Recent economic data show the technology sector is perking up, with U.S. firms posting their first profits in years. Vicki Nelson wishes she could say the same of her finances.

The Sacramento-area software engineer has drained her daughter's college fund and sold off furniture to pay bills since she was sacked in 2001. Still unemployed, she doubts her fortunes will rebound along with those of high-tech companies, which through the years dumped tens of thousands of U.S. workers in favor of cheaper hands overseas.

"The jobs have gone to Bangalore," said Nelson, 46, speaking of the city in south India hailed as the new Silicon Valley. American companies "are selling us out to save a couple of bucks. I'm worried about the future of our economy."

As the U.S. struggles with the longest jobless recovery in recent memory, white-collar workers are facing a harsh reality. Just as highways paved the way for migration from America's cities, the information superhighway has given rise to a new set of economic road rules: If it can be digitized, it can be moved.

Retailers, banks, airlines, hotels and hospitals are sending work offshore, from back-office accounting to front-desk customer service. Ditto for government agencies. Today, a laid-off Californian with questions about food stamps can get answers from a telephone hot line staffed in part by workers in India. The state of California two years ago outsourced the delivery of some welfare benefits to Citicorp Electronic Financial Services Inc., which uses English-speaking workers in Bangalore and Pune to assist the down-and-out in Bakersfield and Pacoima.

Powered by high-speed global communications and educated foreign workers, the so-called offshoring trend is rapidly moving beyond call centers and data processing. And it's defying conventional wisdom about what jobs are immune from export.

Indian radiologists contracted by Massachusetts General Hospital in Boston are processing X-ray images of U.S. patients. Foreign legal eagles are writing patents for U.S. firms. Tax clients of Newport Beach-based SurePrep can thank Indian accountants for that fat refund from Uncle Sam. And far from Wall Street, equity analysts from developing nations are crunching numbers once reserved for six-figure American MBAs. Even foreign economists are willing to prognosticate on the cheap.

"There's a guy in India who has been contacting me" about a job, said Mark Zandi, chief economist at Economy.com in West Chester, Pa. "My immediate reaction is that he couldn't possibly do it from there. But when you start to think about it, why not?"

Economy.com in October estimated that nearly 1 million U.S. jobs had been lost to offshoring since early 2001, with 1 in 6 of those in information technology, financial services or business and professional services - the bedrock of the "new economy." Forrester Research Inc. projects that 3.3 million service and professional jobs will flee the country by 2015. Researchers at UC Berkeley figure that at least 14 million U.S. service jobs are vulnerable.

Despite all the angst about foreign defections, economists say the collapse in business spending is the principal culprit behind U.S. employment declines. And the focus has been on the manufacturing sector, which has shed nearly 2.7 million net jobs in the last three years. Still, analysts say offshoring has been a factor and will continue to be a drag on U.S. job creation and wages.

"There is no shortage of smart, qualified people overseas who are willing to do this work for a lot less," said Kim Berry, 45, a programmer who develops software for a small firm in Citrus Heights, Calif., and makes $42,000 a year. That's only about half what he made working for Hewlett-Packard Co. at the peak of the economic boom, but he figures he's lucky considering that so many of his former colleagues aren't working at all and foreign programmers are lined up just waiting for their chance.

Offshoring has touched a chord with middle-class Americans who thought workers in coveralls, not cubicles, were the ones at risk. Jobless white-collar workers have picketed outsourcing conferences and created websites, organized petition drives and sent e-mails to lawmakers. A Florida tech worker outraged at having to train his foreign replacement is running for Congress.

Indiana Gov. Joseph Kernan in November ordered a state agency to cancel a $15.2-million contract with an outsourcing firm after citizens went ballistic at the notion of workers in India upgrading their state's computers to, of all things, process unemployment claims of laid-off Hoosiers.

Bills introduced in Congress and at least four state legislatures would preserve U.S. service jobs by slapping restrictions on foreign call centers or giving Americans preference in government contracts. The issue could figure prominently in the 2004 presidential election if the nation's job engine continues to sputter.

"U.S. workers were told that the right thing to do was to become a professional and the winds of globalization wouldn't hurt you," said Jared Bernstein, senior economist with the Economic Policy Institute in Washington. "What we're learning is that virtually no occupation or skill level is insulated. That's causing a lot of rancor among those who thought this only happened in old and dirty industries."

Bernstein says the U.S. would do well to take a hard look at its trade agreements and craft public policy to keep jobs in crucial sectors such as technology at home. Others say protectionism will prove as futile as it did with manufacturing and will harm the U.S. economy in the process.

