Dan reminds me of one of the reasons college tuition has continued to escalate despite years of low inflation generally.

Benefit claims of university employees has risen much faster than inflation, while universities have for unknown reasons felt inhibited from more aggressively seeking increases in employee productivity. Professors at all levels, in fact, seem to be as underworked as they have always been.

Perhaps it is possible to use high-capacity bandwidth connections between the United States and lower-cost countries such as India to facilitate instruction by teleconference in some subjects. Foreign languages is an obvious candidate; the political science departments in some schools might see a benefit in recruiting instructors with a perspective different from their American incumbent professors. Such instructors who could be recruited -- and many of them will have received first-class educations at American universities themselves -- would cost universities far less than their American instructors do now, and the savings could be passed along to the families of students, the consumers of education.

But this doesn't mean any American instructors' livelihoods would be affected. Not enough for anyone to notice, anyway. I admit the danger of neo-Luddism in the academic world arising from such an attempt to improve stagnant productivity. But, really, what are you going to do?

The Wall Street Journal today reported that outsourcing has created more jobs than have been lost!

"Despite the political outcry over the outsourcing of white-collar jobs to such places as India and Ghana, the latest U.S. government data suggest that foreigners outsource far more office work to the U.S. than American companies send abroad.

The value of U.S. exports of legal work, computer programming, telecommunications, banking, engineering, management consulting and other private services jumped to $131.01 billion in 2003, up $8.42 billion from the previous year, the Commerce Department reported Friday..."

The real risk is that the shrill political discourse will lead to actions that will hurt our SUCCESS in the services outsourcing market.

Too bad that politicians and many in the press are distorting the real story.

This may well be true, but in elections where perception is the truth, no candidate can afford to have the impact of something like outsourcing become an issue.

Even if the economic reality is different from the perception, this is a campaign issue and is already impacting the election.

An issue rarely mentioned is that many of the new jobs are in very small organizations, or even self employment, and good health insurance is harder to get in small organizations because of individual medical underwriting and pre-existing conditions limitations. Furthermore, people over 50 have trouble getting jobs with benefits because they increase health insurance costs more than young people.

It is now reaching the point where a separation of health insurance from employment is becoming important from an employment standpoint. Unfortunately, the only way to do this without adding greatly to the rolls of the uninsured is to mandate purchase of insurance by all individuals in the country. See here for a discussion.

" Forrester Research Inc. estimates that of the 2.7 million jobs lost in the last three years, only 300,000 have been from outsourcing."

I'd expect that those estimated 300,000 jobs aren't evenly distributed among all industries and job fields.

So tell them the truth, Dan. Be a sport:

"We don't need you over-paid, over-fed gentiles anymore. You cost too much. We want well-behaved black mammies from Haiti taking care of our kids here in Riverdale, not spoiled black trash from Harlem. We are tired of feeding you through welfare and other entitlements and you are going to have to stop breeding and expecting to be fed. Lower your expectations, be docile, or we will replace you with Mexicans like we replace Palestinian workers with Philipinos, Indonesians, Czechs and others who cannot speak to each other, organize or in any otherway gain a foothold".

"It's the way of the world, it's globalism, it's efficiency. Those groups that are global, cosmopolitan and interconnected will survive. Those that aren't, won't".

27,000 jobs huh? Guess I've been lucky to lose one of them - as are the thousands that I have heard from since founding the ITPAA (www.itpaa.org).

Those are some pretty creative statistics you've got there Dan. You base your numerator on the research arm of an outsourcing group (Forrester) with a stake in the debate, and then you set the denominator to a statistic from the "non-too friendly to business" USA Today. Clever, clever.

And wrong.

Mr. Moore:

Interesting proposal. You'd have health insurance work like auto insurance. But how would you enforce the everyone has it part? And what about people whao can't afford it? And can you imagine the ugliness that occurs when a procedure is denied by an insurer? I'm afraid the short history of HMO profitability is a cautionary tale for your kind of proposal.

I tell you, I would not want to be in an insurance business like this, because I doubt I would be permitted to charge enough to make up the costs I would have to pay.

I don't understand how immigration fits into all of this. Seems to me with 8 million illegal immigrants and 50,000 coming in a day these people ought to be factored into the whole job equation.

I think we also ought to look into why we don't have more American trained doctors and health care workers. It seems to me we could bring down health costs, and increase american employment by greatly expnding our training programs........

Scott,

The 2.7 million figure is not controversial -- check out the Bureau of Labor Statistics if you think it's understated.

My point about USA Today was that the content of the editorial itself was pretty hostile to business. Apologies if that was unclear.

Oh, and I wouldn't be shocked in the slightest if you received feedback from a healthy fraction of total outsourced workers, given your pominent mention in Daniel Pink's Wired essay.

“One wonders whether this will foster the the rise of a neo-Luddite movement in the United States.”

This has already happened. It’s called the Democrat Party. I’ve been saying for months that (and I think I’m the first one who noticed) that free traders like Brad DeLong and Robert Rheich are no longer welcomed. They are heretics who are unaware of their excommunication. How many people have read the recent New Republic March 15, 2004 article, “CAPITALISM WITH A DEMOCRATIC FACE. Bull Run,” by Eliot Spitzer & Andrew G. Celli, Jr. This might be the funniest thing I’ve ever read:

“By taking up the mantle of efficient, forward-looking, and market-oriented government action, Democrats can move from being a party that simply opposes Bush's tainted version of laissez-faire to one that advocates for the progress that comes with real market freedom. It is a powerful argument, a true argument, and it is ours for the making.

http://www.tnr.com/doc.mhtml?i=20040322&s=spitzercelli032204

What’s wrong with the article? Well, the problem is that I didn’t see anything that I particularly disagreed with---and I’m voting for George W. Bush! Spitzer and Celli should be dialoging with the Republican Party. They are wasting their time with the Democrats.

Thanks for the flattery, Dan. However shouldn't the lower bound for the number lost be the number companies have publicly stated they were shipping abroad? For example, our recent Weasel of the Week - Earthlink CEO Garry Betty - outsourced 400 jobs from Harrisburg PA - and has promised to send 1/2 the company (1200 more jobs) abroad this year.

That's just one company - and a small one at that. However that's 10% of your lower bound - a substantial chunk.

What happens when we throw in AT&T's 5000 jobs, or the outsourced jobs from IBM, Accenture, HP, JP Morgan-Chase, American Express? By my back-of-the-envelope calculations, that would be roughly 40,000 jobs. Ad in the rest of the 200+ outsourcing giants listed by Lou Dobbs, and the figure would explode. And wouldn't it be more accurate?

“What happens when we throw in AT&T's 5000 jobs, or the outsourced jobs from IBM, Accenture, HP, JP Morgan-Chase, American Express?”

I can answer that question. You make me feel like Barry Bonds waiting for a slow fast ball over the plate. The consumer will pay less for their products and services. Our increasing productivity results in an overall wealthier country. Wasn’t that easy?

I candidly, however, admit that many people will be unemployed. However, the answer is not to embrace the economic philosophy of Ned Lud. A better alternative must be found.

David
As for feeling like Barry Bonds, you hit a tennis ball. The question was regarding the number of jobs lost and didn't address the productivity issue.

But since you brought it up, where are those gains that we've been promised? My insurance company outsourced its IT department, but my insurance didn't go down. In fact, it went up.

And where are those new jobs that are supposed to be created from increased productivity? And why won't those jobs be outsourced as well?

BTW I'm more into contact sports like hockey myself.

job growth has slowed because we are living with the residue of the technology and stock market booms of the 90s.labor is an expensive input and there is slack in capitacity utilization. business will use this idle capital before they hire workers.i dont see a rebound in hiring until cap ute approaches 80% from the current 76.6% level. john jansen

One more point before I go - for those of you who belong to the Church of Free-Market Economics...

Do you support government intervention measures such as anti-dumping duties and the like? If not, do you support government intervention in the labor market?

Roughly 40% of H-1b, J1 and L-1 visa holders are here to support offshoring projects. Since these workers earn substantially less than equivalently skilled Americans (25-75% less), aren't they in effect a government subsidy that encourages offshoring?

Remove the non-immigrant visas from the mix and the entire outsourcing debate changes.

“But since you brought it up, where are those gains that we've been promised? My insurance company outsourced its IT department, but my insurance didn't go down. In fact, it went up.”

Which insurance policy are you talking about? Health insurance is going up because we demand coverage for ailments that our grandparents were forced to live with. Thus, outsourcing will merely keep the costs from going up much more rapidly. As for productivity gains, are you pulling everyone’s leg? The recent government reports prove overwhelmingly that we are increasingly becoming more productive. Are you perhaps hinting that these figures are fraudulent? Please explain.

Homeowners insurance.
You could argue that it didn't go up as much; I could argue that the cost savings wasn't passed to me - it padded the CEO's nest, since his bonus was higher. Then you could call me a populist/protectionist and throw up your hands - or answer the other questions posed above.

As for productivity - I don't doubt the gains. What I am asking for is proof that it matters to me or anyone else holding a job that can be outsourced. After all, Americans are the most productive workers on the planet - yet that hasn't stopped companies from laying them off in droves and hiring less productive foreign workers.

As a programmer, it's not my salary vs. an Indians: the overall cost differential is about 1/3 after middlemen and management overhead is considered. That gap should be made up by productivity - yet it doesn't matter to companies chasing the quick buck - so why should productivity matter to me?

How is productivity calculated? Is it profit divided by workers? Are outsource shops considered workers, or an external service?

"Roughly 40% of H-1b, J1 and L-1 visa holders are here to support offshoring projects."

Scott, where does that statistic come from?

productivity has nothing to do with hiring foreign workers.when the ricardian scientists talk about producivity they are speaking of something akin to a mathematical identity. less or the same number of workers making more widgets is a gain in productivity.

“I could argue that the cost savings wasn't passed to me - it padded the CEO's nest, since his bonus was higher.”

