Wednesday, September 29, 2004

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Until the New York Times allows footnotes, this post will have to do.

Wondering whether my New York Times op-ed was based primarily on memos from the seventies that mysteriously reappeared this month? Relax, I have some footnotes for you.

The principal source for the op-ed was the GAO's report on the offshoring of services -- about which I've previously blogged. And a big thank you to the GAO staff for their professional and courteous responses to the myriad e-mails queries I sent them (not that they necessarily endorse anything I said in the op-ed)

This post also has some relevant material in terms of discussing the relative importance of different factors contributing to job losses.

Four other sources -- IBM's adventures with offshoring are summarized in this Industry Week story by Tonya Vinas. The Kodak anecdote came from a paper by Daniel T. Griswold and Dale Buss for the Mackinac Center for Public Policy. Kerry's quote was widely reported -- here's one link. Here's a link to the full .pdf version of their report, "Outsourcing Benefits Michigan Economy And Taxpayers." The polling data comes from this Foreign Policy Association report on public attitudes towards foreign policy. Alas, this also reveals the one error of fact in the op-ed -- Zogby's polling was conducted in August and not September.

Finally, readers who want to read more of what I've written on the topic should this June 2004 piece from The New Republic online, and my Foreign Affairs article from May/June of this year, "The Outsourcing Bogeyman."

For a dissenting view, read this report sponsored by WashTech and conducted by the the Center for Urban Economic Development at the University of Illinois, Chicago (I commented on it here)

posted by Dan on 09.29.04 at 12:58 AM


The central claim - repeated many times on this weblog, in the reports cited in this post, in the NYT op-ed, is that jobs outsourced form a very small percentage of total layoffs.

All right. But what about layoffs in the IT industry? What percentage of those is due to outsourcing?

Personal observation suggests the answer should be quite large.

If so, isn't the potential loss of this particular industry troubling? Won't it decrease the amount of innovation & technological progress occurs in the US in the future?

posted by: Detached Observer on 09.29.04 at 12:58 AM [permalink]

Congrats on getting published in the nytimes.

Like DetachedObserver, I really wonder where you think "technological innovation" is going to come from if CS and engineering programs are rapidly shrinking all over the country? Maybe there was a surplus, but given that most entry CS jobs are going to be road-kill shortly, I really don't see where you think the innovation is going to ocme from? Not America.

posted by: Jor on 09.29.04 at 12:58 AM [permalink]

The other point I woudl make, and I'm not an economist, so I'm not sure how correc tthi is, but I'd love for someone to correct me with why this isn;t correct reasoning. The economy is still down 1-1.5 million jobs, for an unprecedent amount of time. IF you add in jobs that should have been normally created over the past few years, you get several million fewer jobs than we should have. Couldn't this account for a large part of the effect of outsourcing? Even if you start counting "lost jobs" from when the recovery should have "started". Still puts us in the whole a few million.

Since, outsourcing is your favorite little thing, its unfortunate you never expound on what you think is the cause of the current job market's weakness. Is it all just productivity? Do tell?

posted by: Jor on 09.29.04 at 12:58 AM [permalink]

Jor: If we compare the recovery after the Bush I recession with the recovery after the Bush II recession, there is mainly one difference, if we discount outsourcing/offshoring as a factor:

To deal with the Bush I recession, Clinton took over, raised taxes a bit, balanced the budget and generated a huge economic boom and lots of jobs.

To deal with the Bush II recession, George W. Bush gave big tax breaks, primarily to those who needed them least, busted the budget and lost lots of jobs.

So the main difference appears to be in the tax cuts and the ensuing budgetary disaster.

Or one could say the main difference is that a Democrat as President is generally better for all aspects of the ecomony than a Republican, a statistical fact I have mentioned here before:

posted by: gw on 09.29.04 at 12:58 AM [permalink]

but what will lou dobbs think?

posted by: jk on 09.29.04 at 12:58 AM [permalink]


Factor in oil prices in your analysis. If memory serves, they would have been declining once the Gulf War was over, while they have been increasing during this recovery.