Stuart Anderson, author of a recent study critical of legislative attempts to restrict offshoring, noted that for the Indiana computer upgrade contract, the bid by an American subsidiary of Bombay-based Tata Consultancy Services was $8.2 million below the next lowest. Indiana taxpayers would be ill served, he said, if they end up paying more to upgrade state computers just to ensure that people who live in the United States get the work. It would be far better, he said, for Americans to grab the savings and use them to make purchases and investments that would create additional jobs and wealth elsewhere in the economy

"There's this growing perception that somehow free trade in services is bad," Anderson said. "That if people in other countries land better jobs, that means we won't have good jobs here. But it's not a zero sum game."

Take call centers, for example. While many Americans are shocked that foreigners with nearly flawless English are the ones booking their flights and finding their lost welfare checks, few would swap places with them. In the United States, telemarketers rank somewhere near repo man in prestige, with lousy pay to match.

But in the developing world, a job with a headset is desirable, said Lance Rosenzweig, chief executive of Los Angeles-based PeopleSupport. Launched three years ago with 10 workers in the Philippines, the firm employs 2,000 there handling customer calls for firms such as Expedia Inc. and Earthlink Inc.

Business is so brisk, Rosenzweig said, that his workforce probably will double in 2004. He said the firm last year received more than 100,000 resumes from the Philippines, where many students are taught in English. Most of the company's hires are college graduates eager to chatter away in the middle of the night for starting pay of about $4 an hour, good money in a country where the average family income is $2,600 a year. Rosenzweig said turnover was one-fifth that of U.S calls centers.

"It's a career in the Philippines," Rosenzweig said. "In the U.S., it's a little money until you find something else."

Call centers are one thing. What really has Americans spooked is the export of well-paying professional positions. Dave Wyle, founder of tax preparer SurePrep, said some potential customers had accused him of undermining the U.S. economy by hiring Indian accountants to process tax returns for $400 a month, one-tenth what an accountant in the United States would command.

Wyle's response is that advances such as spreadsheets and software wiped out thousands of paper-pushing jobs in accounting offices while improving accuracy and efficiency, "and nobody thought that was a bad thing."

After processing 7,000 U.S. returns in its first tax season in 2003, SurePrep is projected to handle 35,000 next year and more than 85,000 in 2005.

"It's growing like crazy," Wyle said. "We do the work more efficiently. Companies make more profit. Everybody benefits."

A lot of people in California would disagree.

On a percentage basis, the Golden State's job losses have been on par with those nationwide, about 1.9% of nonfarm payroll since employment began sliding in March 2001. The state's outsize fiscal pain stems from the type of jobs it has lost - tens of thousands of lucrative high-tech positions and the fat bonuses and stock options that went with them.

When adjusted for inflation, personal income in California plunged 3.4% from January 2001 through July 2003, compared with a decline of 0.1% nationwide, according to estimates from the state Department of Finance. By its count, no other state did worse.

A lot is riding on California's ability to regenerate similar high-paying positions. Optimists are banking on biotech, nanotechnology and other emerging fields over the long haul. In the meantime, the traditional technology sector has shown signs of life. But, so far, it hasn't translated into job growth in California, and some industry veterans are blaming offshoring.

Cici Mattiuzzi, director of the career services office for the College of Engineering & Computer Science at Cal State Sacramento, said she had never seen job prospects for tech grads so dismal in her 25-year career.

"The people I talk with at the huge companies here - Intel, Hewlett-Packard, Oracle - all indicate that they are hiring. But they are not hiring in the United States," said Mattiuzzi, who said small firms were telling her the same thing. "My hope has been that the market would turn around this spring, but with the amount of outsourcing, I'm not real optimistic."

Move over, China. The anti-globalization crowd is discovering a new threat: India. The transfer of U.S. information technology jobs to the Subcontinent has got even highly paid white-collar workers worried that their livelihood is under threat.

Companies such as the bankrupt Global Crossing created the cheap fiber-optic bandwidth that allows Indian programmers and call-center operators to serve the needs of companies multiple time zones away. So if high-tech and service work can now be done more cheaply in the Third World, the argument goes, won't standards of living in the U.S. inevitably fall? Even many serious people -- such as Intel Chairman Andrew Grove -- are raising new questions about the law of comparative advantage as the cost of communicating across continents shrinks to zero.

The "outsourcing" phenomenon is real enough. IBM recently said it will transfer almost 5,000 programming jobs overseas, mostly to India. The consulting firm Accenture, which handles outsourcing for other companies, plans to double its staff in India to 10,000 in the next year. Meanwhile, such Indian software companies as Wipro and Infosys are approaching $1 billion in annual revenue and growing staff by about 25% a year.

