Testimony of Paul Almeida
President
Department for Professional Employees
American Federation of Labor and Congress of Industrial Organizations

Before the Maryland House of Delegates
Health & Government Operation Committee
On HB183
Procurement - Services Rendered in Foreign Country - Prohibition

February 5, 2004

Chairman Hurson, Members of the Committee, thank you for the opportunity to testify today on behalf of the Department for Professional Employees of the AFL-CIO on this extremely important and urgent topic.

We are very alarmed at the recent trend of outsourcing and offshoring of white collar and information technology jobs. This trend, which is clearly accelerating, is affecting workers all over the country, at every income and education level. Technology companies are laying off American workers from high-paying desirable jobs while they add thousands of jobs overseas. Corporations are shifting jobs in call centers, accounting, engineering, medical technologies, computer, and financial services offshore, among others. CNN’s Lou Dobb’s show has been tracking companies that export jobs. The list of verified companies that are outsourcing totals over 250 and reads like a who’s who of Wall Street. Some local, 19 state governments and many federal agencies/departments have even begun to outsource administrative jobs, which is an outrageous misuse of taxpayers’ dollars.

The surge of outsourcing can be traced to the explosion in the last five years of H1-B and L-1 visas which saw in excess of over million foreign guest workers enter the U.S. As they developed their core competencies in high tech and other fields they have returned home and taken these and future white collar and other jobs with them.

Based on a survey of the world’s 100 largest financial services firms, Deloitte Research found that these companies expect to shift $356 billion worth of operations and about two million jobs to low-wage countries over the next five years. Forrester Research Inc. predicts that American employers will move about 3.3 million white-collar service jobs and $136 billion in wages overseas in the next 15 years, up from $4 billion in 2000.

The use of foreign labor has already had a negative impact on U.S. wages in certain sectors. According to Sharon Marsh Roberts, chair of the government relations committee of the Independent Computer Consultants Association, outsourcing has forced down hourly rates by 10 percent to 40 percent for many U.S. computer consultants1.

Outsourcing may also have a disproportionate impact on African Americans, who are already under-represented in high-tech fields, according to the Coalition for Fair Employment in Silicon Valley. From 1998 to 1999, black engineering employment in the Pacific states dropped 20%, according to the Bureau of Labor Statistics. And African-American-owned technology firms will lose opportunities to compete for government contracts if more of them go overseas.

If these trends continue to accelerate, we will see even more dramatic job loss and wage erosion affecting workers throughout the income scale. This will severely impact the wages and job security of the American middle class, in addition to depriving state, local, and federal governments of tax revenues. Policymakers must recognize and acknowledge the severity of the problem and act quickly to stem the job loss.

Short-sighted corporate policy focused on saving a few bucks in the short run will have an enormous deleterious impact on the entire U.S. economy if not checked soon. A recent Powerpoint presentation by a Microsoft senior vice-president urged managers to “pick something to move offshore today” as part of a “short-term project list.” The “long-term project list” included evaluating “the cost advantage of adding offshore talent.”

When manufacturing jobs started moving offshore, we were told not to worry, that the U.S. comparative advantage was in services and high technology. We were assured that the new global division of labor was both natural and benign: we would keep the high-paying, high-skilled jobs, while the developing countries would do the actual work of making things. For decades, American workers were told to simply acquire more skills and education in order to succeed in the U.S. job market.

Now engineers with Ph.D.s and recent college graduates alike are hearing that they are too expensive, that their job can be done more cheaply abroad. Meanwhile, the U.S. trade picture is also shifting in ominous ways.

The merchandise trade deficit hit almost half a trillion dollars last year ($485 billion), an all-time record. While the goods trade deficit has been growing steadily since the early 1990s, our trade surplus in services has traditionally offset some of that growth. The U.S. trade surplus in services grew from $46 billion in 1991 to a peak of over $80 billion in 1999. The services surplus fell somewhat in 2000 and in 2001. However, in 2002, the services surplus plunged by almost $20 billion, to only $49 billion. This enormous single-year decline is largely due to growth in imports of private services, which almost certainly reflects the outsourcing that has already been taking place. In 2002, the U.S. surplus in advanced technology products also plummeted, shifting from a surplus of $4 billion to a deficit of $17 billion.

1 “Displaced U.S. Employees Frustrated, Angry At Information Technology
Industry,” Hartford Courant, January 6, 2003.

