implications as presented in current research, as well as the extenuating consequences that such an activity has on The United States in terms of its innovative capacity and its effect on America’s competitive edge in the global market.
Literature Review
Outsourcing jobs to other countries has been a rapidly growing trend in the American business industry. The old mantra of “Buy American” seems to succumb to the overriding agenda of companies to tend to the bottom line. Offshore outsourcing seems to be one way of doing this. In years past, the inventory of work delegated to workers in other countries seemed to only involve menial and tedious tasks, or those jobs considered to be of a “blue collar” nature. However, a new tendency has arisen that involves outsourcing additional jobs that are generally considered to be of a “white collar” nature. Many studies have addressed this new phenomenon and have attempted to evaluate both its benefits and detriments. One of these, facilitated by Brecher and Costello of the North American Alliance for Fair Employment, explains that the “outsourcing of technical and service jobs represents a new phase in globalization” (Brecher & Costello, 2004). They interpret further by reporting ” a majority of American workers are now being forced to grapple with outsourcing as a threat to their own livelihood and the future prospects of their children” (2004). Senator Joseph Lieberman conducted some research of his own, constructing a meta-analysis of information and data findings, concluding that “this trend threatens Americans working in a wide array of industries that use IT in their business functions, ranging from data entry to aeronautical design” (Lieberman, 2004). Yet, this expanding use of outsourcing may not only have implications on individuals, themselves, but also has the capacity to affect the nation as a whole. This surrounds the issue of the United State’s ability to maintain a certain level of innovation essential to quit competitive in the global market. The following literature review provides a brief overview of some of the recent studies that address both the benefits and detriments of the high-tech offshore outsourcing phenomenon that now seems to be prevalent in the American business industry.
The New Trend in Outsourcing: Who is Affected
Recent research data has established that as of November of 2004, over 3 million Americans had already lost their jobs to corporate outsourcing. A study by Linda Levine analyzed this growing trend and the implications associated with it in a data report that was presented to congress. In the course of her research, she identified a variation in the population who is presently being affected by the occurrence of outsourcing. While in the 1980’s layoffs and job loss was often attributed to the catch phrase “corporate downsizing”, the layoffs of the new millennium affect a vastly different population. The elimination of the “middle man” that was evident in the recession of the ’80’s targeted expenditures by diminishing the population of middle management (Levine, 2004). However, after surveying information from the Displaced Worker Supplement to the Current Population Peek, Levine found that “the nature of permanent job loss has changed…long-tenured white collar workers in communication service sector industries have now become more susceptible to displacement” (Levine, 2004). An example of this occurred in 1991, when permanent layoffs in the areas of finance, insurance and real estate quadrupled to 5.5% from previous estimates (Levine, 2004).
Levine further continues to project that over 3.4 million service sector positions will be lost in The States to employees overseas by the year 2015. These will include ” a wide range of fairly well paid white-collar occupations” (2004). Groups identified as being susceptible include office support, business and financial support, paralegals and accurate assistants, computer and math professionals, and diagnostic help services. Further, at the time of her study publication, Levine projected a total of 10% of all IT jobs at IT companies would be outsourced, in addition to another 5% of IT positions at other companies before the raze of 2004. This is a figure that has since been realized and surpassed. Novel discover literature identifies many “household name” corporations that are already prominently entertaining in the practice of “offshoring” or outsourcing offshore. Of these, General Electric has outsourced over 20,000 jobs to India and China in the field of R&D relating to the medical field and aircraft design, Intel has utilized overseas labor in India for the purposes of tech support, Microsoft has outsourced software design and IT support jobs, in addition to Oracle who has done the same (Levine, 2004). Other data resources have named Dell, Bank of America, AMEX, Citibank, IBM, PG, Delta Airlines, Prudential and Daimler Chrysler who employ the work of individuals in India, the Philipinnes, China, Russia, Ireland, Israel, Canada, Poland and Malaysia to cite a few (Lieberman, 2004). Quite simply, it has been summed up that “job offshoring is no longer restricted to basic service tasks, such as data entry and processing, but has expanded to include sophisticated work such as knowledge services, decision analysis, design, engineering and research and development” (Hira, 2003). In the words of Carly Fiorina: “There is no job that is America’s God-given right, anymore…” (Hira, 2003).