Is there any evidence for the idea that the deficit is currently crowding out investment. That argument made sense in the early 90s, but with interest rates so low now, is that still the case?

Just questions, rather than opinions. When it comes to economics, I am "Bush" league...

posted by: Appalled Moderate on 09.29.04 at 12:58 AM [permalink]

Appalled Moderate: Oil prices - hm. They actually increased from 94-96, then decreased from 96-98 and increased rather sharply from 98-00. Then they went down again from 00-02. They have shot up dramatically only very recently (and whose fault was that?). Adjusted for inflation, the oil price was pretty much the same in 1996 and 2001/2002.

If oil prices are considered one of the most significant economic indicators, why isn't much more done to influence them then? Shouldn't one expect better fuel economy for cars to be at the top of the agenda then? I'm not sure I've heard anything from Bush on this topic recently.

posted by: gw on 09.29.04 at 12:58 AM [permalink]

Market signals are telling students to stay away from fields that can be outsourced (like Computer Science and Engineering):

Saul Levy, chair of the undergraduate computer science program (Rutgers), said the ongoing decline stems from the way students perceive career prospects.

”They don’t believe in the job market in computers anymore,” Levy said.

posted by: bhaim on 09.29.04 at 12:58 AM [permalink]

"The conclusion is obvious: I.B.M.'s outsourcing of some jobs helped it reduce costs, increase earnings and hire more American-based workers."

This seems to me to be an assumption. Other unrealted factors such as businesses upgrading their computer systems could be the cause.

posted by: thomas on 09.29.04 at 12:58 AM [permalink]

At this point in the recovery (which approximates where we would have been about 1994, assuming the recession "bottomed" in early 2002), we have higher oil prices than the norm for the past decade, courtesy of a number of factors, including significant growth in China and India. It's a factor as significant as the outrageous deficits we are running. (And my guess is that we are currently being insulated from the full effect of deficits, courtesy of China's massive buying of T-bills).
I would simply add this as a "difference" between 1994 and 2004. I would certainly not assert this as a "vote for W because it's not his fault" argument. I am just adding another bit of nuance into the mix. We moderates, no matter how appalled, have a habit of doing this.

posted by: Appalled Moderate on 09.29.04 at 12:58 AM [permalink]

Dan conveniently ignores the issue of layoffs which occurred more than a year ago, where the positions remained unfilled for quite a while, and are finally being replaced using offshore workers.

Such layoffs would not have been "due to offshore outsourcing", but the lack of later hiring *would* be due to offshore outsourcing. The layoffs might have been due to business conditions, but when they decided business was improving to the point of needing to staff up, they went overseas instead of hiring locally.

Such scenarios are likely quite common, considering that layoffs were more common in earlier years of the recession and recovery, yet hiring has been poor all along.

If you don't take this into account, Dan, you're just pissing in the wind.

posted by: Jon H on 09.29.04 at 12:58 AM [permalink]

Ron Hira
Chair, IEEE-USA Career & Workforce Policy Committee and Public Policy Professor, Rochester Institute of Technology:

"We have been arguing for a long time that we need better data so that we can have a more intelligent and rational discussion about how big and important a phenomenon outsourcing really is. The government has not stepped up to the plate, only putting $300k towards a commerce dept study and having the GAO look into it.

Contrary to what the industry folks claim, they have shown little interest in getting this data. They are more interested in using the Forrester report because it paints things the way they like it - it seems to understate the problem.

The bottom line is we don't know how much is going on now. We should also think about the potential also. Without good and objective trend data it will be hard to do that."

posted by: bhaim on 09.29.04 at 12:58 AM [permalink]

The government data on trade of services is incomplete at best or, alternatively, worthless.

