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Outsourcing As A Source Of U.S. Jobs
An anonymous reader writes "The Economic Times, India's leading financial newspaper, reports that Diana Farrell, Director, McKinsey Global Institute during her speech at Nasscom 2004 said that Bureau of Labour Statistics is predicting a job gain of 22m in the US by 2010, against a job loss of 2m, due to offshoring. You can read the full article here."
An Indian journal reporting that Indian outsourcing is good!
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"People don't understand what a great opportunity offshoring is for US companies. Apart from huge savings, it allows US companies to concentrate on their core competencies and the people (in the US) can move on to higher paying, more creative, more value generating jobs."
...
You see, that doesn't quite work when it's the high-paying jobs going overseas. The only jobs that can't are those that require physical presence, and I can only see so many ways to creatively remove a clog from a toilet.
Microsoft delenda est!
we lose 2 million engineering jobs, and gain 22 million pizza delivery jobs. Sounds like a great trade-off to me!
Seriously, we can't sacrifice professional jobs for low-level service jobs, even if there are more of them. If we do that, we'll have a rich and poor caste system. Wait a minute...
Even though I am a fan of free trade and offshoring, I found this economist's choice of words disturbing: "People in the US are looking at it as a job issue. They are not economists and therefore, they don't necessarily see the whole picture." Funny, I thought that every human being (even economists) had only a part of the picture. People working in the dismal science should be more humble about what they know versus what they think they know.
I see no examples of these new jobs that they keep talking about. Just about corporations saving money.
:P
Corporations saving money is no guarentee of employment at all -- they could just increase their dividends to attract more investment. They could just increase their CEO's salary.
Even if they do make new jobs, there's no distingishing between wage-slaving jobs against salaried professionals.
New jobs added WHERE, wise guy.
"She pointed out that the Bureau of Labour Statistics was predicting a job gain of 22m in the US by '10, against a job loss of 2m due to offshoring."
:-/
When have 5+ year estimates ever been accurate in economic matters?
Secondly -
Tomorrow's Jobs (from bls.gov)
http://www.bls.gov/oco/oco2003.htm
"Services. This is the largest and fastest growing major industry group and is expected to add 13.7 million new jobs by 2010, accounting for 3 out of every 5 new jobs created in the U.S. economy. Over two-thirds of this projected job growth is concentrated in three sectors of services industries-business, health, and social services."
Social services? Wheeee.... big money here I come.....
There have always beens some jobs that cannot be outsourced. Even if a telecoms help desk is all foreign they can't outsource service crew off shore. It make sense that with a slow recovery of the US economy (no thanks to bush) that there will be more jobs.
Jobs like DB admin need to be close to the DB and to where the info is coming from to properly administer it. System Analysts and Network analysts must be on site to do their job. Service technicians can't do it from over seas. Web developers can be outsorced but it's almost artistic and cutural gulfs make workign with foreign firms difficult. (Our Firm tried, the indian firm kept trying to use Lime green in their color schemes, no matter hwo often we told them we don't like lime green that).
The outsourcing only spells the end to abundant positions as low level code monkeys. We'll just have to move on and try to adapt like workers did durign the 80's when many manufacturign firms went over seas. There are still a large amount of blue colalr workers despite this, and We'll still have jobs even though an indian firm might be competign with us.
PS: I don't like bush but I'm not a democrat, in fact I'm Canadian. We have more than a vested interest in your prosperity, because it spills oevr here. It does seem liek he's responsible for you current economic slump, by spending so much on defence and offering Tax cuts that the budget won't support. Think more debt. Real soon.
"There are more things in heaven and earth, Horatio, than are dreamt of in your philosophy."
Just for the record, the department of labor was predicting a job gain of 17 million for 2003. In reality there was a loss of tens of thousands of jobs. The 22 million prediction sounds like re-election propaganda...
$22 million in jobs or in dividends to stock holders.
Do you think that shareholders stick their money in socks when they get it? I don't. I either invest it again (which creates jobs) or I spend it (ditto).
The argument that India will need to import American goods for the growing tech sector and that this will result in even more jobs seems a little specious.
Why? There are things we make that they do not and vice versa?
Is the global economy being turned on it's ear? Will the U.S. now be making cheap consumables to send to the IP producing countries in Asia?
Manufacturing does not imply "cheap consumables." You can also make high end sewing machines. Robotics. Advanced materials.
And why would India not simply start manufacturing the products it needs itself?
Sigh. Have you never heard of comparative advantage? The total output of the Indian economy is limited by all sorts of infrastructural issues which make it impossible for them to manufacture everything themselves cheaply.