You need to study economics. It is inherently impossible in a transparent capitalist society for increased productivity to benefit only a “CEO’s nest.” A competitor will force the CEO to pass along the savings---or go out of business.

Appalled Moderate: The figure comes from the Indian Media - the best resource on outsourcing around. Visit my site and search on "smoking gun".

John - Huh?

David
Why study it when you can live it?

In theory you are indeed correct re the CEOs. However the theory no longer fits the reality. As profits have been in decline, CEO compensation has continued skyrocketing. Why? Stinks of market failure to me.

Appalled Moderate
In case you were lazy, that fig came directly from the head of NASSCOM. I'd forgotten that myself...

“David
Why study it when you can live it?”

This sentence is utterly senseless. It is an indulgence in fatuous anti-intellectualism.

“As profits have been in decline, CEO compensation has continued skyrocketing. Why? Stinks of market failure to me.”

You actually have half a a valid point. A CEO's compensation is often decided by their buddies who are looking out for each other. This is indeed a problem which needs to be addressed. Nevertheless, you grossly exaggerate its importance on the overall economy. Even John Welch’s pay probably represented less that 1/4 of one percent of General Electric’s total gross income.
The company is still compelled to lower prices so that it can stay in business.

a gentleman above asked for definition of productivity. i think the best definition is output per unit of labor.so productivity surge of last several years means fewer workers are producing more widges than before. by definition ,productivity is surging or improving. when companies someday begin to add workers productivity is likely to decline.again it is just an identity and not some normative state.jjj

I am not lazy, though others might be. This is the source of the statistic:

http://www.mid-day.com/news/business/2003/may/54355.htm

This is a tough article to read, because of the questionable English. I took the guy quoted as saying that 40% of outsourcing work is operated out of the home country, which is a different thing than saying that 40% of the visas granted are for folks supporting outsourcing.

Like to know what others think, because this is a fairly inflamatory number.

I’m willing to argue that the loss of high paying IT jobs is not due to outsourcing, but really just fallout from the supernova that was the tech bubble.

Did anyone really think that $5000 and a few months of training for a MCSE certification would result in lifetime employment starting at $75,000 per year?

Y2K was the killer app, and it’s over. It’s never coming back. Move on.

David
You suggest I'm stupid, and then get upset when I defend myself?

I have yet to see an outsourcing initiative save more money than a CEO's salary. In fact, I see such things as Travelocity outsourcing a call center and killing 250 low-paying jobs in a distressed appalachian community in a move that the Indian media didn't think made sense. Meanwhile the CEO walks away with $12 million.

It's all connected. Outsourcing. Non-immigrant visas. Consumer and shareholder activism. CEO pay. If you think that you understand what's happening, you might want to think again. I leave you with Intel CEO Craig Barrett's comments:
The United States "now has to compete for every job going forward. That has not been on the table before. It had been assumed we had a lock on white-collar jobs and high-tech jobs. That is no longer the case."

Anything that can be outsourced will - and what will remain?

“Anything that can be outsourced will - and what will remain?”

I’ve repeatedly answered that question: lower prices for consumers. New jobs will be created for those currently unemployed. Also, the countries who are becoming more prosperous will inevitably purchase more goods and services from us. You perceive economics as a zero sum proposition. Nothing can be further from the truth. An improving global economy lifts all boats.

Are you concerned about international trade? If so, why aren’t you also worried about interstate trade between California and Ohio, intercity trade between Dallas and Houston, and interstreet trade between Main Street and Williams Boulevard?

The US currently runs a $60bn annual trade surplus in the service sector, which has seen a growing number of jobs moved to lower-wage countries."(from the Financial times)

In 2003, our merchandise trade deficit came in at $550 billion, 5 percent of our gross domestic product. With China, our trade deficit hit $124 billion. U.S. imports now account for 100 percent of China’s growth.
Our Merchandise trade deficit with China alone exceeds ALL of our service exports worldwide.

It's clear to me that the WSJ tried to apply misleading spin in it's artical, and that trade deficits and outsourcing are going to be a huge problem.

Tghe popular view is that it will be dealt with by allowing the dollar to slide, raising the price of imported goods.

But this is no solution. Those cheap goods Americans rely on will get to expensive to buy on their eroding wages.

And there will be no incentive for american corperations to bring jobs back, because there is no way for Americans to undercut single digit or less hourly wages that exist overseas.

All the malaysian sweatshop owners have to do is crack the whip harder. All the chinese have to do is shoot a few more citizens, and viola! Cheaper labor.

“All the malaysian sweatshop owners have to do is crack the whip harder. All the chinese have to do is shoot a few more citizens, and viola! Cheaper labor.”

Wow, do you ever need to study economics. Sweatshop labor poses little threat to our nation’s employment. We long ago, thankfully, started to rid ourselves of these brain-dead jobs. Increased productivy can result only from a well educated work force.

Scott,

The correct objection to all of those alphabet soup visa programs is that they are uniformly based on allowing private organizations to hold out the apparent chance of American permanent residency to the recipients - an asset that only the government can actually confer.

That a lot of people outside our borders value even a chance at a Green Card - and value it pretty highly - is not news. The difference between what they make working under the auspices of one of those visa programs and what a citizen or resident alien makes doing the same job is the value they place on their shot at that Green Card. We're talking low- to mid-five figures, easy.

Of course the magic credential won't materialize unless they stay six years, only work for the outfit that sponsored them, put up with any crap the employer cares to send their way and jump through a lot of other hoops. Then at the end of the paper chase there is most likely NOT a Green Card to be had.

I say let anyone who can get here and find a job stay here as long he isn't a burden on the taxpayers. That way, he gets paid the same as we natives and employers can't wave Green Cards in return for sub-market wages.

It won't end out-sourcing, but it'll change the relative attractiveness of coming here. If I were an educated Indian national who could stay in Bangalore and live the equivalent of an upper-middle class American existence on 1/4 of an American salary, I'd definitely do that in preference to signing indentured servitude papers for a six-year hitch of 70+ hour weeks, living six or eight to an two bedroom apartment and living on macaroni and cheese. I might not be as likely to do it if my alternative is to come here and live the same lifestyle on an American paycheck.

End all of these special visa deals and open up immigration opportunities here. Enough foreigners will take advantage of the American in-country alternative to cut down the number of stay-behinds available to outsource to.

What to do until we free up our labor market? I used to be a programmer back in the Late Pleistocene. Let's face facts, guys, coding is not always a walk in the park. I was a powerless prole in several of those Yourdanish "Death Marches" that the field has now, of course, entirely outgrown (nudge, nudge; wink, wink).

Life as a programmer is made miserable by incompetent system design. Incompetent system design is made inevitable by bad project management. Bad project management is guaranteed to be common by Sturgeon's Law: 90% of everything is crap.

Who can blame corporate management for outsourcing when they can buy a failed software project in India for only 25% of what they'd have to pay here?

If you can actually design and make useful software, guys, go to it and do it for your own account. Build software tools (applications, actually)that allow you to provide some service that either doesn't now exist or which is ripe for improvement. Sell service, not coding.

If, after at least a few years of career seniority you can't think of anything along these lines, maybe that's God's way of telling you that he wants you in some other line of work.

Is it possible that outsourcing actually shows up in the domestic productivity numbers? I'm thinking that jobs in which productivity is not rising, or are rising slowly, are the ones that get outsourced, skewing the domestic numbers toward the higher-productivity jobs and thus showing greater productivity growth than if the US were a self-contained economy.

Does this make sense? Dan?

"...H-1b...visa holders...earn substantially less than equivalently skilled Americans (25-75% less)"

Wrong, Scott. The Migration Policy Institute has found that when you allow for age, experience and education, employers actually pay foreigners more than Americans.
And in order to be considered for Labor Certification (step 1 to a green card) you have to be making "prevailing wages", defined by the immigration authorities as in the top 10% of the range.
I know, I'm an H1 visa holder, and I know plenty others. None of us are suffering for wages, even by American standards.

Who the hell cares if DVD players are $30 or $60. Everyone, on both sides of this argument, seems to think that its a given a given that this is soooo important. Free your mind, people. We lived fine without DVD players at all. We have way much too much crap as it is.

I'm not a Luddite, but anyone who thinks that a lot of technology isn't a pretty finely balanced double-edged sword must have missed the 20th century. TV, the automobile, the ICBM and nuclear bomb, yadda yadda...

Also... a lot, or anyway some, of the American productivity gains are probably just people being made to work harder. Come ON, people: Americans work too hard already. Life is to be enjoyed.

Thank you, Tierney, for beating me to the punch on this one. I have managed a technical recruiting operation for the last dozen years that was forced to turn to H1B candidates in order to fill positions for my clients that were going unfilled due to the absence of qualified Americans. These were mainly software engineers and professionals in various other engineering disciplines, and the foreign nationals that were hired were paid not one dime less than their American citizen counterparts. I know because I negotiated salary terms for both groups and was intimately aware of company salary levels and hiring policies.

In many cases, the H1B candidates had multiple interviews, and multiple offers from American companies. In other words, the market did not allow them to be "exploited" into accepting less money than they were worth. Nor have I been aware of anything remotely resembling "indentured servitude" on the part of employers who in fact have little power to "wave the Green Card" in the face of the employee as some kind of a threat, or as a way to force them into working "70 hour weeks" under threat of deportation. The Green Card process is held at arm's length from factors over which the employer has control.

Yes, it is difficult for an H1B worker to change jobs at the drop of a hat given his sponsorship by an employer,(who often has underwritten much of the legal cost associated with hiring an H1B candidate). So he is "forced" to keep his job and his benefits, sometimes for six full years. Everyone should be so "exploited". I'm sure there are individual horror stories of unscrupulous employers and of foreign nationals being hired at a lower salary than one or another U.S. citizen competing for the same job. But I work in this world of professional hiring and staffing every day, and I don't see it.