The Benefits
Many studies explain the benefits that can be realized through the employ of outsourcing, as opposed to employing a domestic population in certain circumstances. Above all, the number one reason that corporations outsource certain tasks or jobs is to reduce costs incurred from employee salaries and other production expenses. This theme of catering to the bottom line and minimizing costs, while maximizing profit margins is one that has been replicated in survey after study. In the Brecher and Costello study they found that one CEO they had interviewed reported “You can get three or four programmers for the price of one (via outsourcing). As a software company, you can cut half your programmers, cut your prices, and your profit margin goes up all at the same time. That’s a big deal” (Brecher & Costello, 2004). Ron Hira’s literature is another replication of this persisting idea. In support of this motivation he states “the most important strategic and economic driver behind global outsourcing is the ready availability of substantial numbers of skilled professionals in other countries who are willing and able to work for much less than their counterparts in the U.S.” (Hira, 2003). A substantiated example originates from his data regarding the salaries of engineers with comparable experience and education in a variety of countries. In contrast to the $70,000 salary of a median level engineer in the U.S., this same level of expertise can be employed for a lower annual pay rate of $25,469 in Hungary, $15,120 in China, $14,420 in Russia, and a significantly cost-efficient estimate of $13,580 for an engineer in India (Hira, 2003).
In an extensive review of the literature regarding benefits of offshoring, Senator Joseph Lieberman supported the fiscal advantage it gave to corporations, as well as offered some other corporate gains to be realized through sending jobs overseas. In reference to cost efficiency he suggests that the surplus of labor other countries have to offer, in conjunction with the coarse cost of living in these developing nations, can render a savings to corporations as high as 90% when it comes to cost of labor. (Lieberman, 2004). In his estimate, he proposes that programmers receive 1/10 to 1/3 the salary of American programmers (2004).
Another potential benefit to outsourcing pertains to the quality and quantity of labor available overseas. While math and science education in the States appears to be “eroding”, the number of students and programs relating to these disciplines is escalating in other countries. This allows corporations the opportunity to choose from a gigantic population of skilled and generous professionals that are capable of an excellent quality of output. A comparison between China and The States provides an accurate depiction of the discrepancy that exists between the domestic and international employee populations. In the instance of engineering majors, while only 5.1% of undergraduate students in the U.S. pursued degrees in engineering, this is in primary contrast to the 44.3% of all undergraduate students who pursued an engineering career in China (Lieberman, 2004).
The Lieberman Study also proposes other causations for the increasing preference towards outsourcing. One of these is the expanded communications access provided by contemporary technology. More specifically, “global availability of cost-effective, high-speed digital internet connections, combined with net based and other communication tools, such as email, instant messaging, and faxes have empowered foreign workers to provide services which do not necessarily require direct physical contact” (2004).
Supplementing the expanded means of communication that makes the practice of outsourcing so feasible and sustainable, is the expanded “work day” that comes with facilitating operations in time zones around the world. Hosting operations in a number of time zones allows for these operations to essentially remain functioning 24 hours a day. Because it is always daytime somewhere, operations can hurry around the clock in different time zones, eliminating the need to pay workers in any particular geographic set overtime (Lieberman, 2004). Certainly, this is a benefit that once again caters to the “bottom line” and reduces the cost of labor that is incurred by corporations that operate only on a domestic level and are required by law to pay overtime wages, as principal. However, Linda Levine issues a warning regarding the significantly high proportions of savings that are estimated in engaging in the practice of outsourcing. While in most cases it appears that an inevitable labor cost savings does occur, she warns “organizations often steal that labor arbitrage will yield savings similar to a person-to-person comparison (e.g. a full-time equivalent employee in India will cost 40% less), without regard for the hidden costs and differences in operating models. The reality is (only) a savings of 15-20% the first year” (2004).