But let's pretended the data is OK. I used the US Department of Commerce’s collection of trade statistics for Business, Profession and Technical Services among UNAFFILIATED organizations to look for a discrepancy in growth rates between payments made by US companies for services from abroad and receipts gained by US companies for services provided to outside unaffiliated companies. The time period used was 1986 – 2002 and the categories used where Computer and data processing services; Database and other information services; Legal Services; Management, consulting, and public relations services; Research, development, and testing services.

The primary observation from this data is the rapid growth of payments to unaffiliated companies for services (i.e. payments to non US companies). In total, payments have grown by 14.1 percent (CAGR) over the period while receipts have exhibited a compounded annual growth rate of 11.8 percent.

Of the five different categories examined, one area that showing significant difference between payments and receipts is for computer and data processing services. Payments in this category have grown at a 24.4 percent rate while receipts have grown at a 7.2 percent rate.

In 1986, total payments was $1.3 billion while total receipts where $4.8 billion. In 2002, payments where $10.7 billion while receipts grew to $28.8 billion. The receipts out weighted payments by 3.7 times in 1986 and 2.7 times in 2002. It looks like the US is losing ground.

So the data is showing more outsourcing and payments are growing at a faster rate. This finding is based on really bad data. An example of the weakness of the data is the case of India in 2002. Dept of commerce reported unaffiliated company payments of $80 million for IT related services to India for 2002. This is interesting because HCL, one of the major service providers in India, reported $263 million of revenue for the fiscal year ending 6/2002. The conventional thought is that about 50% of this revenue is from North America mostly from the USA. So the government reporting for India is understated if just that one service provider is examined. There are 100's of service providers in India. By the way, the latest year reported, ending 6/2004, HCL showed $976 million of revenue. Bottom line is that Government data for services is very weak and understated.

posted by: I don't know . . . on 09.29.04 at 12:58 AM [permalink]

ComputerWorld has spun the GAO outsourcing report
differently from Professor Drezner:

GAO: Outsourcing could hurt IT employment growth
But government data remains incomplete; more study needed

News Story by Patrick Thibodeau

SEPTEMBER 22, 2004 (COMPUTERWORLD) - WASHINGTON -- A new government report indicates that offshore outsourcing could hurt IT employment growth over the next decade.
But the study, released today by the U.S. Government Accountability Office at the request of Democrats in the U.S. House of Representatives, is sprinkled with caveats and qualifiers because government data can't provide a complete picture of the economic impact of the use of offshore labor.

At best, the GAO said, the data provides only "some clues" to the extent of offshoring activity in the U.S. economy. And while offshoring "is a small but growing trend," further efforts will be needed to understand it, the GAO said.

posted by: bhaim on 09.29.04 at 12:58 AM [permalink]

Let me add my congratulations on getting
published in the New York Times.

posted by: bhaim on 09.29.04 at 12:58 AM [permalink]

An issue that is not usually addressed in dicussions about off-shoring is that many of the off-shore job destinations (India, China, for example) are a large and growing source of revenue for many companies (particularly high-tech) sending the jobs. I think it somewhat arrogant for Americans to believe that busineses, with growing overseas revenue, should limit job creation (or job maintenence) to the US.

posted by: daniel on 09.29.04 at 12:58 AM [permalink]

Ironically, Krugman's model supports Dan's thesis on outsourcing, I believe.

As for the question of IT outsourcing, I believe that you could easily make the argument that "insourcing" is a much larger phenomenon. Same is true in most graduate programs, I believe. Whether you view this as a "problem" depends on a lot of other assumptions. My own assessment is that it (also) increases productivity (and reduces inequality for that matter).

posted by: Mike Ward on 09.29.04 at 12:58 AM [permalink]

The article states:

"Few Americans suggest technological innovation be stifled for the sake of preserving old jobs."