May I also add that most of my clients would have preferred to hire qualified American citizens if the supply would allow it, (and not for patriotic reasons) The language and communications issues alone are sometimes enough of a disincentive for companies to hire an H1B candidate, (although I have placed many Asians and Europeans whose English skills would put most Americans to shame)

I am networked with recruiters nationally who work in similar disciplines, and their findings mirror mine in most respects, and my marketplace is national as well, so we're not talking a regional anomaly here either.

H1B placement has declined in the last couple of years, as you might expect, as recession has hit, and the supply of American citizen professionals has grown, and overall hiring has slowed to a crawl in tech disciplines. So the sample on which to gather data has shrunk, at least in my practice.

I am frustrated by people who suggest that these H1B employees are doing jobs for American companies that would otherwise somehow be filled by laid-off steelworkers or single moms. And that they are being exploited in the process by greedy companies. In my experience, neither of these assertions is true.

somehippie:
>We have way much too much crap as it is.
>I'm not a Luddite...

...yes, you are. (Actually, it's more likely that you're just trolling. Too many buzzwords.)

Scott Kirwin:
>Anything that can be outsourced will -
>and what will remain?

I guess this is like the massive famines that occured back in the seventies, when the car factories all switched over to robots and millions were put out of work.

Oh wait, THAT DIDN'T HAPPEN.

It's not my fault that a bunch of kids decided that they wanted an easy job with lots of money and that CS was the way to go.

'I’m willing to argue that the loss of high paying IT jobs is not due to outsourcing'

I think that if you take outsourcing, and the flooding of the U.S. labor market with over one million H1b's, not to metion the folks brought by Tata, Wipro, the MNC's and the like on L1 visas, we could have a pretty good argument here.

http://www.zazona.com/ShameH1B/Demographics.htm

'Did anyone really think that $5000 and a few months of training'

How about over nine years in college and two degrees (electrical engineering and music) and the investment of tens of thousands of dollars in tution costs, and ten years of building a career, would that be enough? I used to be a software engineer, now I am not. Explain that one.

'Y2K was the killer app, and it’s over. It’s never coming back.'

I began my career in 1993, straight out of college, and never worked a dot.com or Y2K job in the entirety of that career.

'Move on'

Seems that the quips of the day are 'move on', 'retrain yourself', or baically 'shut up and stop griping', to which I now just have resigned myself to responding in the same illogical manner 'to what?', 'for what?', and 'why, I have a min wage job and lots of spare time'.

Spin, baby spin, just like you spun the war. We don't believe you anymore.

Mr Thompson:
"Wow, do you ever need to study economics. Sweatshop labor poses little threat to our nation’s employment. We long ago, thankfully, started to rid ourselves of these brain-dead jobs. Increased productivy can result only from a well educated work force. "

So, any job that isn't YOUR job is brain dead eh?

Lets see, what are the fastest growing jobs....?:

Nurse.
Waitress.
Personal care (manicurists/hairstylist etc)
Retail Clerks.

Now, being a nurse admittedly takes soem smarts unless you are at CNA level (half of them). But I'd rather have a nurse that is a Nurse by inclination and not economic necessity.

The rest? Wow, those are some high paying occupations huh?

And please, tell me that the 40,000 Boing workers who are watching their jobs shipped to japan, australia, italy, and china, are all brain dead.

If they are, I suggest you start taking the train.

Every dollar we send overseas comes back eventually. That means every job lost to imports is matched by one gained from exports.

I suspect people who can't understand that probably shouldn't have technical jobs.

'That means every job lost to imports is matched by one gained from exports.'

Think about what you are stating here, and then try to reconcile your thinking and your logic with our current 541.8 billion dollar trade deficit.

My problem isn't that technology is directly replacing people...it's that technology enables one to work 24 hours a day. I'm putting in about 12 hours a day now, not counting commute. Jeez! My company has realized over 100MM during the past 3 years in work directly attributed to me while my pay is under 150K/yr and I still have to deal with layoff threats. I've been working in the computer field for 30 years. Even in 1973 there were issues with companies like Lambda hiring and exploiting foreign IT workers such as Filipinos and Brits. The H1B visa thing was done to keep down US IT worker wages...just like the, what was it, 1187 tax change thing ... which destroyed the independent consulting industry back in 1987. Both of these efforts were promoted by big business (IBM, Microsoft, EDS, etc.) to stifle the competition they were getting from independent startups or to keep a lid on uppity workers. So for you economists...is this what you mean by capitalism?

>I'm not a Luddite...

'...yes, you are'

I would suggest that the poster is in fact, not a Luddite. You see to infer that the poster is a Luddite would mean that the programmer, call center, or financial services jobs have been replaced by automation, or that the jobs have been redered extinct by other forces of technology. This is clearly not the case. A similar mistake is being made by those who would apply the classical Ricarian Model of Comparitive Advantage to the current situation when it is in fact the factors of production which are being moved.

Wanted to also share a recent publication by the Columibia Business School.

http://www.architecturemag.com/architecture/headlines/article_display.jsp?vnu_content_id=1000461239

"Think about what you are stating here, and then try to reconcile your thinking and your logic with our current 541.8 billion dollar trade deficit."

The trade deficit is a paper tiger. All it means is that other countries have shitloads of US treasury notes and/or dollars, which are only ultimately redeemable within the US.

Supersclar.
Joseph Hertzlinger said:

"Every dollar we send overseas comes back eventually. That means every job lost to imports is matched by one gained from exports".

Correct. I suggest YOU need to think about what JH has said. They give us tangible goods and services-we give them pictures of dead presidents. There are three different things the exporters can do with our money. 1) they can keep it. That would be pretty good for us as paper and ink are pretty cheap and the technology to manufacture pictures of dead presidents is already fairly well established. We'd actually have ourselves a pretty good exporting scam going. 2) they can use it to purchase goods and services from another country willing to accept our currency. Slightly less efficient than using it to purchase stuff from us and still not bad since the countries accepting our currency would be inclined to use it here or they can do the most logical and efficient thing and that is 3) to buy stuff from us.

The "trade deficit" figures you hear about aren't going into anyone's mattress. That's money that's guaranteed to come back. Milton Freidman or Walter Williams explain this a lot better than I. Unfortunately they aren't posting here so hope I didn't goof it up too much. Thanks

Sorry, incomplete thought there. To continue: they can sit on those bills and notes for a while, and other countries can trade those notes and bills between eachother, but those who have them ultimately only have two options:

1) Exchange the dollars/notes for stuff from the US, in which case all the wealth comes back.
2) Destroy/dump the bills, in which case they lose worse than the US does. It's pretty safe to assume they won't do that.

Grrr, damn you Rocketman! Now I look like a plagiarist! ;)

I guess I mean Milton Freidman, Walter Williams OR Andy Danger can explain it better than I.

Hmmm.

"Correct. I suggest YOU need to think about what JH has said. They give us tangible goods and services-we give them pictures of dead presidents. There are three different things the exporters can do with our money."

Or they could simply exchange the dollars for other currencies with the Federal Reserve. In which case there would be no purchases of goods or services from America. So there wouldn't necessarily be an export associated with any imports at all.

Hmmm.

"I am frustrated by people who suggest that these H1B employees are doing jobs for American companies that would otherwise somehow be filled by laid-off steelworkers or single moms. And that they are being exploited in the process by greedy companies. In my experience, neither of these assertions is true."

Sorry man but I've worked with a lot of H1B visa holders and they've pretty much all were paid far less than Americans for the same jobs. An example is an Oracle DBA, from India, who was paid $800 per month, gross.

Perhaps your experience is different, but I'd suggest that you consider that it is not a general representation. I've worked in IT for 26+ years now and I've never seen, not *once*, a single H1B visa holder who was paid the going rate.

Not once.

ROFLMAO!

"Benefit claims of university employees has risen much faster than inflation, while universities have for unknown reasons felt inhibited from more aggressively seeking increases in employee productivity. Professors at all levels, in fact, seem to be as underworked as they have always been."

You know. I'm thinking that we'll see an entire slew of anti-outsourcing papers written when professors are outsourced. Which might happen sooner than expected if the move to online education keeps accelerating.

Which is pretty damn funny.

What actually happens is that the other countries (governments, corporations, or citizens) buy U.S. securities--government or private--with the U.S. $ they get above & beyond what they spend on U.S. exports. This of course gives them a claim on future earnings.

Warren Buffett has argued that this is analogous to a family selling off land in exchange for consumer goods.

somehippie (sic): We have way much too much crap as it is. I'm not a Luddite...

superscalar ...yes, you are. (Actually, it's more likely that you're just trolling. Too many buzzwords.)

Nooooo I'm not! How rude! Don't define me. (Actually, the Luddites get a bad rap; they were about way more than just smashing machinery, but never mind that now.)

If I say that Hey maybe having a DVD player in every room is good, but it is not the ONLY good thing in life... wow, I must be trolling. I mean, how could anyone believe that there is more to life than material goods. Only a troller. How could anywone believe that it would be better to have more time than more money. Only a troller.

Sheesh.

OK, this is an economics forum, so not the place for discussion of larger issues. But there are larger issues.

The Business Week article suggests that a one point increase in productivity costs about 1.3 million jobs, and makes this factor seem more important than labor outsourcing. But what this analysis overlooks is something that is increasingly being recognized in the economic literature --namely, that outsourcing is itself a significant source of an economy's productivity gains. (See, e.g., http://www.nottingham.ac.uk/economics/leverhulme/research_papers/03_20.pdf for an analysis of the relationship between productivity and outsourcing). In other words, productivity is caculated in such a way that the use of cheaper labor to manufacture some of the components of a finished product will generate productivity gains.

Hmm.

"Are you concerned about international trade? If so, why aren’t you also worried about interstate trade between California and Ohio, intercity trade between Dallas and Houston, and interstreet trade between Main Street and Williams Boulevard? "

Because American workers can follow jobs across the country. If one area is booming and another goes bust, workers can relocate. This is just not possible when jobs move across national boundries.

Isn't that obvious?

Other differences between international trade and "intercity/interstreet" trade:

City governments don't normally require that companies give up intellectual property when selling products into their domains. But some national governments do exactly that, as in the case of the recent GE turbine sale to China.

