Offshoring concepts and business applications

Offshoring has been discussed and debated more and more widely in the United States since 2003, when the cartoon appeared on the cover of Business Week showing a man in a business suit holding onto cargo being shipped overseas with the headline "Is Your Job Next?" Today the situation looks even direr. Many more companies, from Burger King to Cingular now outsource their back-office jobs. Even though Hira and Hira claim that hiring people in other lands, primarily India, to do jobs that once were American workers' jobs, is a terrible idea for America, others believe that the benefits of hiring labor in foreign countries will more than outweigh any negative effects it may have on American jobs now (Hira, 2005).

Hira and Hira admit that the noise from the two sides of the debate has reached such a crescendo that "this has made it nearly impossible to explore the positive and negative consequences of outsourcing and what we should do about it." (Hira 1)

Yet they attempt to explore the reasons it is a problem that now is and in the future will be affecting America's economy, jobs, and national security in negative ways. They say that experts have estimated 14 million white-collar jobs are vulnerable, and jobs earning above $31,720, approximately 3.5 million jobs, and $151 billion in wages could move overseas by 2015, with 830,000 jobs leaving by the end of 2005. (Hira 2)

The reasons, they say, are because corporate America is being told that offshoring is imperative, and that the federal government is actively pursuing policies that make outsourcing and bringing in guest workers profitable, encouraging the practice with tax benefits and political support. Furthermore, "the U.S. Trade Representative, the chief U.S. representative for negotiating trade agreements, wants to make this process even easier through the World Trade Organization and trade agreements." (Hira 2)

What is the truth of the matter? First, the claims made by both sides need to be examined.

U.S. corporations, and others who are for outsourcing, have followed their convictions, firmly believing that there are plenty of jobs for American workers. They seem to have guessed it correctly, since unemployment was at a national average of 4.4% in October, 2006, even lower than it was in 2005, when it was 5.1%. Further investigation shows that the numbers of foreign-born workers in the U.S. civilian labor force is staying the same, having been 15% in 2005, the same as it had been the year before. (The unemployment rate among foreign born is at the same percentages as the national average.)

This does not prove or disprove the fact that either technical jobs or blue-collar jobs are going overseas or being put into the hands of foreign-born in this country. All it proves is that so far it has had no effect.

As far as jobs in information services are concerned, the employment statistics for information services in the U.S. held fairly steady over the last 13 years (looking at October of 1983 through October of 2006):

Data extracted on: November 28, 2006 (10:28 PM)

Labor Force Statistics from the Current Population Survey

Series Catalog:

Series ID: LNU02034571

Not Seasonally Adjusted

Series Title: (Unadj) Employment Level - Information Industry

Labor Force Status: Employed

Type of Data: Number in thousands

Age: 16 years and over Educational Attainment: All educational levels

Ethnic Origin: All Origins

Family Member Status: Total

Industry: Information (6469-6780)

Marital Status: All marital statuses

Occupation: All Occupations

Race: All Races

Sex: Both Sexes

Data:

