Offshoring Fails to Buoy a Sinking Job Market

By John Moore  |  Posted 04-01-2005

Offshoring Fails to Buoy a Sinking Job Market

A recent column of minediscussed how one outsourcing expert believes tech companies that offshore some IT functions may boost their competitive posture, increase financial stability, and, so the notion goes, save jobs at home.

There's little controversy on whether offshoring lets IT services firms become more cost-effective.

The wage disparity between the United States and countries like India is well documented, and brand-name integrators and even some mid-tier players have benefited from cost cutting via the outsourcing route.

If companies have the "choice of whether to save money by outsourcing or spend more money by keeping U.S. workers, it's pretty obvious they are going to save money," noted Ronil Hira, assistant professor of public policy at Rochester Institute of Technology.

Hira also is vice president of career activities at the Institute of Electrical and Electronics Engineers-USA.

Click here to read about how "second-generation" outsourcing is more selective than the original flavor.

And saving money on outsourcing should allow some companies to keep some jobs in the United States that they might otherwise have had to eliminate.

Marcus Courtney, president of the WashTechCWA union, said that scenario may indeed occur in the case of smaller, financially ailing companies.

But, overall, "very few companies are actually in that position," he said. "Most companies into offshore outsourcing aren't companies that are on the brink of collapse," he added, citing Microsoft as an example.

The premise that outsourcing - regardless of flavor or variation - can preserve jobs at home generates plenty of reaction.

Readers responding to the previous column branded this assertion a fantasy - among other things.

Next Page: A grim outlook.

A grim outlook

Whether offshoring is good, bad or indifferent depends on the observer, Hira said.

What really matters, he argued, "is to look at the U.S. labor market."

Here, the reality for tech workers appears grim, according to Hira's assessment.

In Capitol Hill testimony earlier this year, Hira said that "U.S. electrical and electronics engineers and computer scientists have experienced higher levels of unemployment over the past four years compared to any similar time-span since IEEE-USA was established in 1973."

He cited lingering effects of the dot-com bust as part of the problem. "However, it is apparent that offshoring is a significant and growing cause of low demand for U.S. high technology workers," he said.

Hira said the labor market has improved somewhat this year, "but there is no robust hiring. So there's really no reason for students to go into these fields, and there is no long-term … job security in those fields."

According to Techsunite.org&#151a labor site for high-tech workers&#151354,974 tech jobs were offshored between Jan. 1, 2000, and March 31, 2005.

The Web site, operated by the WashTech/CWA labor union, reports a total job loss of 172,109 during that period.

The offshoring trend shows no signs of abating. Forrester Research projects that 3.4 million U.S. services jobs will move offshore by 2015.

When workers are displaced, the typically prescribed antidote is retraining.

Hira, however, questioned this tactic. "What do you retrain for?" he asked. "No one has an answer for that."

The question becomes particularly difficult to answer when employees with master's degrees and Ph.D.s find their jobs have been eliminated, Hira said.

Meanwhile, a government program that could potentially help displaced technology workers doesn't apply to the software industry.

The Trade Adjustment Assistance program was launched in the 1970s to help workers whose jobs disappeared in light of increased imports.

A 2002 reform of the act introduced additional features. For example, some workers 50 years and older who lack readily transferable skills but find new jobs may "choose to receive 50 percent of the difference between their new salary and old salary for two years, up to a maximum of $10,000," according to the Department of Labor.

Trade Adjustment Assistance only applies to goods manufacturing, however, Hira said.

"Software is not considered manufacturing; it's considered a service."

He said a proposal last year in Congress to extend Trade Adjustment Assistance to software was unsuccessful.

Offshoring may indeed be the answer for many IT services companies. But displaced tech workers are left with plenty of questions.