actually creates U.S. jobs, study finds
posted Nov. 18, 2004 | MSN Money staff and news services
Has outsourcing -- the practice of sending jobs to low-wage
countries such as India and China -- been unfairly pegged as
the culprit behind U.S. economic woes? A new study, a new book
and an influential Federal Reserve governor think so.
study released today by the Information Technology Association
of America (ITAA) says that outsourcing white-collar jobs has
thrown some Americans out of work, but predicts that the trend
will ultimately lower inflation, create jobs and boost productivity
in the United States. The ITAA said the migration of tech jobs
to low-paid foreigners has eliminated 104,000 American jobs,
nearly 3% of the positions in the U.S. technology industry.
But that's nothing, the ITAA said, compared with the home-brewed
dot-com meltdown that has eliminated more than twice that many
jobs since 2000.
"The myth is that we've started this long decline into
the midnight of the technology work force,'' ITAA president
Harris Miller said. "This report shows that, assuming the
recovery continues, the number of IT jobs will actually increase.''
Outsourcing dramatically cuts labor costs (Indian programmers
earn a sixth of their U.S. counterparts' wages), allowing companies
to sell goods more cheaply or at a greater profit. That means
more money to buy equipment, build facilities and conduct research.
Savings from outsourcing allowed companies to create 90,000
new jobs in 2003, with more than one in 10 of them in Silicon
Valley or elsewhere in California, researchers said. The report
predicts that in 2008, outsourcing will create 317,000 jobs
-- 34,000 in California.
Don't blame trade
Meanwhile, Fed governor Ben Bernanke, tackling an issue that
has resonated in the U.S. presidential campaign, said there
has been undue focus on the movement of U.S. jobs abroad.
"The single most important factor explaining lagging job
creation is the astonishing gains in labor productivity that
have been achieved in the U.S. economy in the past few years,"
Bernanke said in remarks prepared for delivery to the Duke University
Fuqua School of Business in Durham, North Carolina.
abroad simply cannot account for much of the recent weakness
in the U.S. labor market and does not appear likely to be an
important restraint to further recovery in employment,"
he said. "I continue to believe that steady improvement
in the labor market over the remainder of this year is the most
likely outcome," he said.
Investment banker Goldman Sachs last year estimated "offshoring"
accounted for 1 million of the 2.7 million manufacturing jobs
lost since summer 2000.
Bernanke also said the "dire predictions about a wholesale
'export' of U.S. jobs in coming years" were off the mark.
"Outsourcing abroad has proved profitable primarily for
jobs that can be routinized and sharply defined," he said.
"For the foreseeable future, most high-value work will
require creative interaction among employees, interaction that
is facilitated by physical proximity, personal contact, and
shared cultural experiences."
Treasury Secretary John Snow agreed. "It's part of trade,"
he told the Cincinnati Enquirer on Monday. "It's one aspect
of trade, and there can't be any doubt about the fact that trade
makes the economy stronger.
No panacea, if it ever was A survey released last week found
that most U.S. companies plan to outsource more of their back-office
functions overseas, where labor is cheaper, despite a public
relations backlash and weaker prospects for cost savings.
About 86% of 182 U.S. companies surveyed plan to increase the
use of offshore outsourcing firms, according to a poll by Chicago-based
management consulting firm DiamondCluster International. But
companies have lost the illusion of dramatic cost savings from
outsourcing, the survey said, because managing far-flung international
operations can be costly and difficult. They expect outsourcing
to save only 10% to 20% of their costs, down sharply from 50%
two years ago.
Companies may decide even that price is too high if they read
a new book by a University of Southern Mississippi professor
who studied the call center industry for eight years.
David Butler's book, "Bottom-line Call Center Management,"
examining the job that employs 7% of the American work force,
hits print just as the topic becomes a political hot potato.
"What CEOs don't tell reporters is that outsourcing is
still experimental and the experiment may not be working,"
said Butler, who heads the international economic development
doctoral program at the University of Southern Mississippi in
"Overseas call centers can cost more in customer goodwill
than they save in staff salaries."
Many corporate executives who outsourced call centers to Asia
confided to Butler that they are plotting quiet moves back to
U.S. soil. They don't want to lose face by admitting errors.
But they don't want to lose American clients who resent having
customer service calls answered on the other side of the world.
"The current political climate and terrible jobless numbers
have made outsourcing a hot-button issue even for white collar
professionals," Butler said. "Airlines, brokerage
firms, banks and manufacturers need to look at call centers
as part of brand imaging. Call centers are the continuous bond
customers have with companies. Call center staff calm panicky
customers with detailed advice. They help them choose new products.
They create empathy."
Butler cited a notable example of "call center repatriation"
from last year. Dell (DELL, news, msgs) moved its call center
support for corporate business from India into Texas, Iowa and
Tennessee. Dell clients had complained some Indian staffers
spoke with indecipherable accents and responded to technical
questions with generic answers.