Hmmm.

http://www.bls.gov/opub/hom/homch10_c.htm#Data%20Sources%20and%20Estimating%20Procedures

You know. I really don't think the BLS productivity calculations include the effects of outsourcing at all. As I read it a situation where a company has both a working division in America and one in India would result in the combined output of both divisions being attributed to the American one. This is because the gross income of the company is associated with the total number of jobs flled by the American division.

So as more work is shifted offshore, and fewer workers are retained domestically, the higher the producvity gains.

Hmmm. If I'm reading this wrong would someone please explain. In excruciating detail.

The argument that outsourcing (in this case manufacturing) allows me to buy things cheaper than I could otherwise doesn't wash much with my current budget. Health care costs, insurance costs in general, energy costs, food, and property (house payment and taxes) eat up far more of my budget than cars, dvd players, and televisions.

Perhaps I could work at Walmart and still afford a DVD player. I could watch it in my unheated home after riding my bike to work because I cannot afford gasoline.

"I've never seen, not *once*, a single H1B visa holder who was paid the going rate. Not once."

Ed, perhaps now you'll consider my experience and that of commenter Tierney to be valid, and so you won't be able to say "not once" any longer.

As I said, the marketplace is the great equalizer. Competition for the services of H1B candidates sets the market value for their services, just as it does for citizens. Nobody held a gun to the head of the Indian DBA to accept the money he accepted to go to work there.

In order to accept the premise that he perverts the "market value", you would have to prove that there was no similarly qualified American that would have said yes to that position for the same money, at that time, for that company, in that location. (As an aside, I have seen all manner of skill sets described as a "DBA". One company's DBA is another's implementation technician.)
A workers "value" is no more or no less than what he is willing to get up every day and go to work for. And again, in order for a "wrong" to have been done to an American citizen, one must assume that there was an available, interested, similarly qualified, American citizen that was passed over by the company for no other reason than that his "asking price" would have been higher. Again, my experience is that this is rarely the case. I find that most companies look to H1B's as a last resort measure, only in the absence of qualified citizen candidates.

I have personal knowledge of someone who was paid vastly more than what he was worth while on an H1B. I have even more personal knowedge of someone else who is being paid only moderately more than what he is worth while on an L1A, and is in fact at this very moment posting a comment on a blog when he should be working hard for those dollars.

"So as more work is shifted offshore, and fewer workers are retained domestically, the higher the producvity gains."

That is why I was curious as to if U.S. productivity was calculated using ONLY American Citizens as opposed to H1-B's. Even if it did include H1-B's, I would doubt that it would include outsourcing to a company in India. That would seem more like a service to me. So I guess as long as you have at least one American citizen and you outsource the rest, your productivity is outstanding. If you don't have any American workers and are 100% outsourcing, your productivity is "Error: Division by zero." (Computer joke) I guess that kinda takes the wind out of the sails of people who say outsourcing is increasing productivity. The answer is yes, but not like how you are thinking.

At the heart of any neo-luddite reaction lies the "constant jobs / constant consumtion" fallacy that assumes that jobs are a fixed commodity, and once a job is "lost" to automation or to a more efficient offshore competitor, it is never replaced within the economy, or that consumer demand is fixed.

A more realistic sceanrio is that as businesses become more efficient at creating new wealth at lower cost per unit, free-market forces will bring down the price of that unit, increasing the purchasing power of each consumer.

As left-over consumer dollars chase additional wealth, businesses respond by producing more, thus creating a demand for more workers which may ultimately embrace these displaced workers. These workers will play different roles, and at much greater productivity levels than they had at the job they were displaced from. So there is likely to be need for retraining.

As automation supplants increasingly higher-skill-level jobs, we may see a single worker able to operate a factory to produce as much as a hundred workers used to. (Think agriculture, for a good example). This does not mean 99 workers go begging. It means that 99 more factories may now be built, in which each worker can now manage creation of 100 times as much wealth as before, though possibly not in the industry they formerly worked in. It means that each worker not only produces 100 times as much, but can also afford about 100 times as much of this more cheaply produced wealth.

A comment and a reply.

First, I agree that many high-tech jobs lost were a result of jobs created in the dot-com/telecom bubble. Those jobs represented misallocated capital. They also created unreasonable expectations.

I've been doing software almost 40 years. It was obvious that the dot com bubble was just that - when a company is sold for billions where its main asset is a body of code that my friends and I could write in a few months, there is something wrong.

To:Appalled Moderate

Did you read the article I referenced?

In any case, I am sure reasonable methods can be developed for enforcing the mandatory insurance. I don't have time to go into various schemes, but it can be done pretty well.

As far as HMO's, etc... I work in the Health Insurance business. I know how they make profits now, and it ain't pretty. I think a good model is the Federal employees insurance system - the government recognizes a significant number of insurance companies with a variety of types of insurance, and the federal employee picks from it. Heck, I'd be happy if they just let anyone who can't buy regular insurance to buy that federal insurance, but that would distort the rest of insurance market even more.

As for those who can't afford insurance, the obvious answer is to subsidize it for them.

No system like I am talking about is simple to do, and no system will be perfect, but guaranteed issue insurance coupled with mandatory purchase of insurance would greatly improve things. Especially if the insurance were catastrophic insurance only with the rest coming form a HSA - so that the entire medical system faces market buyer pressure from individuals rather than just large third parties, and the users of the facilities would be using their own funds for routine car (except for the poor, of course).

Dear all,

Just some brief points "about the dollars coming back". This is a very ignorant argument considering that the dollar is the "new gold" or a world currency. Commodities including most notably, oil, are all purchased or sold in dollars. Most foreign countries prefer dollars to their own currency. Using it, they buy and sell from each other - all of it without that money coming back.

It's called dollar hegemony, and it's a linchpin of Greenspan's strategy. Dollar hegemony explains why Greenspan has been able to increase liquidity - run the money presses red hot - and keep interest rates so low. When we print extra dollars, they don't become inflationary they just go overseas.

This is a well acknowledged fact of monetary policy and I'm not sure what ignorant bozo's are telling you about "every dollar coming back". When a Mongolian buys from a Russian in Siberia, they prefer to use dollars to trade back and forth. That's how extensive it is.

Second of all, the fact that many of the dollars that do come back come back as Treasury notes DOES make a difference. The simple reason is that financial investment IS NOT necessarily capital investment. Capital investment only occurs when you start, improve, or expand a business.

If a dollar was spent buying an exported good or a service, it's much more likely to become a capital investment. If it comes back invested as a Treasury note, it expands government spending. Government spending as everyone agrees, generally yeilds lower return on investment than the private sector.

If too much of our dollars were coming back as a current accounts imbalance and being converted instead into Treasury notes, you would see a phenomena of lost jobs from imports but a suppression of the job growth that would normally occur to compensate for that in the export industries. Ironically, this is the exact situation we face.

Oh and the productivity numbers are overstated. I think that's pretty clear. With the very same complaints about education, and the rightful statements of the H1B Visa holders that employers are turning to them because of a lack of certain specialized American employees, I think it's very difficult to argue that the per capita per manhour productivity gains are increasing. The productivity gains where real are being fueld by longer working hours and by complete automation/replacement.

This is of course accepting that even the nominal productivity numbers are completely real, which is arguable.

Hmmm.

1. "Ed, perhaps now you'll consider my experience and that of commenter Tierney to be valid, and so you won't be able to say "not once" any longer."

Sorry but I have to see it with my own eyes and know the person face-to-face. Not to insult anyone but I generally don't take anything I read online at face value.

2. "In order to accept the premise that he perverts the "market value", you would have to prove that there was no similarly qualified American that would have said yes to that position for the same money, at that time, for that company, in that location."

Which is an impossible standard to meet. I would require a complete list of all applications and resumes followed by the full and complete notes on all interviews made. Additionally I would need the full guidance on compensation allowed.

3. "(As an aside, I have seen all manner of skill sets described as a "DBA". One company's DBA is another's implementation technician.) "

As an aside I've seen any amount of utter incompetence and greatly inflated resumes too. The Peter Principle is alive and well.

4. "And again, in order for a "wrong" to have been done to an American citizen, one must assume that there was an available, interested, similarly qualified, American citizen that was passed over by the company for no other reason than that his "asking price" would have been higher."

I'll point out the amusing fact that the very existence of the H1B visa holder is proof of damage done. The simple point is that having large numbers of H1B visa holders in the domestic labor market does in fact force a downward pressure on salary levels. Thus your proof only proves that damage to America workers is done without any real need for debate.

Thanks.

5. "I find that most companies look to H1B's as a last resort measure, only in the absence of qualified citizen candidates."

You forgot "for the given salary".

6. "I have personal knowledge of someone who was paid vastly more than what he was worth while on an H1B."

Yeah. I've known any number of individuals who've fit that description. I think the most interesting one was a "senior Visual C++ developer" who asked me how to compile her program. :/

I took an early coffee break and hoped to God she wasn't on my team.

6. "That is why I was curious as to if U.S. productivity was calculated using ONLY American Citizens as opposed to H1-B's. Even if it did include H1-B's, I would doubt that it would include outsourcing to a company in India. "

Actually it's kinda funny the whole productivity calculation. It's mostly based on the GDP value of the products produced and the number of *jobs* involved in that production. Manufacturing is treated differently from other non-agricultural because manufacturing results in discrete products while non-agricultural generally seems to be service oriented and thus harder to quantify.

So there doesn't seem to be any differentiation between H1B holders and American workers as the defining characteristic is the job and not the worker. So a single worker that has more than one job would result in an increase in productivity. (Where have we heard that before?)

On the other hand there also seems to be a significant gap in the treatment of outsourcing. In simple terms labor done overseas isn't included in the calculations. So if a company moves it's IT and accounting overseas by outsourcing then the value of the product remains static but the number of jobs associated with producing that product is reduced.

Which results in a higher level of perceived productivity.

