To some high-tech workers, the New Economy is starting to look a lot like the Old Economy. And that is a frightening prospect.
In the Old Economy, the manufacturing sector has lost nearly 4 million jobs since 1980. Some jobs have disappeared because of increased productivity, but many affected workers in industries like steel, apparel and electronics have been replaced by lower-priced labor overseas. As globalization marches on, many jobs in the New Economy of services and high technology seem to be headed the same way.
It’s not just a matter of the dependable but relatively low-level jobs like answering phones and providing technical support. With improved technology allowing for seamless patching of telephone calls around the world, those call center jobs have been migrating at a rapid clip to India and other countries with a plentiful supply of well-educated workers who can be hired at a small fraction of the cost of U.S. workers.
Now the trend is moving up the skill ladder, with jobs in computer software development, accounting and even investment banking research all offering opportunities for companies to cut labor costs, often at the expense of U.S. workers. And that worries labor activists, some economists and policy-makers.
“The globalization competitiveness problem has always been seen as a problem for blue-collar jobs in manufacturing - dirty old industries that policy-makers probably figure might just as well be elsewhere,” said Jared Bernstein, economist at the liberal Economic Policy Institute. “But these are not those industries.”
A sobering glimpse into the mind-set of high-tech companies considering the offshore option came this week from International Business Machines Corp. in the form of a conference call recording that was obtained and released by WashTech, a labor union. In the recording of the March call, an IBM executive says the company is looking at “an emerging trend” of moving service jobs offshore, including engineering, software development, computer chip development and accounting and financial services.
“There are companies that realize that there are lots of skills in places like India to do accounting for a fraction of what the costs are in the U.S.,” says the executive, identified by the union as Tom Lynch, IBM’s employee relations director. In the call, Lynch says IBM will face an employee relations “challenge” as it moves more jobs overseas.
“We don’t want to sit back and say don’t do it because there are going to be problems,” he says. “Our competitors are doing it, and we have to do it. On the other hand it does raise significant employee relations concerns….”
An IBM spokesman declined to comment on the recording specifically, but he noted that the Armonk, N.Y.-based company generates most of its revenues overseas and has offices in 160 countries.
“Expansion in China, India and any number of countries in the world does not mean subtraction in the U.S.,” said the spokesman, Tim Blair. “There is a global war for talent, and we are looking to add capabilities to satisfy our customers.”
Blair also said IBM has added to its U.S. work force every year for the past five years and plans to do so again in 2003. IBM’s overseas work force has been growing more rapidly and now represents 54 percent of the nearly 300,000 total, up from 51 percent five years ago.
Lynch, the IBM executive, was certainly right about one thing: In the high-tech industry, everybody is doing it. Forrester Research, in a much-quoted study issued late last year, estimated that 3.3 million jobs representing $136 billion in wages will move overseas from the United States by 2015. Everything from computer programming to accounting to architecture will be affected, moving to countries like India, Russia, China and the Philippines, according to the study.
Already tech giants like Oracle, Dell, Motorola and Intel have opened software development centers in India, Russia and China. Insurance giant AIG is moving some back-office functions to the Philippines, according to the Forrester study. Investment banking giant Morgan Stanley is building a facility in a Bombay suburb that will employ 1,600 people in jobs like back-end operations and research, according to the Economic Times of India.
Microsoft recently opened a small technical support center in Bangalore, India, to go along with its software development center in Hyderabad, said Stacy Drake, a Microsoft spokeswoman.
“India is a very, very key area for us,” she said. “There is a wealth of technical talent, and there is a growing number of customers and partners there. … Cost is a factor in everything we do, but it’s not the single determining factor.”
Microsoft plans to add up to 5,000 jobs over the coming year, including 3,000 to 3,500 in the United States, the company announced Thursday.
Drake said the majority of the company’s “core development work” will continue to be done in the Puget Sound area around Seattle, where nearly half its 55,000 employees are based.
(MSNBC is a joint venture of Microsoft and NBC.)
Stephanie Moore, a vice president at Forrester who helps companies outsource technology work, says she has mixed feeling about the trend of highly skilled jobs moving offshore. But she says companies like IBM are responding to customer demand for lower-cost services. Because even highly skilled programmers in India make only about $5,000 a year, companies like IBM can offer their customers a billing rate of just $22 to $37 an hour for work done in India, compared with $150 an hour for comparable work done in the United States.
“Certainly they are well-paying jobs disappearing from the U.S. economy,” she said. “In my opinion, it’s helping U.S. companies survive right now. Companies that are basically paralyzed because of their finances can do more with what little budget they have. But it’s a double-edged sword. It is hurting the labor market in general, but it’s helping the economy to succeed.”
Ernest Goss, a professor of economics at Creighton University in Omaha, Neb., agreed that the trend is troubling when technology could allow even professors, for example, to be replaced by remote lecturers.
“We’ve all got to be on our toes now,” he said. “Even the person with a Ph.D. has to be much more flexible than they were 20, even 15 years ago.”
Concern also is growing in Washington, where the lack of U.S. job growth has become a huge political issue. U.S. Reps. Jay Inslee and Adam Smith, both Democrats from the Seattle area, last week asked the Government Accounting Office to study the issue of information technology jobs moving overseas. “I’m concerned that we may be training individuals at home for jobs that are being sent overseas and I want to make sure that we better understand this issue,” Smith said in a news release.
John Challenger, chief executive of the outplacement firm of Challenger, Gray & Christmas, said it is natural that workers grow nervous as more skilled jobs go overseas. “Technology and globalization are two major forces that are inevitably going to wreak real change in the way things are done now and over the next decade,” he said. But he said globalization also will bring enormous opportunities for U.S. companies as vast new consumer markets are created in places like China and India.
He noted that even in the 1990s, as manufacturing jobs disappeared, the U.S. economy created a net 26 million new jobs. And he said tens of millions of jobs can never be shipped overseas because they rely on face to face contact or proximity to the vast U.S. market.
But that is small comfort to displaced workers.
“The future of the American economy is at risk right now because of companies exporting our jobs,” said Marcus Courtney, president of WashTech, a Seattle-based affiliate of the Communications Workers of America. “What skill is the United States going to be able to create that some other country isn’t going to be able to replicate it and do it cheaper?”