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ann 1983-2899(4) 2946 2942 2919 2913 2942 3029 2975 2985 2962 2950 3063 2960 1984 3012(4) 3065 3123 3086 3075 3121 3130 3089 3090 3103 3134 3106 3095 1985 3082(4) 3082 3161 3133 3139 3195 3210 3159 3207 3263 3253 3170 1986 3153(4) 3135 3152 3123 3158 3190 3189 3228 3195 3177 3213 3185 3175 1987 3108(4) 3130 3111 3106 3162 3077 3203 3215 3145 3200 3284 3163 1988 3200(4) 3289 3316 3268 3265 3293 3289 3261 3209 3192 3182 3238 3250 1989 3195(4) 3259 3323 3302 3318 3366 3392 3263 3236 3260 3189 3289 1990 3158(4) 3126 3258 3312 3398 3390 3369 3342 3243 3263 3230 3146 3270 1991 3246(4) 3231 3344 3449 3365 3429 3409 3342 3307 3262 3307 3388 3340 1992 3410(4) 3377 3375 3377 3292 3363 3388 3278 3274 3252 3272 3336 3333 1993 3269(4) 3171 3206 3208 3312 3386 3507 3409 3401 3368 3294 3307 3320 1994 3203(4) 3253 3295 3291 3438 3423 3465 3376 3299 3329 3314 3449 3345 1995 3335(4) 3426 3390 3329 3385 3447 3526 3501 3430 3479 3437 3499 3432 1996 3415(4) 3379 3263 3310 3369 3440 3581 3602 3566 3536 3529 3561 3463 1997 3506(4) 3444 3486 3520 3536 3617 3754 3739 3715 3789 3732 3784 3635 1998 3728(4) 3709 3658 3645 3713 3700 3750 3634 3619 3649 3733 3752 3691 1999 3723(4) 3706 3672 3655 3749 3828 3896 3836 3758 3751 3731 3797 3759 2000 3886 4079 4058 4126 3954 4133 4146 4067 4134 4163 4040 3921 4059 2001 4004 3947 4020 4148 4082 4149 4135 3998 4020 3926 3901 3733 4005 2002 3662 3721 3733 3760 3697 3764 3814 3833 3708 3576 3444 3581 3691 2003 3728 3771 3651 3690 3835 3996 3791 3617 3538 3405 3537 3687 2004 3436 3497 3548 3493 3440 3567 3533 3500 3459 3457 3475 3150 3463 2005 3290 3271 3114 3209 3234 3325 3569 3565 3539 3557 3520 3633 3402 2006 3414 3460 3504 3270 3462 3579 3631 3627 3611 3652 4: 2000 forward coded on the 2002 Census Industry Classification. 1983-99 constructed from data originally coded on earlier classifications. (U.S. Dept. Of Labor 2006)

When you look at the U.S. Department of Labor statistics on the occupations with the largest job decline from 2004 (projected to 20014) in the U.S., farmers and ranchers head the list. Further down the list you will find various factory jobs, typists, sales and finally electrical and electronic equipment assemblers, telephone operators, inspectors, testers, sorters, samplers and weighers, all of which only require short-term on-the-job training. No white-collar jobs are on the general list, except for secretaries (U.S. Dept. Of Labor). The argument that Hira and Hira put forth, that highly skilled laborers will be out of jobs that they have held for long terms, seems not to be valid in this area.

But, to be fair, the most convincing table of all is the National Employment Matrix, which measures employment by occupation, industry and percent distribution for 2004 projected to 2014. This information shows the numbers dropping in certain areas of the manufacturing, information and technology industries. Wired telecommunications carriers are a negative 21.74%. In manufacturing, electrical equipment, appliance and component manufacturing is a minus 7.10%, electrical equipment manufacturing is -13.24. Computer and peripheral equipment manufacturing is -18.13, as are commercial and service industry machinery manufacturing and rubber product manufacturing.

This may reflect the anticipated and actual loss of manufacturing jobs to overseas, but if Hira and Hira are correct, the numbers will be greatly affected in key areas that are not anticipated in this table (found at ftp://ftp.bls.gov/pub/special.requests/ep/ind-occ.matrix/occ_pdf/occ_17-2199.pdfon the Internet) (U.S. Department of Labor).

What is really telling is the table that focuses on computer manufacturing and technology. Found at ftp://ftp.bls.gov/pub/special.requests/ep/ind-occ.matrix/ind_pdf/ind_334000.pdf, almost every number in this table is red, indicating projected losses in employment through 20014. The percentage of change is projected (averaged over all related occupations) -7.10%. The actual numeric change is a loss of 94,200 jobs.

These tables must take many things into consideration, not only offshoring, but efficiency in manufacturing, loss of quantity sold because of improved technology, and the economy. It therefore may only be a good indication that in the United States computer related jobs, which were depleted in the dot-com bust, continue to dwindle.

Hira and Hira indicate in Chapter Six that not only technology, information and manufacturing jobs will be lost in the offshoring debacle, but related services, such as restaurants and copying services. As they mention, there is no record of how many people have already lost jobs, or how many will lose their jobs in the future, but that income taxes, goods and services will reflect this depletion. Another thing that will indicate growing unemployment will be the use of public services, such as unemployment compensation, insurances and social services (Hira 95). On the other hand, other factors may also affect these same indicators.

Another problem mentioned by Hira and Hira is security. Confidential data is going overseas and privacy, including national security, may be compromised. Information transmitted by telephone or internet is at risk. So far, there is no solution to this problem. Most companies admit that there is a danger of security breaches where there is a transmittal of information overseas. Whenever this is a possibility, the company transmitting information overseas simply issues a disclaimer (see Appendix A for a sample disclaimer).

