The Backlash that Wasn’t

Great little article in Newsweek about the short lived fury around the “giant sucking sound” of American jobs to India. We’re all rediscovering that economics (unlike politics) is almost never a zero sum game –

…Not long ago, what seemed most possible was that India would steal the jobs of American workers. But as George W. Bush visits there this week, he’ll find a maturing economy that is no longer all about call centers and basic tech support. Now big American investment banks and drugmakers are joining tech firms on the passage to India. R&D centers are springing up so fast that there’s now a shortage of Indian engineers. And the stigma of outsourcing jobs to India is disappearing.

…What happened to the outsourcing backlash? It has been muted by the fact that India didn’t suck Silicon Valley dry after all. Actually, U.S. tech employment is growing. There are 17 percent more tech workers in the United States today than back in the bubble days of 1999, says a new study by the Association for Computing Machinery. And the Bureau of Labor Statistics predicts that the U.S. economy will add 1 million tech jobs over the next decade, a 30 percent increase. “Everyone was worried about the offshoring bogeyman,” says Moshe Vardi, an author of the ACM study. “But the big whoosh of jobs to India never happened.”

Amen.

24 thoughts on “The Backlash that Wasn’t

  1. Actually, U.S. tech employment is growing. There are 17 percent more tech workers in the United States today than back in the bubble days of 1999,

    WOW !!! I had no idea… This stat preety much sums it up.

    Think Lou Dobbs will get the message?

    Actually the head of HR of my company (major Telco equip) is also unlikely to get it :-) So I wouldnt hope that Lou Dobb’s will get it. But, as far as Lou Dobb’s is concerned, he has other “issues” to appeal to the xenophobia of people.

  2. Reading the article brings to mind an age old adage ..”There three kinds of lies: Lies, Super Lies and Statistics”.

    The article throws in some numbers that does not reflect the scenario. 17% more Tech workers in US than in 1999. Can’t get more hogwash than this. 1. Of this 17% increase in “TECH WORKERS” from 1999, how many of them are on H1B? & how many are US Citizens? 2. 17% increase in 7 years => Measely 2.4% growth each year. Is this enough to absorb all the IT Graduates in US? 3. Is the definition of “TECH WORKERS” consistent with what it meant in 1999?

    Seems easy to gloss over the facts, when the claims made somehow seem to support of subliminal beliefs/expectations.

  3. “how many of them are on H1B?”

    Suraj,

    In fact, H1B visa quota has gone down in last 2 years, even if you incorporate separate quota for foreign graduates (MS/ PhD) from US Universities.

    Please follow the H1B number game carefully. From no where else, than http://uscis.gov/graphics/howdoi/h1b.htm (USCIS website)

    “Yes. The current law limits to 65,000 the number of aliens who may be issued a visa or otherwise provided H-1B status in FY2004. (The numerical limitation was temporarily raised to 195,000 in FY2001, FY2002 and FY2003.)”

    Does this account for the increase, go figure guy.

  4. Just been reading in Wired today about another kind of ‘whoosh’ that’s heading India-ward, the outsourcing of pharma trials to remote Indian towns. The article numbers a market of 1.5 bill by 2010. I won’t hold my breath for the backlash to begin on this one.

  5. The article throws in some numbers that does not reflect the scenario. 17% more Tech workers in US than in 1999. Can’t get more hogwash than this. 1. Of this 17% increase in “TECH WORKERS” from 1999, how many of them are on H1B? & how many are US Citizens?

    Well since you were convinced its hogwash, prove it that the entire 17% went to H1 programs.

  6. An excerpt from a report by the Economic Policy Institute:

    August 2, 2005 | Briefing Paper #155 Truth and consequences of offshoring Recent studies overstate the benefits and ignore the costs to American workers by L. Josh Bivens Over the past two years, economic observers have focused attention on a new trend in the American economy: increased global competition for white-collar jobs that used to seem well-insulated and secure. While blue-collar labor (particularly in manufacturing) has felt a squeeze from global competition for decades, both in terms of employment security and wage growth, white-collar jobs held by well-credentialed Americans have been largely safe from pressures stemming from the global labor market. Recent reports of companies sending work abroad, ranging from call-center operators to software programmers, have changed this feeling of security. Such insecurity, especially coming from a group that many assumed would be a prime beneficiary of globalization—i.e., well-credentialed, white-collar workers—has generated a potent political anxiety about the implications of global economic integration for American workers. In response to this anxiety and an incipient political backlash against offshoring, a number of studies have been released by various organizations touting large economic benefits that will accrue to the American economy through the offshoring of white-collar work. A closer examination of these studies, however, shows that the promised benefits of offshoring are far overstated, while the likely economic costs are not addressed at all. Further, even the potential benefits to the American economy from offshoring are likely to be concentrated in the incomes of a relatively select percentage of American households. This briefing paper examines three studies claiming that the offshoring of white-collar work will result in large benefits to the U.S. economy. These studies—written by McKinsey Global Institute (MGI), Global Insight (GI), and Catherine Mann in a policy brief for the Institute for International Economics (IIE)—have been cited often in business reporting about the overall impact of white-collar offshoring on the American economy. However, these findings do not hold up to scrutiny, and in fact, each paper makes excessive claims about the benefits of white-collar offshoring.