For one thing India is still at a trade deficit with US. For every job that indians get from US, there is are range of stuff US companies are dumping here and killing local business.
Opening the market works both ways. Deal with it.
Also, to satisfy the cynic in me, remember that these are merely predictions, which are possibly skewed to make the current market look like it'll be stronger, which will in turn (hopefully) make investors and consumers more confident, (hopefully) making the economy stronger.
Lastly, could this also be like George Bush's predictions that there would be approx. 1.7 million new jobs last year, as opposed to the 53,000 jobs lost last year (as reported by CBS news tonight).
"The US" is not benefiting from cheap labor - the benefits a corporation gains from outsourcing is passed mainly to the executives of the corporation through non-salary compesentation (options, bonuses, etc.), and to a lesser extent to the shareholders of said corporations.
The public is benefiting in the short term from the continually lowering retail price of consumer goods manufactured primarily in China.
The long term result is simple - good bye middle class. The growth in the service sector is primarily servicing said middle class, so the service sector dies with the middle class.
As much as I love capitalism, we are seeing its worst side now - as corporations realize they can behave with no morals (as modern society has decided there is no such thing, all is relative), there is no reason to create jobs, take care of employees, etc. There is nothing of concern other than the next quarter stock valuation...
To make it even worse, the modern system doesn't allow executives to benefit significantly from their stock shares until they SELL them (dividends are still overly taxed), so there is no real reason to think about the long term survival of the corporation either...
Add currency trading velocity issues and foreign holding policies for US treasury bonds, and the western economy is getting scary - inertia only lasts so long...
Because it doesn't save money to do that. Salaries are much higher in the US which is why US companies are outsourcing in the first place.
The US product is about $10.5T:year, with about 100M workers earning about $40K:year. The $4T income are less than 40% of the revenue, with the other 60% representing corporate profit and taxes. Since corporations pay so little proportionately in taxes, and capital gains less still, the extra value is taken in corporate profits funneled to the very rich. Some estimates indicate that 15K US households (probably about 75K people, or .001%) own 5% of the Earth's property. The lack of job growth in the US, despite the looting of the Treasury for subsidies to these rich people, once again destroys the argument of "supply side" economics. After the debacle of Reagan's supply side, the last time these unemployment numbers were close to this high (excepting Bush Sr's next-closest nadir), you'd think this nonsense would be rejected. But I guess greed blinds even the survival instinct, when so much loot is flying through the air, without any merit to where it lands.
--
make install -not war
Hey, don't knock toilet unclogging. Plumbers make serious dollars.
"A great democracy must be progressive or it will soon cease to be a great democracy." --Theodore Roosevelt
and they dont count underemployment. I know alot of engineers who are flipping burgers and selling stereos burdened by student loans (which survive bankrupcy!).
Bingo!
The central planners talk of "jobs" as if they were all equal.
Even assuming the numbers claimed by the Bureau of Labor Statistics' talking head are true, what good does it do to replace one lost 6-figure engineering position with eleven minimum-wage, no health plan, burger-flipper slots?
Especially if, say, eight of them will be filled by illegal immigrants, two by engin-school grads who never got to engineer, and the eleventh by a former member of the (NON-minimum-wage, WITH health plan) burger-flipper's union, leaving the engineer still unemployed?
Now multiply by two million.
Great for the ruling class. Hell for the workers.
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
Jesus breakdancing Christ. If I see one more hand-waving post devoid of either fact or theory, I will scream.
Free-trade is a basic tool of a capitalist economy. It has a proven track-record of working (eg: France under Napoleon, the modern EU, the US of fucking A!). There are also lots of statistics that show that protectionist laws save a few jobs at the cost of much greater costs to the rest of the economy. A certain law that protects US textile workers saved 75,000 jobs at a cost of $15 billion a year. That $200,000 that each of those textile jobs is costing is being taken right out of *your* pocket. That's money you could have, but do not.
Free-trade is also the only thing that makes sense in a democracy. People have rights, and it takes a very strong argument to limit those rights. Strong moral arguments give us reason to limit the right of people to commit murder. Strong economic arguments give us reason to limit the right of companies to form cartels. There are no such arguments in favor of protectionism. Morality says that people should hire whom they damn-well please, and economics says that this freedom is best for the economy in the long run. The only arguments we get in favor of protectionism is crap about patriotism, and hand-waving about "the destruction of the US middle class." Two points: One, as a Virginian, I care about as much about a guy in Texas as I do about a guy in Afghanistan. Two, the middle class did just fine when farm work, which was a middle class job, disappeared. They did just fine when factory work, another middle class job, disappeared. They'll do just fine when the programming jobs disappear!