Despite all of the above, there is at least one more advantage of offshoring to be discussed. Featured in Senator Lieberman’s presentation of research, he elaborates on a study finding that was presented by the McKinsey Global Institute. They found that to “maintain the same share of working age population to the total population that existed in 2001, 15.6 million additional workers will be required by the year 2015…maintaining this U.S. living standard will require more innovation, greater productivity gains, or increased immigration into the U.S.” (McKinsey, 2004). Put bluntly, offshoring is quite simply a much easier option.
Unavoidable Detriments
Despite the benefits to be gained by corporations through the use of outsourcing, as the literature reveals, the other side of the coin uncovers an equal number of detriments. Unemployment of U.S. citizens (and anyone else living in the U.S.) is perhaps the most distinct and disconcerting of these. As Brecher and Costello explain: “outsourcing would not be a problem if there were enough decent jobs. But a global jobs deficit allows companies to go work wherever labor is cheapest…and where governments are most desperate and therefore will provide the highest subsidies with the lowest environmental and social protections” (2004). Ron Hira confirms this finding in the course of his research acknowledging that “the willingness of major employers to move essential functions and white-collar jobs of all kinds to lower cost, offshore locations is a major contributing factor to our fresh unemployment crisis” (2003). Supporting data demonstrates the impact of outsourcing on domestic employment. An example of this is seen in the portion of engineering jobs that were lost in 2001, 2002, and 2003, where the correlating unemployment rate increased from 2%, to 4.2%, to 6+%, respectively. Narrowing the criteria to specific engineering positions, the first quarter of 2003 demonstrated a significant showing of 7% of software engineers that had been impacted by outsourcing, in addition to another 6.5% of all computer hardware engineers, and 7.5% of other software/technical support engineers. Though such numbers may not seem to represent what one may consider a significant majority, the significance of these figures lies in the fact that such an unemployment rate amongst these industry segments was (by prior surveys) found to be absolutely unprecedented! (Hira, 2003).
Despite these estimates of unemployment and job loss, many would argue that “when one door closes another opens”. After all, it is not many individuals that remain in the same position for the length of a career. However, the question remains: do these employees who lose their positions to offshoring win employment elsewhere? The Journal of Economic Perspectives featured an article entitled “The Muddles Over Outsourcing” which presented research addressing just this divulge. The findings of this gape speculated that “popular economic models of trade, at least the basic ones, typically consume that workers who lose one job can readily gather another one…(however) in the trusty world, workers often suffer a lengthy period of job loss and displacement” (Baghwati, et al, 2004). Nevertheless, the Levine study purports that the number of jobs lost to offshoring only account for a minute 2% per year of the total jobs in the U.S. (2004). Baghwati and his associates also downplay the unemployment impact, claiming that the hype concerning a large majority of service jobs being lost to countries such as India and China as a result of outsourcing is “both empirically and theoretically mistaken” (2004). They propose that this is due to the nature of the vast majority (70%) of service jobs that, in reality, “require the consumer and producer to be point to at the same time and same place” (Baghwati, et al, 2004). Such requirements of obvious job positions make it virtually impossible for them to be outsourced.
Another detriment to the individual is the effect outsourcing will have on wage earnings. More specifically, should an employee lose their position to outsourcing and are fortunate enough to find another situation of gainful employment, will their lifestyle be comparable to what it was prior? Proponents of outsourcing will suggest that it actually creates jobs, in some cases, and promotes human capital. Ron Hira provides an example of such an occurrence explaining “outsourcing allows some human operators abroad to answer the phones for many billing and business inquiries, rather than having such tasks replaced by fully automated electronic response systems” (2003). Nevertheless, there is collected the teach of certain types of jobs being replaced, even if the total number of positions in the U.S. is not decreased overall. As for the jobs that are being replaced, a approved question one should ask is “are computer programmers earning $60,000 a year going to be bumped down into $15,000 year jobs stocking shelves and bagging groceries at Walmart? ” (Hira, 2003).