Whether or not security, jobs and profits will be lost to overseas industries, the danger remains, in fact, that when jobs and the money to fund them goes overseas, that amount is lost to Americans. It may come back tenfold, as corporations suggest, in overall income from exports, higher salaries in poor countries whose recipients will become consumers of American goods, and higher profits for American corporations in the meanwhile because of lower overhead. Still, as Hira and Hira suggest, it would not hurt to take precautions that American jobs are protected by first of all admitting that a problem exists, by gathering data as to its effect, by taking a good look at U.S. Visa policies and by making sure that corporations are not acting to the detriment of U.S. jobs (Hira 175).

They offer a series of solutions that will benefit workers in the future: adopt more pragmatic approaches to government procurement, overhaul assistance programs for displaced workers, establish better protections for these workers, make sure training for the next generation includes lifelong marketable skills, form institutions that represent the interests of workers, educate our youth so that the U.S. can maintain its technological leadership, and institute trade policies that would be in the U.S. national interest (Hira 191).

The sum of this list is a tall order. It would mean revamping our view of the value of the American worker. Unions might have to take on additional meaning and power, regaining the bargaining power they have lost in the past couple of decades. Governmental policies would have to incorporate the value of the American worker into their perspectives, as trade agreements are negotiated. Governmental policies on education would have to improve drastically and money would have to be poured into public (and private) schools, in order to encourage children to pursue more biotechnology-based careers. America leads in this area today, but, according to Hira and Hira's research, biotechnology will soon be moving overseas, to Singapore and other Near Eastern countries who focus on educating their youth for this profitable product.

Another factor that is evident when statistical tables are viewed is that the U.S. government has not caught up with the fact that biotechnology is a major factor in jobs and income. The statistics and charts published by the U.S. Labor Department do not reflect that this field exists as a viable occupation in the United States. Only recently have the graphs and tables been revised to reflect that such jobs exist and even then they are not separated from older, outdated information on similar jobs. The technological, educational and economic policies reflect that this is a major field that has only recently entered the consciousness of U.S. government, considering statistics that have been gathered.

According to Hira and Hira,

The U.S. government is actively pursuing policies that accelerate outsourcing by undermining U.S. workers' primary competitive advantage over foreign workers: their physical presence in the U.S. The government has a guest-worker policy that enables companies to bring cheap foreign white-collar professionals to America to work on-site, replacing U.S. workers. The process also accelerates outsourcing as the U.S. transfers knowledge to foreign workers. Many then go back to their countries and compete with U.S. workers from there. Even more ominously, the U.S. Trade Representative, the chief U.S. representative for negotiating trade agreements, wants to make this process even easier through the World Trade Organization and trade agreements. (Hira 4)

This viewpoint reflects a kind of paranoia on the part of blue collar workers in the U.S.: a fear of foreign immigrants taking away the jobs that Americans by right of their citizenship should have. From the beginning of our history, the United States has brought in foreign workers to do jobs that were often too low-paying and undesirable for the ordinary citizen to do. Yet, railroad building, crop gathering and fruit stand vending have been attacked at historic times in the past on various fronts as being threatening to the U.S. worker. However, the result of each influx of foreign workers to fill these jobs has only benefited the U.S. In the long run.

Still the question remains, how much immigration is just right and how much is too much? The influx of Mexican workers into North America has U.S. citizens in the construction industry both elated and scared. Though employers hire more people for the price of one lost, even one job lost in a company will affect the morale of other workers and "the result of impoverishment can be a reduction in the motivational value of the job." (Campion 284) close eye is being kept on this new element in our society. The burden of their numbers is being felt in the drain on public services given free to these workers and their families. The influx of foreign workers here to do or to learn technological-oriented jobs has not reached this alarming status, and, considering the numbers needed in this category, may never reach it. Nevertheless, the fear factor seems to be taking an upper hand in the minds of many in the labor market (Cappelli 12).

Jeff Garten, Dean of Yale School of Management believes that the U.S. is facing a new challenge, "the order of magnitude of which is much, much larger than that which happened in the '70s and '80s" as to transformation of the economic world order and may mean an end to many jobs in the U.S. He believes that there are 300 million workers in the U.S. who may be hurt as a result of a new global economy and the globalization of American jobs. (McKinsey 12)