    Truth and consequences of offshoring

  7. It’s of little comfort to my friend and his co-workers from Missouri, who whose telecommunication job will be outsourced to the Philippines in May.

    Coincidentally enough, he received his notice the same day the Philippines descended into a state of chaos and turmoil and Arroyo declared a state of emergency. There’s kharma for you.

    And the Bureau of Labor Statistics predicts that the U.S. economy will add 1 million tech jobs over the next decade, a 30 percent increase.

    Um, are we no longer considering the source anymore? This is from the same administration who, SOTU after SOTU, promised to cut the deficit in half by 2007, 2008, 2009…

  8. vikram – could you please summarize the report at least in how it takes apart the mckinsey article – at least why is the claim of $1.14 return for $1. outsourced fallacious.
    The reason i am somewhat skeptical because the board of directors for epi is a who’s who of representatives from the biggest unions – machinists, needleworkers, afl-cio etc.
    i’m not disagreeing with you – i just need a breakdown that i am hoping you can oblige with.

  9. 1) outsourcing will happen, no matter what, because the capital class wants it to happen. thatz reality.

    2) we hear a bit more about this in the media than we hear about textile or heavy industrial workers because programmers are more likely to have relatives and friends in journalism so the threat is more salient.

    3) i suspect the ‘impact’ on the USofA is minor compared to india. that is, the + and – are probably dwarfed by the sea change that outsourcing is wreaking upon the indian social and economic landscape.

    4) job loss is more salient than aggregate economic growth. in other words, 1 lost job because of ‘outsourcing’ to another country is explicit and memorable, as opposed to 100 jobs gained because of efficiencies gained through a change of economic decisions contingent upon comparative advantage. thatz psychology, not economics.

    5) i seems plausible to me h1bs are dampening outsourcing since they probably depress the average wage of american programmers.

  10. “i seems plausible to me h1bs are dampening outsourcing since they probably depress the average wage of american programmers.”

    razib, no, to get a h1b permit, one has to show that they have hired them at the salary that is equivalent or higher than prevailing wages by the department of labor. you have to produce a prevailing wage certifcation. in fact, for this reason mom and pop business avoid hiring h1b in addition to fees. businesses have to also pay ~$1000.00/ per person toward fund improving math and science education in us of a if they hire a h1b.

    the h1bs get exploited too, like more than 40 hrs of work for 40 hours of pay, etc.

    also, all h1b are not tech guys, most of them are, but not all.

  11. vikram – could you please summarize the report at least in how it takes apart the mckinsey article – at least why is the claim of $1.14 return for $1. outsourced fallacious. The reason i am somewhat skeptical because the board of directors for epi is a who’s who of representatives from the biggest unions – machinists, needleworkers, afl-cio etc.

    Considering that McKinsey has always been a pro-outsourcing shill for companies and policy makers who push the pro-outsourcing agenda, I don’t think EPI can be faulted for providing the opposing view because of who its directors are. I daresay Mckinsey has less than an impartial and neutral view when it comes to outsourcing:

    While there are no numbers, anecdotal evidence suggests that scores, perhaps hundreds, of former GE and McKinsey executives and consultants play key roles as both suppliers of outsourced services and customers for them. “Every time we have an outsourcing forum, it’s like a GE and McKinsey alumni association meeting,” says Sunil Mehta, vice-president of NASSCOM, India’s software industry association. http://www.businessweek.com/globalbiz/content/feb2006/gb20060223_186829.htm?chan=globalbiz_asia_today%27s+top+story

    The debunking of the McKinsey “study” is here:

    First, the implicit rate of return from engaging in offshoring (14%) identified in this example is enormous, and likely implausible for the U.S. economy at large. It is based, according to MGI, on a proprietary data set of firms that have already engaged in offshoring to India. As such, it is essentially a self-selected group of firms that have chosen to offshore their labor specifically because offshoring provides the largest economic gains. This rate of return, then, applies only to those firms for which offshoring would have the largest payoff; it is not the average payoff that could be expected from a representative U.S. firm sending work offshore. Second, MGI fails to account for how the increased imports resulting from white-collar offshoring will be financed by the U.S. economy. An individual company need not concern itself with finding exports to offset its imports, but any analysis of the effects of offshoring on the U.S. economy must do so. In MGI’s example from Figure 1, they assume that one dollar of goods previously produced domestically will now be offshored from abroad—meaning that imports into the United States will increase by one dollar. MGI assumes that this generates five cents worth of exports. But the other 95 cents of imports still has to be financed by increasing exports, which transfers resources (that could instead be used to support U.S. consumption and/or investment) to the rest of the world. MGI, by focusing only on a select group of firms instead of the wider economy, enumerates the benefits of offshoring (i.e., cost-savings gained from importing goods that once were produced domestically) while remaining silent on the costs (transferring domestic resources to finance increased imports). Third, while the firms that have already engaged in offshoring may have reaped large returns, this still does not mean that recent trends toward increased offshoring are an unambiguous windfall for the American economy. While it may make sense for an individual firm to offshore, if this practice becomes widespread enough to result in a rapid increase in foreign productivity in sectors in which the United States is a net exporter, this could actually result in a loss to U.S. income through terms of trade effects (as pointed out recently in the Journal of Economic Perspectives by Nobel Laureate Paul Samuelson (Samuelson 2004). This possibility describes precisely the situation that occurs when U.S. companies offshore production in high-skill professions that produce U.S. exports, such as software.
  12. Vikram: I appreciate your patient explanation especially in context of the somewhat wild accusations circulated on this blog in the recent past (general dig at the hoi polloi ;-) .
    I acknowledge that McKinsey is pro-business, and the point is well taken that the McKinsey survey responders were self-selected – thus biasing the results of the survey. The fact would still remain that these responders saw real value come out of the outsourcing! The saws like ‘buyer beware’ or ‘past performance is not predictive of future performance’ still apply.
    I’ll tell you where I’m coming from. I work in this space, in the outsourcing of services which need Ph.D, MS type folks. It works very well for my clients because there really arent that many people to go around – i have more people in this space in bangalore than the entire resource pool in this space in Canada!! if companies want to make more money using the kind of services i bring in they either pay 150% to the same resource in their competitor or look offshore. My clients would be the kind of people who would favor the MGI study
    The example you cite relate to products and imports and that isnt my competency. I will steer clear of that but wanted to highlight that there are companies who have really realized tremendous value.

  13. Don’t y’all forget the huge growth of IT jobs in defence sector and anything related to national security like the navy or CIA (yes, they routinely come to univ campuses and hire programmers too). In these areas only American citizens are hired, no H1bs or even green card holders.

  14. i suspect the ‘impact’ on the USofA is minor compared to india. that is, the + and – are probably dwarfed by the sea change that outsourcing is wreaking upon the indian social and economic landscape.

    The number of indians engaged in bpo+IT sw tech industry is at best 2 million (a recent study suggested 1.3 million) This includes work being done for local consumption as well as export to every one. The effect on india is tiny. The only thing it did for india was give it a one industry asociation to the country. An average fella will think that Taiwan=Asic Malaysia=IC packaging India=sw. In indias case the economy is a lot larger still largely rural and the growth is coming from internal consumption. Many Economists have pointed out that fact out. This segment BPO+IT is visible b/c to many it seemed like it came from no where all of a sudden (but that was more of a tipping point effect as in one guy wrote about it and on and on) Tata had been selling sw services since the 70′s. TI the DSP firm started shop for software app notes regional sales for its dsp in 1985. Just cause it wasnt noticed dosent mean things were not happening. The indian economy under the brits was losing 1%/yr in growth. post independence it was growing around 3% till the 80′s when it jumped to 5% and now its around 7-8%. It wasnt just one day some american decided to send some work to infy or tata and economy started to grow. Its something that has been happening over decades. Things get so oversimplified, outsourcing is not a big part of indian economy.

  15. irony: my cousin (brown, PIO card, fluent in english & hindi) is getting laid off in 6 weeks. because his job is getting outsourced to Bangalore. go figure.

  16. Come on guys. Give Lou a break. He after all won Emmy for his rant ;)

    Despite studying Economics in college, Lou still has the cojones to maintain a list of “Benedict Arnold” companies (including his employer Time Warner). How unfortunate.

  17. First, the implicit rate of return from engaging in offshoring (14%) identified in this example is enormous, and likely implausible for the U.S. economy at large.

    Why should the US economy at large be involved? If a sector or pocket benefits, then that’s it, why should a individual company be bothered about the whole US economy?

    Second, MGI fails to account for how the increased imports resulting from white-collar offshoring will be financed by the U.S. economy. An individual company need not concern itself with finding exports to offset its imports, but any analysis of the effects of offshoring on the U.S. economy must do so.

    Where is the need for the US economy to finance the import? If a company is doing the outsourcing, the export and import are on the company’s numbers.

    AND, the individual company would be bothered about buying and selling. If it cannot sell, why would it keep on buying (importing). Plus, if it can sell, why should it be bothered who’s buying (either to domestic consumers or as export), as long as it makes its cut?

    Third, while the firms that have already engaged in offshoring may have reaped large returns, this still does not mean that recent trends toward increased offshoring are an unambiguous windfall for the American economy.

    How on earth should a individual firm keep track of how their individual action is going to affect the whole American economy? Why, even the most expert among economists (I mean competent ones, not ones like Lou Dobbs) don’t have a clear answer (apart from the obvious fact that it is good in the long term) cannot say if it is a certain good/bad! How then, can one firm calculate its outsourcing’s effect a 11+ Trillion economy? And again, why the hell should it?

    I guess this is the point in the argument where the moral balderdash begins and the Benedict-calling begins….

  18. I guess this is not a good time to say that Lou Dobbs is my favorite new show on CNN.

    I like the fact that he sticks up for Americans jobs.

  19. Somebody should try finding out the number of tech jobs CNN has outsourced? Either directly or through a contractor. I am sure it is in the dozens. Even one should be too many for Lou Dobbs’ conscience.