Which seems rather bass ackward but there you go.

http://www.bls.gov/opub/hom/homch10_c.htm#Data%20Sources%20and%20Estimating%20Procedures

Check the site, read that horrible description and see if I'm wrong. *shrug* I'm a programmer, not an economist so I very well might be. If so I would like a complete description as to why I'm wrong so I can learn from it.

7. "A more realistic sceanrio is that as businesses become more efficient at creating new wealth at lower cost per unit, free-market forces will bring down the price of that unit, increasing the purchasing power of each consumer. "

Frankly the main problem is that people keep on trying to use the technology angle in an outsourcing debate. Nobody is arguing that technological innovation isn't good. What people are arguing is that moving jobs overseas is bad. The problem with involving technology into the debate is that the immediate point to be made is then that a technological reason by job losses would result in new jobs replacing the old ones.

The result of outsourcing is that new jobs will not replace old ones. The same dynamics and fiscal reasons for outsourcing jobs in the first place will result in those jobs remaining outsourced for the forseeable future. They might move from India to China to Pakistan to Malaysia. But, from the perspective of the American worker, they're pretty much gone for good.

Ed, assuming you and I (see above post) are correct about how productivity gains are defined (and measured), and that increases in outsourcing will necessarily create productivity gains, the next question is how much of the 5% in annual productivity gains referenced in the Business Week article is attributable to this factor? Remember, the article said that every 1% gain in productivity results in the loss of a million jobs. So if even only 10% of the annual 5% productivity gain -- i.e., .5% of the productivity gain -- is attributable to outsourcing, that would yield a loss of 500,000 jobs annually. This is a key issue which the article utterly fails to come to grips with and which may undermine its entire thesis.

"rising tide lifts all boats"...

This isn't true. The lower cost of consumer goods is marginal compared to the downward pressure on wages for low skilled labor in OECD countries engaged in free trade/investment with the periphery, driving a rise in wage inequality in developed countries between skilled and unskilled labor. That's HO theory, it's born out by reality in a fairly obvious fashion - just considering how labor bargaining has been crushed with threats to relocate jobs - with debate as to what extent it's to blame for growing inequality and loss of real wages for low-skilled labor since the liberalization process began. We're far below full employment, which undercuts HO theory's rather optimistic starting assumptions, and on top of this we're protecting markets that have a serious impact on low wage consumer needs (pharemceuticals and agriculture, just for starters): e.g. talk about lifting all boats given the reality of the situation is pure fantasy.

Nice tag team there Stefan and ed!!!

So let's turn this argument on its head. If we as all know most of the cost of production is in labor, is that productivity gain really mostly automation improvements or is a sizable chunk of it in lowered costs due to outsourcing/offshoring?

That is if it's cheaper to just hire a third world person to do it and you get a bigger bang for your buck that way, but automation still requires relatively high capital investment (hi-tech, etc.) then can we really expect the productivity gains to be mostly driven by automation rather than offshoring cost-savings?

The real problem here is one of false expectations produced by the bubble of the late 90's. Before about 1998 most people believed that "full employment" was around 5 1/2%, which is about where we are now (the historical average over the last 25 years). Then, based on the fact that the Fed could flood the street with money without causing inflation (based on the CPI, which is a key point here) started a lot re-thinking about the point where we reached "full employment", Alan Greenspan spent several years talking about this.

The mistake that was made was that due to many competitive condidtions in the American economy concumer price inflation was under control, but not byu any action (or lack thereof) on the part of teh Fed. The extra money teh Fed pumped into the system, co-inciding with the dotcom hysteria, fueled a run-up in asset prices,slo known as a stock market bubble. Now that extra asset wealth pushed companies to keep hiring even when labor was scarce. This created the non-sustainable 3.9% unemployment number.

Once Greenspan popped the bubble (the classic case of the government creating a problem, then causing other worse problems in response) resulted in a permanent loss of those extra jobs created by companies that shouldn't have existed (or atleast gotten financing) then and don't now.

Those jobs weren't outsourced (all the real numbers say that this is a tiny fraction of unemployment), the evaporated becasue they were created in an unsustainable environment.

I think 2 things are going on here:

1) A minor one: The payroll number, which doesn't agree with most other economic indicators has some problems. In particular it has historically under-counted employment in the early stages of a recovery. It will be revised again at least 3 times over the next couple fo years and if history serves as a guid it wil be revised up.

2) The major trend is that we have reached "full employment". The Fed who thinks it's job is to create "full employment" has been flooding the street with money yet little is happening except asset and commodity prices are going up rapidly. This is the classic sign of an economy at "full employment".

The moral of the story is: 3.9 % unemployment was an unsustainable mirage created by an overzealous Fed.

The cost of employing people is America is too high in comparison to the amount of employment required at this time. There is little the government can PRO-actively do about this (without making things worse)but there are many things it can do to reduce the burden that government imposes on this country's businesses.

Food for thought: Today there are more people employed by government (~21 million and growing) than are employed in manufacturing (~18 million and shrinking). That is no coincidence.

That is if it's cheaper to just hire a third world person to do it and you get a bigger bang for your buck that way, but automation still requires relatively high capital investment (hi-tech, etc.) then can we really expect the productivity gains to be mostly driven by automation rather than offshoring cost-savings?

I would think hat to involve just what it is you're making, no?

"Interesting proposal. You'd have health insurance work like auto insurance. But how would you enforce the everyone has it part? And what about people whao can't afford it? And can you imagine the ugliness that occurs when a procedure is denied by an insurer? I'm afraid the short history of HMO profitability is a cautionary tale for your kind of proposal.
I tell you, I would not want to be in an insurance business like this, because I doubt I would be permitted to charge enough to make up the costs I would have to pay."

Well, that's exactly what we need to have happen. Decouple insurance from employment, let health insurance companies set rates at will, and if some people really need subsidies, give them openly instead of hiding them in insurance regulations.

And forget this mandatory insurance nonsense. With free market insurance, healthy people will still buy insurance because it's dirt cheap for them.

"You actually have half a a valid point. A CEO's compensation is often decided by their buddies who are looking out for each other. This is indeed a problem which needs to be addressed."

The corporate raider is our friend.

"I'm not a Luddite, but anyone who thinks that a lot of technology isn't a pretty finely balanced double-edged sword must have missed the 20th century. TV, the automobile, the ICBM and nuclear bomb, yadda yadda... "

How do you figure that the automobile is anything other than a blessing? It certainly beats having our city streets covered in horse dung.

And nuclear bombs prevented WWIII and thereby saved millions of people that didn't have to fight the Soviet Union directly. It was an outrageous gamble, but it paid off.

"You know. I'm thinking that we'll see an entire slew of anti-outsourcing papers written when professors are outsourced. Which might happen sooner than expected if the move to online education keeps accelerating.
Which is pretty damn funny."

But it would greatly help the rest of us deal with outsourcing and automation.

"The argument that outsourcing (in this case manufacturing) allows me to buy things cheaper than I could otherwise doesn't wash much with my current budget. Health care costs, insurance costs in general, energy costs, food, and property (house payment and taxes) eat up far more of my budget than cars, dvd players, and televisions. "

And the reason for that is precisely because the price of cars, dvd players, and televisions have been going down. When the costs of those things go down, they eat up a smaller portion of your budget, and other things whose price haven't gone down will eat up a bigger portion of your budget. It's simple mathematics.

The real question is, how do we get the price of those other things to go down as well. The answer is to regulate those industries the same way we regulate the industries producing electronic goods; i.e., relatively lightly.

"We're far below full employment, which undercuts HO theory's rather optimistic starting assumptions, and on top of this we're protecting markets that have a serious impact on low wage consumer needs (pharemceuticals and agriculture, just for starters)"

Well, then, let's stop doing that.

Hmmm. A few comments.

1. "That's HO theory, it's born out by reality in a fairly obvious fashion - just considering how labor bargaining has been crushed with threats to relocate jobs - ...'

There's another aspect that hasn't even been touched and that is the use of outsourcing as a bargaining tool against state and local governments. This issue has recently reared it's ugly head in both Michigan and Washington. In the case of Michigan a manufacturing company called Electrolux won a twenty year state tax break for preserving 2,700 jobs in town of Greenville. But even that wasn't enough as the company is still planning on moving the manufacturing to Mexico because of lower wages.

http://www.freep.com/news/mich/fridge17_20040117.htm

In the case of Washington the company is called Boeing which won a tax break of $3.2 billion over 20 years. This tax break was instituted to keep Boeing's jobs in Washington.

http://www.kingcountyjournal.com/sited/story/html/134145

The issue has now become the threat of outsourcing to reduce corporate tax burdens. Since the cost of government hasn't dropped any this means that the resulting tax increases, which must logically follow, will be borne by the remaining pool of businesses and individual taxpayers. But this same process will allow medium or larger companies to effectively gain for themselves these same tax breaks. Leaving only the small companies, which won't be able to handle the burden, and individual taxpayers to take up the slack. And in a time when neither is really capable of handling such burdens.

So we should see a whole spate of revenue and budget problems rocking various state governments for the next several years.

2. "Ed, assuming you and I (see above post) are correct about how productivity gains are defined (and measured), and that increases in outsourcing will necessarily create productivity gains, "

I rather hope I'm wrong but I don't think so. The important point to remember is that the aggregate value of products produced is derived from the data provided by "U.S. Bureau of the Census with data from BEA.". Another point is that the worker data is derived from the "The primary source of hours and employment data is the BLS Current Employment Statistics (CES) program".

Really nowhere is there any mention of outsourcing at all. So let's say that there is a company with two divisions. One division is in India and the other division is in America. The Indian one does the work and the American one does the manangement. The productivity calculations would be based on the jobs in the American division but the value would be based on the Indian division.