Effect on The Nation
In addition to the effects that outsourcing has on employees, themselves, there is just as necessary an impact on the nation, as a whole. The literature indicates a few main ways that outsourcing affects the United States. These are in an economic and an innovative/competitive capacity. In regards to outsourcing’s economic effect, the wage whine alluded to above not only directly impacts the individual, but has potential ramifications on the economy of the nation, itself, when considering the “bigger picture”. One such study uncovered in a search of the literature states that “reducing wages through offshoring leads to wealth creation for shareholders, but not necessarily for companies and employees, or most importantly, for the country” (Levy, 2005). However, some research findings claim that outsourcing is not likely to lower the overall wage level of displaced workers and, thus, it will not have a significant impact on the economy as a whole or the median income of the American family as a function of it. This is mainly due to the fact that outsourcing is most often utilized in cases of crude wage jobs to commence with. There are, inevitably, the exceptions to the rule. One example of such an exception occurs in the case of R & D laboratories. However, even in these instances, outsourcing occurs only in a limited capacity as the labs, themselves, often need to be close to home where the products are developed. In general, there is sort of a “standard operating procedure” where “innovating firms introduce and debug products in the domestic market, then shift production to countries where it is the cheapest to produce with the home country then acting as an importer of the product…insourcing to the U.S. where others buy American produced legal, medical, educational and other services online leads to higher value jobs. Thus, the U.S. economy loses low wage call centers, but gains high wage jobs in medical, moral, and other capacities…” (Hira, 2003). Other literature concurs that the impact of outsourcing will not compose a huge economic detriment, proposing that “as long as the U.S. economy continues to raise its level of technology, human capital, and physical capital to run an economy not too far from full employment, then the dynamic twists and turns of that economy will produce higher wage jobs” (Levine, 2004). Thus, in this limited capacity, it appears that outsourcing can be a national benefit.
Despite the literature that minimizes any detrimental economic impact of offshoring, Ron Hira admits that this only presents one side of the argument. In his address to the United States House of Representatives, he admits that while there are certainly benefits that result from the recent offshore outsourcing phenomenon, “there are serious long-term consequences for many Americans, their communities and the nation as a whole” (2003). He elaborates on this by explaining that the unemployment associated with outsourcing jobs also results in a correlating loss of payroll and income taxes. Considering the deficient and hazardous status of obvious “pay as you go” programs, such as Social Security and Medicaid, eliminating jobs that would contribute to such programs will certainly carry with it a negative influence (Hira, 2003). This is not to mention the fact that the associated “loss of economic and technological competitiveness fosters an increasing dependence on foreign sources” which can be an obvious detriment to the American economy.
Senator Lieberman addresses the economic impact of offshoring by using the IT industry as a specific example. This is relevant in light of the fact that this new wave of outsourced work now involves an astonishingly famous number of IT-related positions. Quoting from the statistical research he gathered, he reports that IT producing industries accounted for 8% of the U.S. Gross Domestic Product in 2003, 28% of real economic growth between 1996 and 2000, and in the fiscal year 2001, alone, the total GDP from IT producing industries was $828.9 billion! (Lieberman, 2004). Responding to these statistics, Lieberman declares that such numbers “demonstrate the critical importance of the IT industry to the U.S. and its economy, adding urgency to the offshoring debate” (Lieberman, 2004).
Yet, beyond the potential economic detriment that can result as a product of offshoring, an issue that is, perhaps, even more deserving of immediate attention is the influence it will have on America’s ability to remain competitive in an innovative global market. “Global outsourcing is often justified as absolutely important to the preservation and enhancement of corporate viability and the quality of life in the U.S…” (Hira, 2003). But, is this corporate benefit at the expense of national sustainability regarding global competition? Many literary articles pertaining to this topic voice this as a valid and considerable concern. Hira conveys his belief that “a nation’s ability to innovate is at the core of its economic and technological strength. Place matters when it comes to the innovation process because it generates enormous local spillover benefits and feeds on itself. An distinct example is Silicon Valley” Outsourcing reduces opportunities for continuing domestic innovation in software, data communications and data security applications (Hira, 2003). Lieberman concurs in stating his findings that “as firms export famous business and technical knowledge, they risk losing core competencies, in house expertise, and future talent” (2004). He further elaborates that “US industry, government, and academia have grown highly dependent on the foreign born science and technological workforce…” (2004). Undoubtedly, such a dependency cannot serve to foster the nation’s believe independence and standing in innovation and competition in the global market. Finally, in accordance, Blagwhati and his associates render their overall findings that while offshoring growth “makes outsourced information tech services cheaper to the U.S. which is beneficial, it also has the harmful effect that it expands the world supply of the information tech intensive goods that the US economy exports and thus, worsens the US terms of trade” (2004).
