January 14, 2004
It's tough to track jobs leaving the U.S.: Researchers baffled by lack of reliable data
WASHINGTON -- In the past year, many workers have railed against "offshoring," the hot new business practice of moving service jobs to India, China and other low-wage countries.
But while interest is surging, only one thing is certain about offshoring: No one really knows what's going on. Not the Labor Department. Not the Commerce Department. Not private economists.
The absence of reliable data is hampering legislative efforts to address the trend, and complicating long-term planning at universities and corporations. The problem is not likely to be remedied for years.
"Here at the Bureau of Labor Statistics, we don't have anything in place that would attempt to measure this," said Karen Kosanovich, an economist for the agency.
Offshoring is so new that only a few private consulting groups have taken stabs at estimating its impact, but their assessments are largely based on hunches and extrapolations.
For even the roughest job-loss estimates, "you'd have to make very big assumptions" that could not be supported with data, Kosanovich said.
Richard DeMillo, dean of the College of Computing at Georgia Tech, said universities cannot afford to wait for the government to measure the scope of the change. Georgia Tech already is adjusting its teaching approach based upon the assumption that routine computing jobs will be done overseas in coming years.
Employers can save so much money by offshoring ordinary programming tasks that "the economics are overwhelming," DeMillo said. The trend is now so obvious that "we don't need the government to supply the statistics."
Companies that have sent at least a small portion of their call service work overseas range from Citibank and Delta Air Lines to EarthLink and Dell.
While the shift may be clear in computing-related services, it is less so in other areas, such as radiology, architecture, editing, tax preparation and more.
"We don't have sufficient data to be able to say definitively what is going on" in many sectors, said Heather Boushey, an economist with the Center for Economic and Policy Research, a left-leaning research group.
"It's a tough data problem," she said. "We know how many jobs are here in the United States, but we don't keep track of how many individuals a U.S. firm may hire in a foreign country."
The lack of information has not stopped lawmakers in several states from introducing bills that would prohibit or severely restrict state agencies from contracting with firms that use offshore workers. Labor unions are lobbying Congress for similar federal laws.
To get a handle on the problem, Rep. Adam Smith (D-Wash.) has asked the General Accounting Office, the investigative arm of Congress, to conduct a study.
Smith's spokesman, Lars Anderson, said the congressman requested the report last summer when he realized "there are no real answers" about offshoring. When the GAO report is released this spring, "we hope it will help," he said.
Josh Bivens, an economist with the Economic Policy Institute, a liberal research group, is not optimistic. He has been trying to measure offshoring by using Commerce Department statistics.
After poring over Commerce's International Transactions and Services report, Bivens found the data show "imports into the United States of computer and data processing services from countries like India actually fell between 2001 and 2002."
Bivens doesn't believe it. "I'm pretty convinced that lots of this kind of [offshoring] trade is happening, and it just isn't getting picked up in official government statistics," he said. "Right now, I'm a bit at a loss for how to get a decent number."
The most widely quoted source on offshoring is a 2002 study by Forrester Research Inc., a technology trend analysis firm. It projected that 3.3 million white-collar U.S. jobs will shift to low-wage countries by 2015.
But last August, McKinsey & Co., a global consulting firm, released a study suggesting the United States is gaining more than it is losing from offshoring.
The McKinsey study said offshoring is driven by dramatic improvements in telecommunications, which allow companies to transmit information over long distances at low costs, with minimal loss of quality.
It found that a U.S. company can send the work of a U.S. software developer earning $60 an hour to an equivalent employee in India or the Philippines for $6 an hour.
But the study said such job shifts help the U.S. economy because they can:
o Reduce costs, which lowers prices for consumers or boosts profits for investors.
o Create new revenue, as lower labor costs allow companies to offer new services that previously were too expensive.
o Move U.S. workers from relatively easy work, such as routine programming, to higher-value jobs.
The study concluded that "offshoring brings substantial benefits to the global economy, and the lion's share will likely go to the U.S. economy."
Many unemployed workers scoff at such conclusions. They believe overseas competitors put so much downward pressure on salaries that young Americans will stop studying vital subjects involving engineering or computers.
At a House hearing last October, Natasha Humphries of Santa Clara, Calif., testified that no matter how much she boosted her education, she still could not survive offshoring. As a 1996 graduate of Stanford University in California, she became a senior software quality assurance engineer at Palm Inc., which makes hand-held computing devices.
But Palm "began an aggressive campaign to outsource all testing assignments to India and China," she said. Workers in those countries accepted contracts paying $2 to $5 an hour, compared with wages of $30 to $60 an hour in California, she testified.
In August, she was fired. The reason "was pretty much the bottom line" on her paycheck, not her lack of skills, she said.
Such stories can have an enormous political impact on Congress, especially in an election year. But Stuart Anderson, executive director of the National Foundation for American Policy, a group that supports free trade, said such anecdotal evidence should not be used to outlaw offshoring.
Some jobs are being lost but others are being created as U.S. companies lower their costs, he said.
"It's part of the messy process of capitalism," he said.