This is due to the fact that both divisions are members of the same company. Any transfers of product are treated not as sales but as a simple *transshipment*. Generally, in logistics, you have *inbound*, *outbound* and *transshipment*. Inbound is generally raw materials or unfinished goods. Outbound is normally finished goods. Transshipment is normally unfinished goods that require further manufacturing to become finished goods. An example would be a manufacturing unit that ships automobile exhaust pipes to a plate/paint unit for chroming or painting. The unfinished good (exhaust pipes) gets transshipped to the finishing unit which then either transships the finished good back to the manufacturing unit, to a distribution facility or to another manufacturing unit (perhaps to use in producing Toyota Camrys).

So unfinished or finished goods transshipped from India, and distributed by the American division, should probably be treated as product produced by the entire company. Which, due to the uncounting of jobs/workers in India, would result in an inflated productivity number.

Sorry about the lecture in logistics. I used to program logistic analysis and prediction applications an I enjoyed it. Which obviously makes me inhuman. :)

3. "Nice tag team there Stefan and ed!!!"

Cool. Can I be a Masked Wrestler? Now to think up a name and a schtick! :)

4. "So let's turn this argument on its head. If we as all know most of the cost of production is in labor, is that productivity gain really mostly automation improvements or is a sizable chunk of it in lowered costs due to outsourcing/offshoring?"

Well the problem, as I see it, with attributing productivity gains to technology is the timing and the cost. The timing issue is due to the recent recession. From what I've experienced a recession is a rather odd time for companies to invest in automation. Yet they would have had to invest in automation during the height of the recession in order to have any automation efforts taking effect now. Yet a recession is when businesses retrench since their current maximum capacity isn't being utilized. So attributing productivity growth to a recession is bizzare.

A second problem is the cost. Again the automation would have had to be implemented during a recession and the attendent cost paid during this time frame. A recession is an odd time to be investing in additional capacity as the current capacity isn't be fully utilized. So the meme of "this productivity is derived from automation" doesn't make any sense at all. Especially since the relevant commerical data showed that all companies largely retrenched during the recession and didn't go out spending vast sums of money. What they did was outsource.

5. A third point to make is that automation is always associated with either quality control or cost savings. While the first part is useful, it only becomes significant when associated with sales where it is either mandated by contract or required by the going market. The second part only becomes an issue when wages are significant and there are no other means of reducing labor costs. When there are other means of reducing labor costs most companies use that method as investing in automation is both extremely expensive and problematic. The more capital is invested in hard assets, which require upkeep and maintenance, the less capital is available for expansion. Additionally the more automation required to manufacture a product, the higher the cost in capital for expansion. The biggest determining factor is then the cost of labor.

Now the cost of labor in America is largely fixed at an established minimum due to the minimum wage, tax benefit expenses and the cost of utilizing labor while the cost of labor overseas is in a state of flux as nations/provinces provided incentives for relocation and outsourcing along with reduced labor costs. In a situation where labor costs can be reduced without investment in expensive automation, it is not likely that a corporation will opt for the automation rather than simply reducing labor costs.

An example of this is the use of migrant labor to pick lettuce instead of automated machines. In the late 1960's there was an attempt at manufacturing a lettuce picking machine, but it was abandoned when it became evident that migrant labor was cheap enough to make manually picking lettuce viable. I.e. the cost of labor was not significant enough to warrant investment in automation.

Another example are automated grain reapers or combines. The labor cost of manually harvesting grain would be extremely prohibitive, due to the relative inefficiency of manual labor harvesting grain with a scythe, so an automated machine was invented to do the work.

So the whole meme of "automation providing productivity gains" makes absolutely no sense whatsoever and is in fact either a concious attempt at diversion or a simple misstatement of facts.

6. "Those jobs weren't outsourced (all the real numbers say that this is a tiny fraction of unemployment), the evaporated becasue they were created in an unsustainable environment. "

There is a bit of a disconnect between what you're writing and what I'm writing. Basically my point of view isn't what happened in the 1990's but rather what will happen in the 2010's. My belief is that outsourcing is a fundamental shift in business and that it will largely emasculate the middle class here in America. This is what I'm hoping won't happen, but I'm trying to debate the point to either be proven wrong, not theorized to death please, or to raise awareness that not all is right with the world. My most pressing problem is that I have **NO** answers whatsoever. I see problems but I do NOT see any solutions that would work.

Again I want to be proven wrong. The emphasis on "proven". Theories are good, but they're only theories.

Dear ed,

You wrote:
A second problem is the cost. Again the automation would have had to be implemented during a recession and the attendent cost paid during this time frame. A recession is an odd time to be investing in additional capacity as the current capacity isn't be fully utilized. So the meme of "this productivity is derived from automation" doesn't make any sense at all. Especially since the relevant commerical data showed that all companies largely retrenched during the recession and didn't go out spending vast sums of money. What they did was outsource.

This is exactly what I hoped we could discuss. Considering that all the statistics available indicate that capital equipment purchases decline during recessions, that automation improvements are capital intensive, and that cost-savings due to offshoring are readily available - can we realistically expect that automation has really consituted the bulk of the growth in productivity?

Let's suppose that long term trend productivity growth is 1.8%. Let's suppose that real improvements from automation have improved it another 1%. Suppose that we have another 0.5% productivity "increase" from working longer hours - that is manhour productivity hasn't increased. That would be 3.3%. If we use Stefan's number that every point of productivity increase is a milleion jobs, that means there would 1.7 million jobs lost due to offshoring / cheaper labor overseas miscounted as productivity increases.

This incidentally is not sufficient to explain all the jobs we're behind, but if you add in the notion that real costs (aggregate inflation) is a few points higher than the nominal CPI figure, then the discrepency disappears. I figure real inflation is about 4-5%. If you look at job's growth versus GDP versus inflation versus productivity with the revision we put in, the numbers just about balance out to account for everything in the economy. Real unemployment is at least 7% conservatively and about 9-10% if you count in the loss in employment-population ratio.

It also implies that the offshoring productivity miscount has been cloaking American job losses well into the 90's and the first "jobless recovery". So this has been going on for a while. It's just more notable now. Greenspan as well as Rubin have a great deal to account for.

I'd also like to state that on the ground here, this matches exactly what you see in the midwest environment. Recently I got it from a guy in advertising that even the small and medium sized manufacturing companies in America are offshoring their machine production, and then shipping them here and even with the transportation costs are off.

Right now, the 16-24 year old group are delaying entry in the job market with school and grad school or med/law or other professional schools. That won't save the employment participation rates of the higher age brackets. As these students start graduating in the next year or so, there will be a decline in the upper age brackets. The labor employment participation rates also hide the long-term unemployment picture which contrary to previous recessions is lengthening rather than shrinking. It's bad all right. The question is how long can the powers that be keep the lid on the pot with sham statistics.

Hmmm.

1. "This is exactly what I hoped we could discuss. "

Yes. I think the current popular number of jobs lost through outsourcing, approximately 700k, is derived from what companies are publicly stating as jobs relocated overseas. What isn't being counted are those jobs lost due to companies switching to lower cost vendors who are operating overseas. The outsourcing that predominates, IMHO, isn't overt but rather subsumed within the normal business of purchasing finished goods or component products.

So if you switched your purchasing of widgets from a company with domestic manufacturing to one with outsourced manufacturing there will be a loss of jobs with the domestic manufacturer, but it won't be construed as an overt act of outsourcing. While a public notice by IBM that it is moving 4k jobs from America to India is a case of an overt move and is probably counted.

So I'd suggest that the 700,000 jobs lost to outsourcing number is deceptively low. Why it is counted that way I don't know as the methodology has not to my knowledge been published. Which is a rather odd thing in any case.

2. "It also implies that the offshoring productivity miscount has been cloaking American job losses well into the 90's and the first "jobless recovery". So this has been going on for a while. It's just more notable now. Greenspan as well as Rubin have a great deal to account for."

I'm sure that there was a great deal of investment into automation in the late 1990's. I just don't think that it would take 5+ years for the effects of that automation to take place so there doesn't seem to be anything that underpins the current productivity gains. So yes I'd agree with you that, logically, the answer really must be a wave of undercounted outsourcing.

Seriously folks.

China created 9+ million jobs last year. China is expecting to create 10+ million jobs this year. America is China's largest trading partner. If a *decade* of outsourcing is responsible for only 700,000 jobs lost then where the hell is China getting 10 million jobs? These numbers just do NOT add up at all. The world is perhaps, or perhaps not, a zero sum entity. But there must be a correlation of some sort between jobs created in one country and jobs lost in another. Jobs depend on sales and capital. Sales will generate capital in order to service the sales. Capital is a finite entity, as is sales, so where there is capital there is another place where capital is not.

So 10 million f-ing jobs just do not come from Buddha's Navel. They are created as a result of a process and that process, IMHO, is called outsourcing.

3. "Right now, the 16-24 year old group are delaying entry in the job market with school and grad school or med/law or other professional schools. "

Actually I think it's far worse than that. The number of applications to engineering schools are off by a significant percentage (around 30%-40%) which shows that there is both a softness in engineering employment and that highschool kids aren't as dumb as people like to think. The other aspect is the devaluation of education in building a career.

It has taken decades of prosperity to create today's American society. We're quite probably the most highly educated generation in the history of America. We might be the most highly educated generation in the history of any nation or people. Yet there is seeming disconnect between higher education and a successful career. The most rapidly expanding professions do not require anything more than a specialized vocational education. That this will probably spell the doom of many excess colleges it also means a reversion of job seekers from educated white-collar workers to blue-collar ones. Yet the historical bastion of blue-collar work, factories, are rapidly losing their presence in America.

So we could not only end up with a under educated workforce, largely incapable of dealing with transformational technologies, but also an unemployed one as well. So depending on the creation of a transformational technology, such as bio-manufacturing, isn't a panacea as the disconnect between higher education and career building will result in a workforce that wouldn't have the ability to benefit from it.

We'd have a situation a la 1985 where the average manager had never even seen a PC before and required an enormous amount of hand-holding and training just to use a spreadsheet. But in this case there wouldn't be a drive to do this retraining. Instead the smart money is on an importation of trained and educated workers who would be capable of using new transforming technologies.