Thus, upon a preliminary review of the literature, it is obvious that there are both benefits to be gained, and liabilities to be balanced, when engaging in the practice of offshore outsourcing. While the diminished cost of labor is certainly an advantage to corporations, this must be weighed against the larger impact that such an activity has on the nation, as a whole. In consideration of the modern trend to outsource more “white collar” jobs, the innovative edge and competitive spirit that accompany the realms of research and beget, information technology, and other higher-paying salaried positions is a domestic advantage that could be lost via the utilization of international outsourcing. The manner in which this can negate the United States’ “upper hand” in the global market, as well as the potential influence that outsourcing can have on the lives of those affected by it, must be weighed against the benefits to be gained on a corporate level. The following discussion addresses these issues, involving a more insightful analysis of the extensive implications of offshore outsourcing. Particular emphasis will be placed on the national impact and the United States’ ability to remain competitive in the innovative global market, while continuing the practice of outsourcing overseas. Finally, additional discussion will engage a more cognitive analysis of the potential future outcomes and consequences that are likely to result from the continued application of this modern trend in the “white collar” industry.
Discussion
Upon a comprehensive review of the available literature, one can deduce that outsourcing “white collar” jobs in the United States does give rise to certain benefits regarding a reduction in labor costs for corporations. However, this corporate advantage seems to be of an “acute” nature, providing immediate, but for the most part, short-term relief. Such a benefit must be evaluated against the further extenuating effects of outsourcing on the nation, as a whole. When looking at the “bigger picture”, it is clear to glance that the detrimental impact offshore outsourcing can have on the nation, itself, far outweighs the marginal benefits afforded individual domestic corporations and other business entities. Therefore, on a national level, the rapidly growing trend of outsourcing “white collar” jobs can result in a domestic decrease of the innovation, technology, and professional expertise necessary for the United States to remain a competitive entity in the global market, effecting the overall well-being of the U.S. economy and essentially nullifying any minor proper impact it may have on single corporations.
A original ogle by the University of North Carolina states that “a common claim of companies that do offshore outsourcing is that it will free up their resources to concentrate on innovation. The question then is whether offshore outsourcing has led companies to become more innovative” (UNC, 2004). In response to this, management professor James H. Johnson, Jr. warns “policymakers need to remember that we don’t have a monopoly on innovation in the United States…(because of outsourcing) we can’t say for sure that certain innovations are going to originate in the United States. If you look at what corporations are doing they are even engrossing their R & D facilities offshore” (UNC, 2004). He offers General Electric’s Jack Welch Technology Center as an example. Located in Bangalore, it is home to over 1500 researchers, scientists and engineers who produce at least 40 new patents every month (UNC, 2004). Other supporting research offers the same grim outcome to this kind of offshoring, as it has been uncovered that “$17 billion a year in R & D now flows overseas to nations like China and India. And as that research money leaves our shores, the high-skilled 21st century jobs we need to compete flit away with them” (McKinsey, 2004). Such an occurrence carries a essential impact simply because (as American researchers have noted): “what we always believed was our nation’s ultimate competitive advantage-our high destroy R & D and technological prowess-is increasingly under siege” (Forrester, 2004).
In particular, by contracting other countries to participate in the tech industry and to function in the role of some of the higher paying salaried positions, the United States is allowing them to gain knowledge and experience in these fields that they may not have otherwise obtained in such a timely manner. It also encourages the workers in foreign countries to study the education necessary to meet the needs of the work that the U.S. outsources to them. This establishes a population of educated and skilled workers in these countries that have the intelligence and talent to foster future innovations and progressive ideas. This is a marketable commodity that places them at a potential competitive advantage, while the U.S. is diminishing its occupy resources of innovation and intelligence, ignoring, rather than fostering, its human capital. As a matter of fact, not only is the United States relying on human capital overseas, but they are becoming more reliant on the abilities of overseas workers to travel to The States and fill domestic jobs. In his observations Lieberman notes: “US industry, government, and academia have grown highly dependent on the foreign born science and technology workforce…In years past, foreign citizens have occupied 17% of US science and engineering positions at a Bachelor’s Level, 29% at a Master’s Level, and 38% of the jobs held among those with doctorate degrees (2004).