Thought not directly related, it might be interesting to explore this vis-a-vis the entertainment industry trying to squelch technologies like peer-to-peer with copyright protections, DRM, trusted platforms etc as part of, perhaps, a privatization of the commons. Lessig's writings come to mind (

posted by: Richard P. Gabriel on 09.29.04 at 12:58 AM [permalink]

If all of the hi-tech jobs are going overseas, why do Computer Science and Information Science continue to have some of the highest average starting salaries among all undergraduate majors? They also saw some of the biggest growth in average starting salary as compared to last year: Information Science increased 10.7%, Computer Science increased 4.1%.

If the demand for this type of labor is decreasing so much more rapidly than the demand for other types of labor, why is the average wage rate increasing? I have a very tough time believing that the supply of that type of graduates has decreased even more than the demand has "decreased".

You can see the stats at

posted by: Adam on 09.29.04 at 12:58 AM [permalink]

Good article, Dan...congratulations! But I don't understand why the foreign direct investment number is all that relevant. If I want to put a customer service in India, I don't need to invest a dime there; merely execute an outsourcing contract with one of the many companies there that are in that business. Similarly, if I want my product (or components thereof) made in China, I can simply contract with someone to manufacture direct investment involved.

posted by: David Foster on 09.29.04 at 12:58 AM [permalink]


Are you still leaning towards voting for Kerry?

posted by: Brian on 09.29.04 at 12:58 AM [permalink]

Congratulations Dan!

posted by: boo on 09.29.04 at 12:58 AM [permalink]

Adam writes: "If all of the hi-tech jobs are going overseas, why do Computer Science and Information Science continue to have some of the highest average starting salaries among all undergraduate majors? They also saw some of the biggest growth in average starting salary as compared to last year: Information Science increased 10.7%, Computer Science increased 4.1%."

All that shows is that companies are competing for the limited and shrinking pool of top graduates. It doesn't count the thousands of tech grads who didn't get hired, or who took a job at Wal-Mart.

There are companies, like Oracle, who only recruit from a handful of top schools. The CS grads from South Nowhere State University aren't even considered.

If the calculation of average starting salary were to be accurate it would have to include lots of zeros, and lots of minimum wages.

posted by: Jon H on 09.29.04 at 12:58 AM [permalink]

Yes, many big name companies only recruit at the top universities. But this survey was not conducted only on graduates of the top universities, and it was not what's reported by a handful of large companies. It's based on a survey of the career services offices from a wide array of universities around the country. You can go to the website of the National Association of Colleges and Employers to read about the methodology for their survey, which they conduct every year for 70 different academic disciplines.

Yes, there may be some bias due to students overreporting their starting salary, and perhaps being too embarrassed when the career services office calls to be able to tell them that they're working in a lower-wage job.

In fact, during the time period when the tech bubble burst, their survey showed that the starting salary of Computer Science grads stagnated. So clearly they've found some way around those biases, to be able to still detect that kind of wage downturn. And to the extent that any biases remain, I see no reason to expect that bias to change dramatically over time.

Therefore the fact that their survey is showing a very large INCREASE directly counters the idea that there are no tech jobs out there. Simple supply and demand

posted by: Adam on 09.29.04 at 12:58 AM [permalink]

Adam writes: "Yes, there may be some bias due to students overreporting their starting salary, and perhaps being too embarrassed when the career services office calls to be able to tell them that they're working in a lower-wage job."

The people who get jobs at Wal-Mart and Starbucks aren't getting them through the career services office, so those won't be reported.

"Therefore the fact that their survey is showing a very large INCREASE directly counters the idea that there are no tech jobs out there. Simple supply and demand"

Not at all. There are *some* jobs. The fact that a few companies are competing for a minority of students, raising offers, doesn't mean there are lots of jobs.