Which have further unpleasant implications.

"China created 9+ million jobs last year. China is expecting to create 10+ million jobs this year. America is China's largest trading partner. If a *decade* of outsourcing is responsible for only 700,000 jobs lost then where the hell is China getting 10 million jobs?"

Selling things to fellow Chinese people? Chinese customers are getting wealthier, you know, and they're more liable to buy stuff and create jobs in the process. Jobs that never existed anywhere on the face of the Earth, since they're supporting customers that weren't viable cusomers in the past. And many of those jobs, not surprisingly, get created in China.

"These numbers just do NOT add up at all. The world is perhaps, or perhaps not, a zero sum entity. But there must be a correlation of some sort between jobs created in one country and jobs lost in another."

No, there doesn't. Jobs can disappear from the face of the earth, and jobs can be created from thin air, all because someone figured out a better way to make something, or something new to make, or because customers have enough of one thing and start demanding something else.

"Jobs depend on sales and capital. Sales will generate capital in order to service the sales. Capital is a finite entity, as is sales, so where there is capital there is another place where capital is not."

Capital may be finite, but it's not static. Raw materials get turned into capital, which is then set to work producing either more capital or final consumer goods.

"So 10 million f-ing jobs just do not come from Buddha's Navel. They are created as a result of a process and that process, IMHO, is called outsourcing."

So when we're on the upswing and adding millions of new jobs, just where do those jobs come from? China? Europe? The North Pole?

"Yet there is seeming disconnect between higher education and a successful career. The most rapidly expanding professions do not require anything more than a specialized vocational education. That this will probably spell the doom of many excess colleges it also means a reversion of job seekers from educated white-collar workers to blue-collar ones. Yet the historical bastion of blue-collar work, factories, are rapidly losing their presence in America."

There's no reason why most of our white collar jobs have to require a four-year university degree. Even high-tech jobs. Maybe sanity is finally reasserting itself.

"So we could not only end up with a under educated workforce, largely incapable of dealing with transformational technologies, but also an unemployed one as well. So depending on the creation of a transformational technology, such as bio-manufacturing, isn't a panacea as the disconnect between higher education and career building will result in a workforce that wouldn't have the ability to benefit from it."

So there will exist jobs that require a degree, whose payoff makes it worthwhile to pursue a degree, but no one will pursue that degree in response? What do you think we are, idiots?

Hmmm.

1. "So there will exist jobs that require a degree, whose payoff makes it worthwhile to pursue a degree, but no one will pursue that degree in response? What do you think we are, idiots?"

Did I write that? No what I wrote is exactly what was meant. That a reprise of the early days of the information revolution would be enacted. A situation where there was a pluralty of highly technical work and a dearth of available workers who were proficient in that work. As time passes, and student career choices respond to job demands, the disparity is overcome.

Until that time however there is that gap between necessity and availability. In the past the means to overcome this disparity was through retraining of existing personnel. However that presupposed the massive exploitation of H1B and L1 visas which now has changed the formula. Instead of retraining existing personnel, at great expense, the incentive will be to simply import the qualified workers who have already achieved the education and training needed.

Did that explain my point better?

"Chinese customers are getting wealthier, you know, and they're more liable to buy stuff and create jobs in the process."

You didn't understand my point did you?

try again.

"Until that time however there is that gap between necessity and availability. In the past the means to overcome this disparity was through retraining of existing personnel. However that presupposed the massive exploitation of H1B and L1 visas which now has changed the formula. Instead of retraining existing personnel, at great expense, the incentive will be to simply import the qualified workers who have already achieved the education and training needed."

And where exactly would those imported workers have gotten their education and training? Are you saying that the imported workers get trained faster than we do and adapt to new technology more quickly?

And why wouldn't the existing personnel retrain themselves if need be?

Hmmm.

1. "And where exactly would those imported workers have gotten their education and training? Are you saying that the imported workers get trained faster than we do and adapt to new technology more quickly?"

Because, with jobs moving overseas due to lower wage costs, they will still have a viable connection between higher education and career building. An example is the cost of an engineering degree. A four year degree in India, which is heavily subsidized, costs $1,700 USD. A four year engineering degree in America would cost from $20k -$100k. When a prospective engineer looks at the viability of taking on that kind of debt, there has to be a job where that debt can be paid off. If those jobs either pay too little or do not exist, then it is financial suicide for that student to take on the debt load of an engineering degree. On the other hand an Indian student can accept the debt load because there is an excess of engineering jobs available and the total tuition cost, $1,700 USD, is a relatively low fraction of the expected annual salary. For the Indian student there is a connection between higher education and a career.

Now it's an established fact that people who have already gone to college and achieved a degree are more likely to go back for further education. Not only is this due to financial opportunities, as in the past higher education translated into higher earnings, but also because such further education is largely additive to previous education.

So it is more difficult and less likely that a non-college graduate will go to college for training. Additionally such training, if it happens at all, would require the establishment of a connection between such training and a viable career.

Now the other reason why imported workers will, IMHO, be the standard for use in transformative technology is that such technology is increasingly being outsourced. The aspect of labor costs in R&D apply equally with that in manufacturing. Lowering wage costs also lowers overall costs and reduces expenses. This has, and will continue, to drive R&D operations overseas to countries like India. So it is very possible that, regardless of exactly where transformative technology actually originates, it will be more fully exploited in a country like India, where there is an excess of highly educated low cost workers, than in America where such educated workers are more expensive. And the most important part of training is experience and experience cannot be obtained in a vacuum.

While it may be lucrative to have professional experience as an Enterprise Oracle DBA, it's generally not something you can achieve in a garage. To gain that experice requires opportunity and those opportunities are increasing more available overseas.

2. "And why wouldn't the existing personnel retrain themselves if need be?"

Because the very nature of transformative technology means that it will be of limited availability, relatively obscure initially and somewhat too expensive for most people. In a situation where higher paying jobs have been replaced, through outsourcing, with lower wage jobs, it's somewhat inconceivable that people would invest the money needed to gain such experience.

An example would be the IBM 1610. (or was it the 1410? Been a long time) This computer had a monochrome 5" screen, used a variant of basic and offered two 8" single sided floppy drives for data and program storage. At the time it was state of the art and cost about $25,000. Or about twice to three times the average annual gross income of the day.

*shrug*

Even then such experience wouldn't either be in a professional setting nor would it be certifiable. It would be possible for some outstanding individuals to gain such experience, it happened in the computer industry, but it's very rare. Availability of materials is the major determinant and, until such materials are widely available if at all, such experience will be restricted to those that can gain experience in the workplace or college.

Did that explain it better?

Dear ed,

I think that this conversation is really going somewhere. Your point about the financial viability of a given career given the high Stateside cost of education is something I myself have argued. My argument is that the increasing costs of education and reducation are significantly increasing real inflation as opposed to CPI estimates.

If the cost of living means that producing a technical worker in the States (or retraining one) is significantly higher than either hiring one overseas or importing one that can be educated at a lower cost, this produces a marginal cost pressure on the labor market.

The marginal cost of becoming a professional / technical worker is increasing while wages are flat or falling in real terms. Given this disicentive, individuals steer away from this occupation. This is exacerbated by the increasing unemployment time for those already in the field - the EPI estimates that white collar workers may have experienced an average unemployment time 300% of past years - means that fewer and fewer domestic laborers will be attracted to this area of work.

Now a foreign worker who can obtain his/her training at a much lower cost enters this market either direct hire overseas at a facility or immigrating here, but finds an offer for employment that while not sufficient to compensate the domestic worker for his high marginal cost is more than adequate for the lower training cost foreign worker.

So we have two trends. One trend is that some people are going into graduate school or getting reducation. However, underneath this education itself is becoming gradually disincentivized leading to lower numbers of people to seek it. The cumulative result of both trends is going to be that as time progresses the labor participation rate of the older age brackets will drop.

Either because they weren't able to afford the education to be competitive, or that their marginal cost of education and reducation made foreign labor more competitive.

Either way, the American worker loses. I have seen some economists stating that education may not be the answer to the future, and that Americans should prepare themselves for jobs that can't be offshored - police officer, nurse, plumber, local store manager, etc.

However as the bottom falls out of the American economy in general, this can't but like a receding tide lower living standards in general.

I agree with you that the marginal cost is a better guide to capital investment than the origination of transformational technology. However if intellectual property rights were better, we could attempt to gear into a knowledge production society with higher education rates that produced knowledge that was exploited overseas. This would restore the relationship between education and compensation.

Without the ownership of the patents, market brands, etc. we won't have any way to transfer profits back through repatriation in order to recirculate them within our economy.

"So we have two trends. One trend is that some people are going into graduate school or getting reducation. However, underneath this education itself is becoming gradually disincentivized leading to lower numbers of people to seek it. The cumulative result of both trends is going to be that as time progresses the labor participation rate of the older age brackets will drop."

Of course, if lower numbers of people seek higher education (i.e., demand drops), the price of it would tend to drop as well. An equilibrium would emerge at a lower price point.

Of course, there's a lot of shaking out that has to be done before we reach this point. Still, there's plenty of room to streamline the educational process and reduce its costs. After all, the guys overseas are doing it for less, and it's not like they're all a bunch of supergeniuses. Sure, they subsidize it, but their tax base sucks compared to ours. Not only that, but if the engineering income doesn't justify the presubsidy cost, then the Indian government is using tax money to finance a losing investment... not a good long-term plan.

"China created 9+ million jobs last year. China is expecting to create 10+ million jobs this year. America is China's largest trading partner. If a *decade* of outsourcing is responsible for only 700,000 jobs lost then where the hell is China getting 10 million jobs? These numbers just do NOT add up at all. The world is perhaps, or perhaps not, a zero sum entity. But there must be a correlation of some sort between jobs created in one country and jobs lost in another."

No there isn't. They don't add up because it isn't a zero sum game. There is not a finite number of "jobs" in the world. That number rises and falls with the economic prospects of the planet in general.