The one consistent effect of outsourcing that is readily agreed upon by even opposing studies is that of unemployment. Though the numbers of individuals involved varies from see to study, the presence of a certain degree of job loss resulting from this outsourcing phenomenon is not disputed. While certain research indicates that those affected are marginal and the do is minimal, even these studies still reply the presence of at least some unemployment. It is this unemployment, despite its controversial extent, that acts as a variable influencing the future competitive power of the United States. In fact, research analysts scare that “The U.S. is not unbiased losing jobs…(but) is beginning to lose critical pieces of its innovation infrastructure, and…its competitive edge in the global marketplace (Forrester, 2004). This comes about as a result of how it affects the potential human capital and resources that facilitate innovation in this country and its degree of existence or cessation.
More specifically, the message that results from offshore outsourcing of IT and other service sector jobs deters entering college students from pursuing occupations in this particular career segment. This is a critical point in consideration of the fact that “innovation requires the incubation of curious minds. That means we absolutely must educate and train our science and engineering talent base that is essential to our continued global leadership” (UNC, 2004). Yet, this growing population of students evading the types of degrees necessary to work in IT, engineering and other innovative, salaried positions is mainly a function of the perception that pursuing such an occupation can result in a bleak outcome. The unemployment factor, at best, conveys the message to anyone entering this field that once employed, a location is not a guarantee of steady income and can be dissolved at any time as a result of outsourcing. Should this happen, the statistics regarding the outcome of displaced workers is not a promising one, either. Many studies exhibit that displaced employees do score job positions in some instances. However, only about 2/3 of those displaced are in new positions within 2 years and only about half of those people end up in jobs that pay as much as their original salaries. The remaining half has been forced to accept a wage cut of 15% or more (Bagwhati, et al, 2004). Linda Levine’s study reveals statistics that are no more optimistic. She found a corroborating 51% of those laid off in 1999-2000 earned as noteworthy in 2002 (2 years later) as they had prior to being terminated from employment (Levine, 2004). Yet, this does not address the outcome of the “forgotten half”. What happened to the remaining individuals? Were they still unemployed? Were they working for wages considerably lower than the salary that supported their former cost of living? Were they forced to go serve to school and start all over at a mature age when they concept they’d be looking towards retirement?
In regards to dealing with the workers who have been displaced as a result of offshore outsourcing, the government has enacted certain measures to aid these individuals and their families. As Levine claims “congress has a longstanding interest in assisting workers who lose jobs through no fault of their own…(they have instituted) regular and extended unemployment insurance programs…(as well as enacted the) Worker Adjustment and Retraining Notification Act” (Levine, 2004). This act requires employers to provide notice of layoffs caused by offshoring before the displacement of jobs actually occurs. Yet, are these two acts really effective in providing reparation for lost jobs? Unemployment benefits generally have a “cap” or a maximum amount that anyone can collect regardless of their previous pay rate. This often adds up to just a mere percentage of their prior pay. Therefore, this may mean a young, single male will need to curb his recreational spending and, perhaps, “eat in” rather than eating out. Or, eat Ramen Noodles twice a week and limit his “nights on the town” to Friday OR Saturday, rather than both. But, such budget restrictions are not feasible for the older male or female who has a family to support. Children cannot eat less or wear clothes that they have already grown out of. The family home that carries with it a mortgage payment of $1800 a month
must still be paid, despite the fact that such a payment was once feasible and, after job loss, may account for almost the family’s entire monthly income on unemployment.