The predictions in this article are precisely those predicted by economic theory. A certain class of jobs will be destroyed, but many more jobs will be created. Such predictions have been borne out numerous times before (NAFTA really didn't cause all American jobs to be sucked to Mexico, did it???) and will be borne out again.
Of course, this is assuming you believe in capitalism. If you'd prefer the stability of a socialist system, then by all means, move to a communist country! I take particular pleasure in saying this --- as a liberal I rarely get the chance to call *other* people communists, but that doesn't change the fact that calls for protectionism are nothing less than attempt to subvert the capitalistic ideals of this country!
A deep unwavering belief is a sure sign you're missing something...
The reality is that outsourcing is good for the economy over the long run - low paid, low skilled jobs are moved elsewhere, and the economy focuses on new jobs. We've all heard these arguments in terms of blue collar work ("car manufacturing, etc"), yet the demand for information technology workers filled the gap.
The same goes for what's happening now: in the long run it will be good. The danger is in the short run: sudden loss of jobs without the ability to restructure could be damaging.
Why, yes it did.
Good piece here
>If you'd prefer the stability of a socialist system, then by all means, move to a communist country!
Logical fallacy here. You are ignoring other solutions like better economic planning and fixing the problems our policies have done.
Good piece at the nation here: Lets not forget that free trade is largely an illusion when farmers keep getting subsidized and when social safety nets, wages, and the environment take a beating in the name of 'free trade.'
All of this antiglobalization and anti-free trade banter drives me up the wall. The trend of outsourcing and globalizing IT jobs is about the best possible example of free trade I have ever seen, because the jobs being exported actually do have labor standards and do dignify the population; and it is very good for America.
Take some hypothetical math here. Say there are 100,000 U.S. Programmers making about 80,000 dollars a year (with benefits and business side social security tax). That's
80,000 * 100,000 = 8,000,000,000 dollars a year.
Now imagine, aggregated, U.S companies via outsourcing eliminate those jobs (so-called creative destruction) and instead pay 100,000 indian folks an average of 20,000 a year.
100,000 * 20,000 = 2,000,000,000 dollars a year.
So, for 2 billion dollars Indian programmers are delivering the exact same amount of business value as the 8 billion dollar American programmers.
The end result? Well, at first, 100,000 less American jobs, and 6 billion more dollars for our "evil" corporate masters.
Yes some of that money will go to the clever executive who thought of the idea. Yes some of that money will go (gasp!) investors, who probably include many of the readers here.
And where will the rest of that money go?: to investment; to research; to newer jobs, etc. This is the inexorable march of progress here people. Can I predict what those new jobs will be? Of course not. Otherwise I would have already thought of it. But someone will drive innovation. This is all about a more effecient allocation of resources.
Undeniably, it sucks for those 100,000 programmers. There are a lot of hidden costs to creative destruction, soceital costs that do not show up in GDP numbers (family and emotional distress, for one). But those people, like lots of other people have, will have to reinvent themselves, to discover new talents, to retrain. In the end, it will be good for the country, and the world, as a whole. I mean, I'm sure it sucked for typewriter makers when computers gained popularity, or for horse farmers when the car was first mass produced, but for the whole soceity the creative destruction of those jobs was a good thing.
In any case, this is the best possible outcome from the development of a large educated populace in India. We are utilizing their resources, rather than competing against them. A worse scenario, from the American perspective, are the Indians out-innovating us and driving entire American businesses out of business in the global marketplace.
Schrock.
And then you have the nerve to repeat this supply-side bullshit--look how much the stock market soared when Clinton raised taxes on capital gains! The taxes on capital gains have to be incredibly huge before they start to matter--people will invest if an investment makes money, they won't invest if it doesn't make money--taxes on the profit made will have little effect on this.
On the other hand, taxes on labor have a very direct and simple effect on jobs. Corporations have to pay more wage taxes for every additional employee they hire IF they choose to hire that worker in the United States. Wage taxes and the lack of a nationalized health care systems (an exponentially increasing cost our employers are also expected to pay for, unless workers do without) are incentives for factories to move to either completely undervalued countries (India) or more progressive countries like Canada, which currently has a fantastically booming economy.
Bottom line: there has been no economy in the history of the world that has been able to withstand long-term trade deficits. It's great to save money on Indian labor, but unless we can find something else for American workers to do, unless we can find something else to export, then it doesn't do either the world or America any long term good. If you save 58 cents by outsourcing to India, hey, great, that's 58 cents more for the American economy. If you just spend the whole dollar on American labor, that's a whole dollar spent in the American economy.