These negative shifts have contributed to a record high current account deficit, the broadest measure of international activity, which includes trade in goods and services as well as investment income flows. Federal Reserve Chairman Alan Greenspan has warned that at almost 5% of GDP, the current account deficit is dangerously high and unsustainable. There is another deficit that is a direct result of outsourcing and that is a social security deficit. As fewer and fewer workers are paying in to the system outsourcing will bring the program further into harms way at a date much earlier than projected.

The outsourcing is not spurred by a lack of skills or education here in the United States. In June 2003, an estimated 1,286,000 Bachelor's degrees were conferred, along with 436,000 Master's, 80,400 First Professional, and 46,700 Doctoral degrees, as well as 633,000 Associates degrees. Degrees in all these categories are up substantially since the mid-1980s, as young people have heeded the advice given them to acquire more education. Department of Education projections show a steady increase in all degree categories between now and 2010.

All these factors taken together should be setting off alarm bells for state policymakers. If an advanced degree, years of experience, and excellent work habits are not enough to land a job, and the U.S. comparative advantage in services and high tech has seriously eroded, what does the future of work look like for the United States? If these cost-saving job shifts are taken to their logical extreme, even American corporations should be wondering where their future consumers will be located, and how they will buy the goods and services that are offered.

Just as the labor movement has fought hard for trade and tax policies that will help the U.S. manufacturing sector thrive and survive, we also need to take a close look at the policies that impact service-sector and information technology jobs.

Several policies to better balance workers' needs for quality employment and growing overseas investments in offshoring, including:

* Making sure that our tax policies are consistent and coherent – at the national, state, and local levels. Many of the companies rushing to offshore jobs have received and continue to receive tax breaks negotiated on the assumption that they would support local job creation. We need to target tax relief to companies that support their own communities with decent jobs.

We can and should ensure that government tax dollars are spent to support strong communities and jobs domestically. At least twelve states are considering legislation that would ban the outsourcing of government contracts to companies that ship work offshore.
States introducing the Keep Jobs in [State] act: California, Colorado, Georgia, Indiana, Kansas, Maryland, Missouri, Nebraska, New Jersey, South Carolina, Washington, and Wisconsin.

The New Jersey legislation was spurred by news reports that a company contracted by the state of New Jersey to administer electronic benefits to welfare and food stamp recipients had contracted the jobs fielding phone inquiries to Bombay, India. There, English-speaking workers, some with fake American names answered service calls. Legislators pointed out the irony of using taxpayer dollars to send entry-level service jobs overseas to administer a program aimed at finding domestic entry-level service jobs for welfare recipients.

* Supporting transparency, privacy and disclosure on the part of companies that are offshoring. Several states have also introduced the Consumer Right to Know and Act. This bill gives consumers that make calls handled by customer service call centers the right to know to whom they are talking, which country they are calling, and the right to have their call rerouted to their country or state of origin. In addition, these bills help protect consumers’ financial privacy by requiring companies to secure consumers’ express written permission before sending any of the consumers’ financial, credit, and identification information to any foreign country.
Several states including Arizona, Colorado, New Jersey and South Carolina have introduced Consumer Right to Know legislation.

Any laws addressing transparency, privacy and disclosure on the part of companies that are outsourcing and offshoring must extend to their subsidiaries and/or contractors.

Transparency, privacy and disclosure laws seem like a pretty minimal requirement that ought not to be impossibly onerous. However, some of the affected companies are opposing the bill and arguing that it would violate U.S. obligations under the World Trade Organization (WTO). Companies ought not to assume they can only do business if their customers are in the dark as to their operations. Customers have a right to know who is answering their call and where that person is located, just as they have a right to know the ingredients in a box of cereal. Furthermore, this legislation is entirely in compliance with our WTO obligations in this case. It treats foreign and domestic companies equally and simply requires truthful disclosure on the part of companies providing services to the U.S. market.
* Adopting tax and budget policy that encourage full employment, not policies that reward companies by expanding tax cuts for income earned abroad.

Finally, states need to weigh in on federal legislators to urge them to reexamine our trade policies to make sure they are reflecting the concerns and interests of state governments and American workers, as well as U.S.-based corporations.

In conclusion, I’d like to thank the Committee for holding this hearing and for inviting me here to testify today. I look forward to working with you to craft effective policy responses to the very great challenges facing us in this area.