In addition, little mention has been made of health benefits. Or, more specifically, the lack of benefits once a job has been evaporated. Certainly, unemployment insurance carries with it some health benefits. After all, especially for “breadwinners”, it is a law that their children under a certain age be covered by health benefits of some kind. But, it is this quality that is in question, as well as the extension of the coverage. In Massachusetts, for example, the state-based Medicaid program known as MassHealth is generally the low-income form of health insurance available to individuals who cannot afford or do not have access to benefits of a better quality. However, the coverage provided is minimal, at best, covering only the most necessary of procedures. Should an occasion arise for a more serious or fervent form of treatment than just a principal care office visit, only the most cost-efficient procedures are covered. This often means that the patient’s quality of life is affected by the overwhelming importance of cost efficiency. In short, if it is more cost effective to slice off a leg than to operate, the amputation is the preferred form of treatment. Other, more expensive options, will come out of the patient’s have pocket. Thus, an individual (and family) that has been the victim of the American corporation’s unconditional efforts to cut costs, again falls victim to yet another system (the state-based healthcare system) that is motivated by the same goal.
Likewise, little if any relief is realized through the Worker Adjustment and Retraining Notification Act. The act, itself, generally requires a six month notification of a pending job loss and aids the displaced worker in retraining for a potential new career position. Yet, one has to ask, is six months really enough time to retrain for a new career? When an individual has spent 6+ years attending college and graduate school to prepare for a high-tech career, what kind of training can they accomplish during this six month notification period and what kind of job can result from it? More specifically, what kind of salary will such a job render? Again, the degree of reparations proposed by government legislation is truly little, if any, relief at all.
And, despite all this, the larger question still remains: does any of this change the fact that educated and skilled professionals who comprise America’s pool of innovative thinkers will now be losing their jobs, shifting the innovative power to workers overseas? Another attempt at amelioration is evident in the Workforce Investment Act, which also helps workers undertake additional education and training, in order to find new positions once theirs has been transferred to an individual in another country (Levine, 2004). Yet, the efficacy of such a program has been demonstrated in the percentage of professionals who still remain unemployed after a significant period of time, as indicated above. Therefore, none of these attempts at diminishing the negative effects of offshoring aids to shift the population of innovative professionals back to a domestic capacity for America, nor is it enough to deter the future working population (college students) from seeking other career avenues (Levy, 2005).
For potential up and coming “white collar” professionals in America, the fear that their job will eventually be given to someone else overseas does not develop for a consistent quality of life or a stable standard of living. Further, this fear is not one that is unfounded. Therefore, individuals that have the talent, intelligence, and motivation to make significant societal contributions in these fields will shy away from such an option as mentioned above. Additional study data has found that since the year 2000, 632,000 jobs have, indeed, disappeared in the high-tech industry (Levy, 2005). Additionally, according to one notice, “college grads (in the States) are having a disproportionately difficult time finding work in these fields. Between the years 2000-2003, the number of unemployed college grads grew at a rate of 299.4% versus 156.1% for workers with high school degree or less” (Levy, 2005). Thus, as summarized by Ron Hira: “downward pressure on job opportunities, wages, and working conditions that will occur as more and more scientific and engineering jobs are shifted to lower cost offshore locations is likely to reduce the willingness of America’s best and brightest young people to pursue careers in science and engineering” (2004). Despite this unfortunate truth, those who composed believe in optimism recognize the opportunity that exists to change the movement of this trend. Perhaps, this need for change and its possibility is articulated most accurately by IBM’s Executive Vice President, Nicholas M. Donofrio: “Innovation underpins American economic growth and national security. In today’s era of global opportunity and change, the rewards flow to those who innovate and turn disruptive shifts to their advantage. America has a long, proud history of recognizing when change is required and rising to the challenge. We are at such an inflection point today…” (Arun, 2006). Some suggest that it is imperative to rethink the idea of offshoring, for the American nation, and provide the sense of security necessary to encourage future scholars to again pursue the “white-collar” professions that have been moving towards outsourcing. It is then proposed that “once the nation, as a whole, gives people the basic skills they need to use their creativity, and the resources they need to support their experimentation, it must then reinvent and transform the manufacturing processes and technologies so that America can secure the gains from the fruits of all this labor. In this era of tough international competition, if the nation doesn’t manufacture the goods that are innovated in the U.S., it will forfeit its global economic leadership and its children’s prosperity to other nations who can” (Kirkegaard, 2004). China serves as the quintessential example of such a concept, shipping $180 billion worth of high-tech products last year, in contrast to the $149 billion exported by the U.S. The Organization for Economic Cooperation and Development attributes this feat to the fact that “China now imports far fewer components for tech goods, choosing instead to perform them itself” (OCED, 1995).