The statistics are rather meaningless without information on how many students were not placed with companies.

posted by: Jon H on 09.29.04 at 12:58 AM [permalink]

well done. nonetheless, i couldn't help but notice how well done your piece was, and that in fact was more sound than the "news" on the front page.

posted by: jason on 09.29.04 at 12:58 AM [permalink]

Jon H: If you think their survey methodology would not show stagnant salary levels when job opportunities are getting more scarce, then how do you explain the fact that their survey actually DID show salary stagnating for the past couple years?

Those graduating with a degree in computer science are seeing heartier increases. According to NACE, information sciences and systems grads earn $42,375 a year on average. That's up 10.7 percent from a year earlier. Meanwhile, computer science graduates make $49,036 a year, a gain of 4.1 percent.

If those numbers sound enticing, it's probably because computer science graduates are long overdue for a pay increase.

"They haven't seen an increase since 2001 and this is the first year, in all four reports, that they showed an increase," Koncz says. "With the economy coming back, they are just starting to regain the ground lost in those two years."

posted by: Adam on 09.29.04 at 12:58 AM [permalink]

Adam writes: "If you think their survey methodology would not show stagnant salary levels when job opportunities are getting more scarce, then how do you explain the fact that their survey actually DID show salary stagnating for the past couple years?"

Simple - less competition for the top CS grads means lower (or stagnant) offers.

Now, there's more competition for the top CS grads, so they're raising offers.

MIT, Berkeley, CMU and Stanford only graduate so many people.

It still doesn't say anything at all about what percentage of CS grads got offers.

If there's a large body of unemployed CS grads, it doesn't effect the salary offers much, because most of those people wouldn't have been in the pool of contenders anyway.

posted by: Jon H on 09.29.04 at 12:58 AM [permalink]

Reading your New York Times piece made me think of something one of my professors once said about affirmative action. He analogized people who thought they lost their job because of affirmative action to those who didn't get a parking space because of handicapped parking spots. Everyone drives around sees the handicapped spot and thinks that if it wasn't there they would have parked by now. Actually, no someone else would have parked there hours ago and you'd still be driving around.

The point is that not nearly as many people lost their job because of affirmative action as blamed their loss of job on affirmative action. Politicians of course took advantage of this and built up opposition to affirmative action. I think a similar phenomenon may now be going on regarding outsourcing.

posted by: Stuart on 09.29.04 at 12:58 AM [permalink]

I think that Detached Observer's initial comment expresses one of the most significant concerns about offshoring. Even if it's "only" a few fields that are decimated by this scourge, the loss of those fields from America can have a disproportionately large effect on our future as a world leader. Currently, young people have a strong incentive to enter fields that pay a good salary, yet require a physical presence: law, medicine, plumbing, etc. Conversely, the incentives are strongly against entering fields where they must compete on price against cheap foreigners: IT, medical research, engineering, R&D, and so on. But these latter fields are home to far more innovation than the former, and are far more vital to the future of our nation. This (in addition to all the job loss and the concomitant salary pressure on the few remaining jobs) is a negative externality never taken into account by the idolatrous worshippers of so-called 'free trade'.

posted by: Firebug on 09.29.04 at 12:58 AM [permalink]

I'm on both sides of this debate. On the one hand I'm an IT guy myself and the effect of outsourcing is clearly visible. Or perhaps more accurately was visible, particularly in 2002-2003, when it seemed most of the new work was going to India.

But.... I think that was an artifact of the enormous dip in new projects which began in early 2001. Possibly as much as a 95% dip. I was in telecoms and remember seeing only one big 'new' project in all of 2001-2002 in my general area. One could argue that even if outsourcing took 60% of the available jobs (which it never did) and if demand had dipped 95%, the impact of outsourcing was only 3% of 'normal'.

The true problem was an enormous tech depression and outsourcing had relatively little to do with it. Outsourcing added to the pain but the true problem was the tech depression.

The good news is that things have picked up quite a lot. If anything there is a shortage of IT guys in the London labor market right now. With a lot of IT guys having dropped out of the field and there being almost no new supply (the college kids have learned the lesson and are not going into IT) I think any recovery will tend to drive salaries and rate up. Possibly way up. Right now contract rates of $80-90 an hour are fairly common in London and in Continental Europe.