Food, clothing, and appliances are a small part of poor and middle class people's expenses, and outsourcing and mechanization is primarily reducing the cost of these goods.
The biggest expenses tend to be housing, medical, and auto. For the heavily in debt, you can add in credit cards. Housing and medical are skyrocketing while auto is rising more modestly. Funny enough, to take advantage of low prices in large stores like Walmart, you need a motorcar, which will, in all likelyhood, cost you more than all of your spending at said stores.
If you really want to help the working class, break up the pharmaceutical and medical cartels and push for subdividing our oversized houses and building affordable housing to get rents and property prices under control. Reducing auto expenses would require a massive overhaul of our cities and infrastructure, but the benefits would be massive.
Walmart could push the cost of food, clothing, and appliances to $0 and in several years rising health, housing, and auto costs will eat that all up.
More to the point... American dollars go to India, and there are only two things that can happen:
1. They spend the money on American goods
2. They just keep the money
Case 1 is a wash, and Case 2 (which never happens), would be wonderful... we could just keep printing dollar bills and never have to work. Unfortunately, when we import goods or services, the other countries want something in return.
America is prosperous largely because it's a huge free-trade zone. Imagine if people in Massachusetts complained about imports of cars from Michigan, and passed a law that said you had to buy a car made in Massachusetts, so that jobs wouldn't be lost to low-cost labor in Michigan. Or suppose Massachusetts insisted that Michigan adopt all of Massachusetts' labor laws. Would the people in Michigan want that? Would the people in Massachusetts want to drive cars designed in Brockton?
Or another example... suppose a state complained about all the computers "imported" from California or Texas, and insisted that any computers in be made and designed in the home state. Who would be hurt by that? People who can't afford expensive computers, that's who. It doesn't happen, nobody even suggests it, because it's freaking brain-dead stupid.
Some states make certain products, other states make others. Free trade among states reduces income inequality among states, and allows us to be peaceful neighbors.
Well said. I would like to add, that the boom made a lot of people *think* they could do technical jobs when in fact they were underqualified.
In my last job, (yes, I found a better paying job in this down economy) I interviewed countless wannabe techies trying to find someone to do rather simple stuff. Most people who came through the door were underqualified and wanted too much money.
If people in Massachusetts were trying to maintain their standard of living, and Michigan were a country where major killers were things like starvation and dysentary, I would see no problem with banning car imports from Detroit. All of this outsourcing is serving to do one thing; balance the economies of the U.S. and India/China. They gain, and we lose.
Many people work their entire lives in their profession and never earn more than $45k/year.
Uh, buddy? That's a problem. How can anyone expect to pay off education debt, raise a family, and retire comfortably without burdening an already-crippled social security infrastructure if we begin to accept the notion that a $45k salary after 35 years of service is "normal?"
I'm not saying they should be making 6-figures either, but I am saying that in our culture, it is impossible for a family to live comfortably on $45k/year perpetually, while trying to put 2.5 kids through college and save for retirement. It can't be done.
Now, if both parents want to work and bring in that kind of money, well then it becomes possible, but if both parents are working, who's raising the kids? A stranger. And THAT, my friends, is a huge part of what's wrong with society today. THAT is why your kids won't listen to your or respect you.
But I'm getting off-topic.
Like woodworking? Build your own picture frames.
so there is no real reason to think about the long term survival of the corporation either...
Quite so.
I've often thought the capital gains tax rate should be very high initially and very low in the long term. Something drastic like exp(-time/5 years), for example.
The main objective being to motivate shareholders and executives to think of the company's long term best interest and not just jack up earnings by cutting maintenance, R&D, selling the family jewels, etc.
One worrying development is just how much executives are motivated to sacrifice a company's long term health in order to meet earnings estimates put out by the Wall Street analysts.
If there were a similar way to make politicians or the public fiscally-minded, too, it would be nice. Something along the lines of "your share of this year's federal deficit is going onto your VISA card on April 15" would help shape things up in a hurry.
Your choice: pay more taxes, spend less, or lock yourself into an onerous debt. Most politicians are only too happy to give people less taxes, more spending and retire before the debt comes due.
"Provided by the management for your protection."
This is true. By sending out jobs overseas, we actually gain jobs. We are giving jobs away to ourselves!!! By the same token, When we give breaks to large corporations and rich people, it is the average people who benefit!
Also, by killing people in Iraq, we are actually improving their lives.
The high end jobs pay about $11,000 a year in social security and medicare taxes (counting the employer half of the contribution). 3.3 million of these will off-source to locations where no tax is paid, just as the boomers are retiring.