Offshore Outsourcing and It's Economic Impact on U.S.

Abstract

Economic changes that affect employment usually produce conflicting viewpoints and angry rhetoric. During an election year, the rhetoric is hugely amplified. So it's not surprising that offshore outsourcing is caught in the perfect storm of rhetoric, politics and 24-hour news analysis.

This paper discusses different views on anti-outsourcing and pro-outsourcing. It also states economic data and survey results which leads us to an understanding that instead of having protectionist approach towards the U.S. jobs, we should have policies in place, which would help the U.S. workers to retrain themselves in new immerging technologies in short run. This will allow workers to get a high skilled, high paid job and allow corporations to compete in global market by benefiting from the lower cost of offshore outsourcing.

Offshore outsourcing and it's economic impact on U.S.

Economic changes that affect employment usually produce conflicting viewpoints and angry rhetoric. During an election year, the rhetoric is hugely amplified. So it's not surprising that offshore outsourcing is caught in the perfect storm of rhetoric, politics and 24-hour news analysis.

Outsourcing is not a new concept. Before the concept of offshore outsourcing became front-page news, many large companies already had operations all over the globe. But in recent months, small and medium sized companies have started following the lead of their larger counterparts. A recent survey of CEOs from small and medium-sized businesses revealed that 27 percent intended to outsource certain functions overseas in the next three years.

U.S. software programmers' career prospects, once dazzling, are now in doubt. In the past 3 years, offshore programming jobs have nearly tripled, from 27,000 to an estimated 80,000, according to Forrester Research Inc. And Gartner Inc. figures that by yearend, 1 of every 10 jobs in U.S. tech companies will move to emerging markets.

There are conflicting views as how this off shore outsourcing in IT and service industry will impact the U.S, workers and economy.

Views of Executive Council of AFL-CIO (American Federation of Labor and Congress of Industrial Organizations.)

Executive council of AFL-CIO is concerned that after two decades of devastation of the U.S. manufacturing sector and the permanent loss of millions of high-wage, good benefit, middle-class jobs, America is now threatened with a similar hollowing out of its service sector. Among the millions of service jobs threatened, now high paying, professional and technical career opportunities are also at serious risk due to the growing off-shoring trend.

The council emphasizes on recent studies and analyses that predict direct consequences, should current trends continue unabated. What these reports make clear is that any work that can be digitized and transmitted through cyber-space is a target for export:

* 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.

* Gartner Inc., a high-tech forecasting firm, estimates that 10 percent of computer services and software jobs will be moved overseas by the end of this year.

* A survey by Deloitte Research found that the world's 100 largest financial services firms expect to shift $356 billion worth of operations and about two million jobs to low-wage countries over the next five years. The study also revealed that one-third of all major financial institutions in the world are already utilizing offshore outsourcing, with 75 percent reporting that they would be doing so within the next 24 months.

* A recent study by INPUT Research, a market research firm in Reston, VA, projects that outsourcing of state and local government technology contracts will grow from $10 billion last year to $23 billion in 2008.

In executive council' opinion, lost employment due to offshoring across many industries has already had a severe impact on the U.S. labor market, stalled economic recovery and left policymakers alarmed about long-term prospects for job restoration. Federal Reserve Bank publication, "Current Issues in Economics and Finances," determined that in the most recent downturn (beginning in March of 2001 and ending in November of 2001), 79 percent of the job losses were reported to be structural (permanent) and only 21 percent were cyclical (temporary). This compares to 49 percent and 51 percent, respectively, during the economic downturns of the mid-1970s and early 1980s.

While offshoring by companies wanting to exploit workers in other countries instead of hiring U.S. workers and graduates will be difficult to deter, the executive council suggests that U.S. must proactively develop a coherent and comprehensive employment policy:

* Tax policies: Federal tax policies that encourage shipping U.S. jobs overseas must be replaced by tax incentives focused on job creation here.

* Procurement: Federal, state and local contracts for services worth hundreds of billions of dollars should assure that American taxpayers are not subsidizing the flight of U.S. jobs.

* Research and Development: Government R&D funds should be denied to companies that transfer the technology, intellectual property and other by-products of this investment overseas. Tax dollars that pay for this research should be invested in strengthening the national economy and creating domestic employment.

* Trade Agreements--Trade agreements must be fundamentally reformed to include enforceable protections for the rights of all workers--whether in manufacturing, agriculture, or services--to form independent unions, bargain with their employers, and reject child labor, forced labor and discrimination. Trade agreements should also allow appropriate space for countries to implement legitimate tax and procurement policies that support job creation in domestically oriented production, and for countries to implement safeguards and other trade remedies in response to import surges and unfair trade practices in the services sector.

* Worker visa programs need major reform. Visa programs like H-1B and L-1 are in effect technology transfer pipelines that enable foreign professionals to gain knowledge and core competencies here and then take them, along with American jobs, when they return home.

* Security: Export control laws need to be assessed and, if necessary, revised to assure that they can prevent the transfer of highly sensitive technology and other resources that could be adapted for purposes