In my opinion the tech depression is clearly over and I am forecasting a period of several years of above-average earnings for surviving IT people.

posted by: Don on 09.29.04 at 12:58 AM [permalink]

One more comment for the college guys who seem to be commenting. right now is probably the best time to do an IT major, not the worst. In two years time there should be a good market for entry-level people (there may be now, I wouldn't know). I think we have at least 6-7 years before the next IT recession and perhaps 20 years until the next IT depression. The storm is over.

The ones I pity are the guys who saw entry-level salaries for Java programmers at $70K in 1999 and decided to major in IT, then graduated 2001 - 2003 into a depression. There is hope yet! When the shallow pool of experienced people are all hired up they are going to have to dip deeper into the resume pile. And that's your chance! I know from experience having begun my career in 1983, right in the middle of the last tech depression!

posted by: Don on 09.29.04 at 12:58 AM [permalink]

Congratulations Dan on being published in the New York Times!

While travelling on the subway yesterday I noticed a copy of the NYT on the floor, conveniently open to your page. The guy next to me noticed it too, attracted by the headline and cartoon no doubt. He picked it up and started reading your article. I leaned over and told him it was an article worth reading, and that my future brother-in-law wrote it. He was very impressed. I was very proud of you.

posted by: Pam on 09.29.04 at 12:58 AM [permalink]

In simple terms, job numbers are about gross creation versus gross destruction. For two years after the bubble's collapse, the net destruction exceeded the gross creation. Now we are seeing gross creation exceed gross destruction -- although the net gains are lower than they need to be for us to fully recover from the massive levels of loss, we are operating at a fairly comfortable rate currently.

Off-shoring is mostly about replacing robots with people who will work at machine wages. EG, there are more 1040s than accountants who will do will fill them out for $20 per, which gave rise to computer software that will do lots of 1040s at $20 flat. Now we got folks that will do them for $2 per. Those aren't replacing domestic jobs--they were lost to automation already.

Same with IT (which is my home field). The jobs we are seeing off-shored in IT are people who do low-level coding, who design forms and dialog boxes, and so forth, much of which can be replaced with automation software. Most of the experience with trying to do higher-end site-specific tasks have failed to return significant results. This is also true for things like radiology, where diagnostics can be done by software or a guy in India equally.

This is a continuation of the industrial revolution. Lowering costs through automation allows for increased investment in other areas, which helps to advance competitive goals, while cheaper goods and services also allows the buyer to similarly redirect capital (buying factory made furniture saved the appalachian hill-folk from having to make their own, as well as saving the factory manager money). It's good for everybody except the displaced worker and stuck-in-the-mud employers, but once they are retrained or recapitalized then even they benefit.

The real concern is the rate of loss, and the net comparison to gross creation that is afforded from higher productivity. Again, our losses have come from the collapse of the bubble more than off-shore activity, and people need to recognize that. Off-shore activity has been relatively minor and is not exceeding creation as far as I can tell (Dan's data also confirms this, to a point, although I'd like to see more).

Most of this stuff is transparent and obvious when you look at the data, but this whole subject is buried in so much rhetorical bullshit (especially from nihilistic self-loathers like Jor) that it's impossible to discuss. Here is the simple data: During the bubble itself (1995 to 2000) manufacturing was flat, with equal amounts of creation and destruction. When the bubble burst, easy access to stock market capital also disappeared, resulting in lower amounts of gross creation, resulting in net losses. After tax changes, weakening of the dollar, and lower interest rates (and after the weaklings had been bled from the system), the numbers have turned around and we now have job creation in the manufacturing sector exceeding losses by levels unseen in decades.

