Paul E. Almeida
President
Department for Professional Employees
American Federation of Labor and Congress of Industrial Organizations
Remarks to the
Utility Workers Union of America
Offshoring White collar Jobs.
 April, 19, 2004

Almost every national magazine, newspaper and TV news show has done a story on the trend of outsourcing and offshoring white collar jobs. Yet no one seems to have an answer.

Is it a problem?

When did it become a problem?

Or has it been coming for a long time? 

The recent trend of offshoring of white collar and information technology jobs has many people alarmed. 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, computer, financial services, and medical technologies offshore, among others. Some local, 36 states and federal government agencies have even begun to outsource administrative jobs, which some people argue is an outrageous misuse of taxpayers’ dollars.  

While technology is a key component of the exodus of white collar jobs it is not the only factor. Other contributing factors are the loss of manufacturing, employment costs, high tech visa programs including H1-B and L1, and trade agreements.

Technological improvements, low cost of equipment and set up has information traveling the globe in nanoseconds looking for the lowest bidder. With every advance in technology there is a down side. One major down side is the safety of information. Medical transcripts; financial records including credit reports, mortgage applications and tax returns; CT scans and X-Rays all float in cyberspace today to be read and processed who knows where and under what kind of secured conditions. Do you know? Does the outsourcing agency know? Laws that protect your medical and financial privacy here in the U.S. do not extend to those records and information when they leave the U.S.

It was somewhat naive to think that as manufacturing jobs began to leave the U.S. that their engineering, management, and research and development would not follow. Today the loss of manufacturing jobs stands at over 3 million jobs since its peak in March of 1998 down nearly 17%.

Employment costs are the major driving force in moving white collar jobs overseas. A top graduate in electrical engineering from the Indian Institute of Technology which accepted 3,500 students last year out of 178,000 applicants earns about $10,000 a year about one-eighth of their U.S. counter part. The salary comparisons are all over the lot and most consultants state that moving work to India will have an immediate cost saving between 40% to 60%. There is also a chilling effect on jobs and wages here in the U.S. due to offshoring. IT professionals are unemployed longer than in the past and a majority when they find work earn less than they had previously. Concern that wages will start to move up in India are held at bay. As China and other nations develops their white collar competencies India has concerns about losing work to lower paid workers.

The surge of offshoring can be traced to the explosion in the last five years of H1-B and L-1 visas which saw in excess of one million foreign guest workers enter the U.S. Many articles and testimony before the U.S. Congress document the numerous abuses of these programs, none more humiliating that to train your replacement in order to qualify for severance benefits. As H1-B and L-1 visa holders developed their core competencies in high tech and other fields many have returned home and taken these and future white collar and jobs with them.

Based on surveys from Deloitte Research, Input Research, Gartner Inc., and UC-Berkley to name a few all forecast shifts of billions of dollars worth of operations and anywhere from 2 million to 14 million jobs lost to low-wage countries over the next five years.

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. This very group of workers, the backbone of the U.S. tax system, the silent majority is finally beginning to wake up and be heard. Policymakers must recognize and acknowledge the severity of the problem and act quickly to stem the job loss.

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. Well they have, and they are not succeeding.

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 offshoring 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.

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 offshoring and that is a social security deficit.  As fewer and fewer workers are paying in to the system offshoring will bring the program further into harms way at a date much earlier than projected.

Proponents of offshoring argue that the U.S. is not graduating enough degreed individuals to meet the demand?

Offshoring is not spurred by a lack of 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.

Proponents argue that they can’t find the right help?

Offshoring is not spurred by a lack of skills here in the United States. The unemployment rate for electrical engineers rose to 7.0% in the first quarter of 2003, the previous high quarter for electrical engineers was 4.8% in second quarter of 2002. The unemployment rate for electrical engineers was 1.2% in 2000, and throughout the 1980’s when unemployment rates for all workers got as high as 9.5%, electrical engineering unemployment rates never rose above 2%. BLS also reported in 2003 that electronic engineering unemployment at 7.0% as well and computer software engineers at 7.5% and computer hardware engineers at 6.5% the last two categories are new designations for BLS.

Offshoring is not spurred by a lack of skills here in the United States. The unemployment rate for electrical, electronic, computer hardware and computer software engineers each rose to 7.0% in the first quarter of 2003. Contrast this with the 1980’s when the unemployment rates for all workers reached 9.5%, but fewer than 2% of the electrical engineerings were unemployed. Also in the 1980’s BLS had no categories for computer hardware and software engineers. Meanwhile unemployment among tech workers stands at a staggering 9%.

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 investment 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.

* Supporting both transparency and openness on the part of companies that are offshoring and more research to understand better the scope of the problem. (State legislation pending.)

* Providing universal health care to U.S. citizens. The current system increases the cost of labor by 30-35 percent, a cost not shared by private employers in other countries that have national health plans. This alone makes U.S. goods not competitive with Canadian and western European goods.

* Adopting tax and budget policy that encourage full employment, not policies that reward companies by expanding tax cuts for income earned abroad.

* Ending the abuses and drastically limiting the use of H1-B and L1 visas. With hundreds of thousands of unemployed high tech workers today, there is no legitimate reason to permit U.S. companies to import labor to fill these jobs.

* Promoting collective bargaining, which has been responsible for the standard of living that millions of American workers. As the global economy expands, rules that protect and promote collective bargaining all around the world are needed as well.

Finally, we need to reexamine our trade policies to make sure they are reflecting the concerns and interests of American workers, as well as U.S.-based corporations.

All these factors taken together should be setting off alarm bells for Congress and other 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.