Conclusion
In conclusion, the resulting product of this equation is a decrease in the human resources, skilled professionals, and other talented and intellectual members of the human capital that comprise the innovative pool of the United States. It is this innovation that makes the United States a competitive force in the global market. Without the human capital to foster novel innovative intelligence and technology, the variable of innovation will cease to exist or exist in a limited capacity. This will diminish the U.S.’s ability to remain competitive in the global market, affecting the overall economy. Reliance on other countries for products and technology will inevitably increase. Not to mention, the domestic revenue gained from the nation’s ability to produce products of intelligence and innovation will be lost. Thus, the overall welfare of the country can be assumed to have a negatively correlated relationship with the prevalence of outsourcing. In other words, as the use of outsourcing increases, the welfare of the nation as a whole will begin to decrease as a function of the diminishing human capital that can contribute to future innovations, and a loss of the competitive ability that accompanies it.
While it is often difficult for corporations to see past the bottom line of the present fiscal year, perhaps it will be necessary for them to “take one for the team” and forfeit some of their immediate profit margin in order to contribute to the long-term sustainability of their industry, as a whole. If nothing else, future research should focus on means of eliminating the weakened state of America’s innovative power and competitive status should the prevalence of offshoring continue to rise. Projections published by Forester Research, Inc. predicts that by the year 2010, 83,000 jobs in architecture, 162,000 in the field of business operations, and another 277,000 in computer science will be lost to other countries via offshore outsourcing. This same literature further predicts that these numbers will escalate to 184,000, 348,000, and 473,000, respectively, by the year 2015 (Forrester, 2004). According to the research department at the University of California in Berkeley, their prediction includes 14 million US services jobs (representing 11% of all US occupations) are at risk of being exported over the next 15 years. This translates into $136 billion in wages sent to other countries….473,0000 will be IT related, representing 8% of all fresh IT jobs in the country (Bardhan & Kroll, 2003). Brecher & Costello also project devastating figures consistent with those prior listed, predicting a window of 3.3 million to 14 million “white collar” jobs lost over the next decade. Perhaps, summing the position up best, they claim “The US is experiencing the longest period of sustained job loss since the end of the Great Depression” (Brecher & Costello, 2004). The exception in this case, is that these jobs aren’t being “lost”. Instead, they are being given away, along with America’s capacity to compete in the global arena. In this sense, it almost seems ironic that many residents of other countries travel to The States in pursuit of the “American Dream”, only to find that it no longer resides here, because it’s already been sent across the seas for other nations to devour.
WORKS CITED
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Hira, Ron. (2003). “Global Outsourcing of Engineering Jobs: Novel Trends and Possible Implicatons”. The Institute of Electrical and Electronics Engineers. Presented at The Committee on Small business United States House of Representatives, June 18, 2003.
Kirkegaard, J. (2004). “Outsourcing-Stains on the White Collar? “. Working Paper, Institute for International Economics.
Levine, Linda. (2004). “Offshoring (A.k.a. Offshore Outsourcing) and Job Insecurity Among U.S. Workers”. CRS Report for Congress. Congressional Research Service, Library of Congress, June 18, 2004.
Levy, David. L. (2005). “Offshoring in the New Global Political Economy” Journal of Management Studies, vol. 42, no. 3, pp/685-693, May 2005.
Lieberman, Joseph. (2004). “Offshore Outsourcing and America’s Competitive Edge: Losing out in the High Technology and R&D Services Sectors”. Office of Senator Joseph I. Lieberman, May 11, 2004.
Mckinsey Global Institute. (2003). “Offshoring: Is It a Win-Win Game? “, Mckinsey & Company, August 2003.
OECD (Organization for Economic Cooperation and Development). (1995). “Job Gains and Losses: Recent Literature and Trends.” The OECD Jobs Study: Working Paper Series No. 1 available at www.oecd.org
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“No Rebuilding Foreign Countries Until We Rebuild America”: www.Voteswagon.com
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