Folks that are complaining about the current impact of off-shoring are asking the wrong questions.

posted by: Ursus on 09.29.04 at 12:58 AM [permalink]

Computer Science and Engineering enrollments have plunged almost 50% at MIT in the last few years.

"It's been precipitous," said John Guttag, head of MIT's electrical engineering and computer science department.

The market for Computer Science graduates may or may not come back in the next few years. CIOs can use the shortage of graduates as an excuse to accelerate offshoring plans.

posted by: bhaim on 09.29.04 at 12:58 AM [permalink]

ps-- shows the manufacturing jobs for the past decade. Note that this sector was also flat during the bubble, meaning that the gross creation and gross destruction were running pretty even. When the bubble burst, creation fell off, and destruction consumed the sector.

If the question here is off-shoring's contribution to destruction, then the question has to apply to the historical levels of destruction and not just current levels. Has it always been bad, or is there some other long-term trend that can get the blame? Like automation, perhaps?

Is that bad? Was the industrial revolution bad?

posted by: Ursus on 09.29.04 at 12:58 AM [permalink]

As an economist that is about as far to the left as you are to the right, I congratulate you on a very good article. Of course, it is a good article because your conclusion agree with mine that outsourcing is a relatively minor problem, The real problem is the weak economy.

However, you did not address the Kerry proposal to alter tax regulations to discourage outsourcing. Overall, I expect his proposal is unlikely to do much harm and it could help.

posted by: spencer on 09.29.04 at 12:58 AM [permalink]

bhaim wrote:

"Computer Science and Engineering enrollments have plunged almost 50% at MIT in the last few years.

"It's been precipitous," said John Guttag, head of MIT's electrical engineering and computer science department."

It is obvious that hundreds of brilliant MIT nerds who avoided CS and Engineering don't know what is good for them.

On another hand our Boy-Professor, an expert in PoliSci and uncritical NYT reading, is in much better position to know. He just skimmed a gov report from the same folks who 5 years ago predicted 500K unfilled jobs in IT industry.

Whom you are going believe - your own lying eyes or the Boy-Professor?

posted by: kufar on 09.29.04 at 12:58 AM [permalink]

Drezner's comments on outsourcing miss the point (read the op-ed piece). The current administration's laissez-faire attitude towards outsourcing is part of a broad effort to undermine American labor standards and environmental protections. John Kerry's message that we shouldn't reward companies that ship jobs overseas is not a matter of how many jobs are being outsourced (though it's not clear that the number is small; Drezner's Kodak example fails to mention that Kodak's job losses are due also to cheap digital cameras and memory chips imported from East Asia and not just "technological change."). It's a matter of why those jobs are outsourced.

Read more.

posted by: Adam on 09.29.04 at 12:58 AM [permalink]

I used to work for a company that started "outsourcing" work. It was a job here and there and then they said "We are cutting 25% of our staff and the remaining staff will have to take a 15% pay cut."

This came on top of a 12% pay cut I had taken the year before.

Now the company is making remaining workers take a 20% pay cut and move to a four day week.

Where does it end?

posted by: CarlosX on 09.29.04 at 12:58 AM [permalink]

I've only read your article this morning, Oct 4th. I work for a company that mfr's a little in San Diego, quite a bit more in Mexico, and outsources a lot to China. This comes after almost 15 years of mfg the same sorts of stuff, electronics subassemblies, in the US. I've been struck, hard, by the high level of quality virtually all of what we purchase offshore has. I've also been struck by the wage differences. This leads me to wonder about the increased dollar value of imported and exported services you cite in your Times article. I cannot find in your article, nor in the GAO report (which I scanned in only a cursory way) any indication of whether the increase, 16 billion, was the number of dollars paid, or the value of wages that would have been paid to Americans if they had done the work. I am guessing it's the former, not the latter. eg., when we pay 50 cents for the labor to build an assy in Tijuana, we are not paying (at least) $7.50 go make it in San Diego. If we pay a total of 16 billion for Mexican production, it replaces 240 billion in American labor. So, just assuming all the imported services were from Tijuana, which is expensive compared to India (I'm assuming), and assuming that Americans performing the same types of services are paid at least ten bucks an hour, I seen a huge difference between the number of full-time jobs paid for, offshore and onshore: 16billion for 15.4 million at $.50/hr, vs 20.5 billion for 120,000 jobs at $10/hr. This perspective, if valid, and I admit to having had my last economics and math classes 30 years ago, makes the offshore outsourcing seem more of a threat to domestic jobs.