There is also not a fixed amount of wealth in the world. Ultimately wealth is simply the sum total of all human effort. Anytime any where somebody else gets richer, we all benefit.

Much of hiuman suffering over the ages can be attributed to this mistaken concept.

Hmmm.

1. "Either because they weren't able to afford the education to be competitive, or that their marginal cost of education and reducation made foreign labor more competitive."

Yes. The biggest problem, amusing as it is to say this, with domestic college education is the high cost of wages. Since wage costs are lower overseas the corresponding tuition costs are also lower. Match this with heavy government subsidies and you have a situation where education is widely available for very low costs.

It's interesting but it just came to me that there might be the interesting situation where there is an outflow of students to countries like India. While the connection between higher education and career building might be tenuous, if there is any connection remaining at all there will be an attempt to reduce the cost of education and thereby reduce the debt load accumulated. One significant way to reduce this debt load is to simply travel overseas for the requisite education. Currently America benefits from a large influx of foreign students who prefer to be educated here. In the future this inflow might become an outflow as domestic students attempt to garner the credentials for a career but without the massive debt load.

This would result in further pressure on whatever colleges remain as the available pool of applicants capable of funding their own education would be significantly reduced.

Unless these colleges use H1B and L1 visas to reduce costs. :):):)

2. "Without the ownership of the patents, market brands, etc. we won't have any way to transfer profits back through repatriation in order to recirculate them within our economy."

The one thing seemingly of no value at all on the world market is an American patent. Just about everyone steals American technology with wild abandon.

It's a common ploy to pretend to be interested in purchasing a product from an American company, ask for technical details and to observe the manufacturing process and then to end the contractual talks. At that point most of the knowledge needed to manufacture that widget is now well known so there's no need to go through with the purchase.

*shrug* Hell even the Japanese have done this to American companies on a regular basis.

3. "Of course, if lower numbers of people seek higher education (i.e., demand drops), the price of it would tend to drop as well. An equilibrium would emerge at a lower price point."

I think you're making an unwarranted assumption in that you're applying market economics to colleges. I don't know if that would actually work. If the number of overall applicants to colleges dropped significantly I would expect that these schools would either raise tuitions or appeal for more federal/state aid. I'm sure that after a time a number of schools would close, thereby reaching an new equilibrium, but that doesn't necessitate a lowering of costs.

There is nothing on God's Green Earth more bloated, inefficient and wasteful than a school. Whether that school is a grade school, high school or a college. I have some friends who work at Rutgers and the stories are absurd.

Additionally you have to keep in mind that these colleges also have fixed costs that they must meet. Costs of maintenence of fixed assets, research programs and a multitude of other expenses. The question would be how much could a first rate school reduce it's tuition and still remain a first rate school. My thinking is that it wouldn't be able to lower tuition all that much.

4. "No there isn't. They don't add up because it isn't a zero sum game. There is not a finite number of "jobs" in the world. That number rises and falls with the economic prospects of the planet in general."

There is a rather finite amount of capital available at any one time. Capital being used to create jobs in China is not available for creating jobs in America. Plus, while a significantly large percentage of China's GDP is from their domestic markets, there must be a source of wealth that is used to drive those domestic markets.

Doesn't it strike you as curious that the total number of jobs that *should* be created in America during a recovery is around 3 million per year? That China is expecting to create 10 million jobs this year alone? That costs in China are significantly lower, perhaps 1/3rd lower, than in America?

*shrug*

Hey I might be wrong. But then you explain why this 2+ year old recovery, speeding along at +4.1% GDP annually, has average about 25k jobs created a month.

I await in breathless anticipation.

"Of course, if lower numbers of people seek higher education (i.e., demand drops), the price of it would tend to drop as well. An equilibrium would emerge at a lower price point."

Actually when demand drops, prices will rise because the fixed assets are still there. (ie all those schools). Professors are variable assets based on the number of students enrolled. More students = more profs to teach them. To add to this, there is this thing called tenure which makes it nearly impossible to fire someone with it. When demand drops significantly, the untenured profs will go first, but the tenured profs will be much harder to "right-size" (I love that euphamism) thus making the bleeding even faster.

The only way a drop in demand will make prices drop in the education field is after most of the colleges go out of business, thus reducing supply. This would be a long grueling process that would suck billions of tax dollars on the way down. Not pretty. Lets hope it doesn't happen.

Hmm. This is amusing.

Yes. I see my mistaken ways now. I can see that outsourcing could never be a problem of any kind.

what a day, what a day.

=====================
http://story.news.yahoo.com/news?tmpl=story&ncid=1203&e=8&u=/afp/20040317/bs_afp/us_eu_economy_it&sid=96001027

25 percent of tech jobs to be outsourced by 2010: survey
Wed Mar 17, 5:57 PM ET

NEW YORK (AFP) - One out of every four high-technology jobs in developed countries today may be outsourced to emerging markets like India by 2010, according to a report by the research firm Gartner Inc.

"Global sourcing is becoming a mainstream delivery model," said Ian Marriott, vice president at Gartner, at a Barcelona symposium and released by Gartner Wednesday.

"The only way a drop in demand will make prices drop in the education field is after most of the colleges go out of business, thus reducing supply. This would be a long grueling process that would suck billions of tax dollars on the way down. Not pretty. Lets hope it doesn't happen."

I didn't say it would be pretty. But I really don't see any way to avoid it, other than the states involved actually getting a clue for ones and letting the bloated, inefficient providers actually close down and go out of business without propping them up with ever-increasing amounts of tax money. But the available evidence does not make me optimistic.

The end result I see is that these colleges will continue to exist, and continue to flush huge amounts of tax money down the drain, while other institutions come into existence that do things right, charge reasonable rates, and produce competent graduates that aren't bearing an unreasonable debt load and make a profit from their education.

> As profits have been in decline,
> CEO compensation has continued
> skyrocketing. Why? Stinks of
> market failure to me.

That's not "market failure", it's lack of a market. Instead, there's an interlocking old boys network which sets C*O compensation the way legislators log-roll.
Congress and the GAO tell us that out-sourcing is a lot more rampant than the cited figures.

"According to the General Accounting Office, contingent workers comprise approximately 30 percent of the workforce and research indicates that the size of the day labor workforce may be greater than nationally available data suggests."
HR2870
http://thomas.loc.gov/cgi-bin/query/z?c108:H.R.2870.IH:

Earlier GAO reports confirm that pay and benefits are lacking for such contingent workers.

2000-09-21
"A 1988 government report found that numerous H-1 workers did not possess the skills intended by the system...   By 1999, according to immigration officials, tech workers from abroad accounted for more than 60% of all H-1B visas issued, and of this number, about half came from India." --- David Lazarus _SF Chronicle_
Ambiguity Remains Despite Changes in H-1 Program: 1952 law designed to let skilled foreigners work here temporarily
http://sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/09/21/MN49570.DTL

Hmmm.

Actually I had a fairly amusing moment last night where I was nearly struck dumb by the glimmering of an idea.

Disclaimer: I have never been to college so I really don't know entirely what I'm about to write. I've never taken a college course or had a college credit. I didn't even graduate highschool so I really can't say that everything I'm writing about in this post is accurate. So please bear with me on this.

It struck me last night that the same sort of market forces will eventually apply to higher learning. It might not evolve in the same manner but the end evolution would approximate what has happened in other fields. Namely that outsourcing will dramatically affect the organization and staffing of colleges. When I considered my idea some more I could only come to the conclusion that not only is it practical, and very much possible, but that is it in fact happening right now. Only not yet to the logical extreme.

Summary:
I believe that there will be a major migration towards online education, particularly in the 'soft' sciences and degree programs. Even for the 'hard' sciences most of the education can be accomplished in an online manner. Whatever lab time or course work required could be accomplished through subcontracting. Multiple online school systems could subcontract out their lab coursework to the same vendor. This vendor, then having sufficient number of customers in varied locations, could maintain labs in at least the larger metro areas.

This would allow students the maximum amount of freedom to pursue a working career while attending college, a necessity in the event that financial assistance is unavailable, plus a greatly reduced debt load acquired along with the education.

Additionally I think that such a situation would have the same dynamic applied as would to a call center outsourced to India. Namely that the majority of students will likely be doing their coursework at night and so teachers and lecturers in India would be in the appropriate time zone to best match that need in affordabilty.

So the net effect might be for regular campus oriented colleges to be replaced by online virtual colleges that employ outsourced Indian teachers at greatly reduced wages. This would then enable these online colleges to offer degree programs at vastly reduced rates. How much lower I don't know as I am not familiar with the economics of a college. However most of the primary fixed costs would be largely eliminated and the wage costs would be vastly reduced. The combination could reduce the cost by 50% or more.

This system could also employ graduate students as local mentors that would be available for individual help, if necessary, and for in-person lectures. It's my assumption that a great many graduate students fulfill a great deal of actual teaching duties in most colleges. By making such mentors available for in-person consultation, at a per hour fee perhaps, or by email, for a greatly reduced fee, it would be possible to pay such graduates a minimum fee with their additional pay coming as consultation fees.

That couldn't help be attractive.

...

There's more but I wanted to post this so I could get some feedback.

Thanks. :)

Ed,

Sounds like you are on the mark there. The University of Phoenix is able to charge 3x normal in-state tuition merely for the convenience for online education for post-grad students (MBA and the like). I'm sure they save a lot in costs as well. I'm not sure if they outsource out of the country per-se. When I was in school, I remember getting very frustrated with difficult to understand accents, especially Calc.

Yeah I think such a system would work pretty well.

One downside is that there is a networking arrangement that is involved in college education. You meet other people who are going into your prospective field and you might end up making friendships that will be very useful later on in life. I'm certain that this could be replicated in an online university, to a point, but how actually useful it would be is a bit of a question.

There is no question though that the cost advantages of going this route is pretty significant. Cost advantages to both the college and to the student. Right now the convenience factor is allowing colleges to charge a premium for online education. This can't last as, in reality, a traditional campus education should be far more expensive than a virtual one.