posted by: Bill Montgomery on 09.29.04 at 12:58 AM [permalink]

See Dr. Norman Matloff's response and rebuttal to your NYT op-ed at:

Matloff leads off with: "Nice summary of the globalists' favorite lines--and thus wrong on every point."

Dr. Matloff agrees that Kerry is a hypocrite but don't imagine for a moment that Matloff agrees with much else in your commentary.

BTW You can read a response to Dr. Bhagwati's nasty Sept 11 WSJ comments re. Lou Dobbs at too --

posted by: Info Tech Guy on 09.29.04 at 12:58 AM [permalink]

Ursus writes: "The real concern is the rate of loss, and the net comparison to gross creation that is afforded from higher productivity. Again, our losses have come from the collapse of the bubble more than off-shore activity, and people need to recognize that."

I have one major quibble with Ursus' argument. The job losses went much further than the mere collapse of the bubble, particularly in telephony. It's true that telephone equipmenet suppliers had their own bubble in 1999-2000 (think Nortel, Cisco, Lucent) driven by a sudden spike in demand driven by the bubble.

The destruction went much further than the mere collapse of a bubble. There were three factors which combined to bankrupt much of the telecoms industry.

The first was the realization (about circa 1996) that the various data transmission industries (telecoms, cable TV, etc) were in competition with each other.

The second was the increasing importance of IP telephony which drastically cut the cost of long distance service. More importantly IP telephony also cut the difficulty and cost of entry into the long distance market. Prior to 1995 long distance was the motherlode, the place where the national copanies (AT&T, Worldcom, Brtitish Telecom) made their real profits. After 1995 long distance rates fell steadily, to the point where AT&T has announced that it is exiting the long distance market within the next year.

Taking advantage of the troubles of the main operators were a new generation of companies which laid massive global optical networks and looked very promising. Global Crossing was one of these companies. There was something of a bubble in this sector which resulted in overbuilding of the network. Increasing demand was expected to take these companies off the hook fairly soon. Then the final blow hit. Some genius figured out how to increase the capacity of optical links by 100. An overcapacity of 2 or 3 times turned into overcapacity of 200 or 300 times demand. Exit Global Crossing and their ilk.

I haven't even mentioned the massive capital drain from mobile operators caused by the 3G goldrush of 2000.

There has been a net loss of millions of jobs in telecoms globally. The loss in human capital has been equally enormous. The disasters have been far too frequent and hard-hitting for any individual to react to or to plan for. It has been the most destructive period since the Great Depression.

Outsourcing has had very little to do with it. Outsourcing is a minor disaster layered on to all these massive disasters.

posted by: Don on 09.29.04 at 12:58 AM [permalink]

Can there not be drawn a parallel between the current exodus of technical jobs with the exodus of manufacturing jobs in the eighties and nineties. After all, the loss of manufacturing jobs in the US proved to be a passing phenomenon, nothing really to it. I'm sure this technical sellout of the US will end up in much the same manner.

posted by: dan p on 09.29.04 at 12:58 AM [permalink]


Sure, if you look at it from the macroeconomic level. Trust me at the personal level it looks much worse. It's the destruction of the worth of a skill base built up over many years.

I've managed to survive it and may even benefit in the longer term. Many did not. They have dropped out because they could not change instantly to react to the catastrophic changes.

posted by: Don on 09.29.04 at 12:58 AM [permalink]

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