So at first glance this looks like a win-lose proposition, with India gaining jobs and the U.S. shedding them. Unemployment among U.S. software programmers is now above 7%, compared with 1.6% two years ago. Part of that is due to the aftermath of the dot-com bubble. But let's not shrink from the truth: Jobs are migrating to India.

What's important to understand, however, is that the labor market for programmers and software engineers is highly complex. You can't simply substitute one worker for another. At the bottom end, some coding has become comparable to semi-skilled labor; some training is required but not a lot of brain power. These are the jobs moving to India.

Western companies are still keeping their most crucial work close to home. Just as in manufacturing, U.S. companies will use the cost savings from job transfers to pursue the cutting-edge advances that produce the highest profit margins. A study by the McKinsey Global Institute found that U.S. companies save 58 cents for every dollar transferred in jobs offshore. That money is available for new investment, or to pay top dollar for Americans with world-leading skills.

In economic principle, all of this is little different from the "hollowing out" of low-skilled manufacturing jobs during the 1980s. Now it is happening in services. The result is another inevitable round of creative destruction, in Joseph Schumpeter's famous phrase, that will see some current jobs vanish while increasing productivity in ways that will assist companies in creating new jobs we often can't yet imagine.

Fed Chairman Alan Greenspan recently addressed the feeling of insecurity this causes: "We can usually identify somewhat in advance which tasks are most vulnerable to being displaced by foreign or domestic competition. But in economies on the forefront of technology, most new jobs are the consequence of innovation, which by its nature is not easily predictable." He nonetheless argued that trying to shut out foreign competition would damage the U.S. economy.

The challenge for America's business and political classes is how to respond. The wrong way is with anti-foreign bid-rigging that limits outsourcing. Indiana Governor Joe Kernan recently barred an Indian software company from a $15.2 million project it was awarded only two weeks earlier. A New York subsidiary of Tata Consultancy Services, India's biggest software company, had the lowest bid by some $8 million, according to the Indianapolis Star, so Hoosier taxpayers now will pay more for this protectionism.

Stuart Anderson of the National Foundation for American Policy reports that other states are seeking to restrict overseas "call centers." A New Jersey bill would require that the service operator identify who he is and where he's located. If the caller requests, that call must then be re-routed back to an American location. To raise just one objection: We doubt someone from South Dakota finds it any easier than someone from Delhi to understand a New Jersey accent.

Such political gestures are futile in any case. The trade here isn't in goods that can be blocked but in the ones and zeroes of digital information. Private companies will simply drop some services or relocate even more jobs if they are blocked by government from doing what it takes to stay competitive.

The alternative is to do what it takes for Americans to remain innovative and create the next wave of wealth-creating technology and ideas. Improve K-12 education, especially in the inner city, maintain an open immigration policy so the world's brains can live in the U.S., reform the tax code and fix the legal system. The goal isn't to steal jobs from one country or another but to help both the U.S. and the world get richer.

IT WAS HARD TO TELL from the headlines and instant controversy, but President Bush's January 7 immigration speech was not about granting amnesty to illegal aliens. Instead, the president has proposed a measure that would dramatically curtail illegal immigration. However, to the consternation of critics, he favors a method--temporary worker visas--that anti-immigration members of Congress and their allies despise.

Under President Bush's plan, immigrant workers would no longer need to evade Border Patrol agents or die trying. Moreover, recognizing reality, the president would allow those now working illegally in this country to pay a fine and obtain a temporary visa, good for three years but renewable. Crucially, the president recognizes that "our current limits on legal immigration are too low," and he pledged to work with Congress "to increase the annual number of green cards."

A little background helps explain why this last point is so important. Contrary to some perceptions, current law is in practice highly restrictive in offering opportunities for U.S. employers to hire immigrants to work legally in agriculture and other non-professional fields. While H-2A visas for agricultural workers are uncapped, the procedure for obtaining them is so cumbersome and litigation-prone that fewer than 30,000 such visas are issued annually, while several hundred thousand immigrants work in the fields illegally. Though individuals may work in non-agricultural jobs under the H-2B visa, restrictive interpretations of the statute have generally prevented employers from hiring individuals for jobs other than those that are seasonal or of very short duration. In addition, that category is capped at 66,000 annually. An even lower cap limits sponsorship for permanent residence (green cards) to 10,000 per year for immigrants coming here to work who possess less than an undergraduate degree.

The absence of avenues to work legally in the United States is a primary reason for the current levels of illegal immigration. This can be seen clearly by looking back at the bracero program, which allowed foreign agricultural workers easier access to U.S. jobs.

As the bracero program expanded in the 1950s, INS apprehensions of illegal immigrants fell from the 1953 level of 885,587 to as low as 45,336 in 1959--a 95 percent reduction in the flow of illegal immigration into the United States. From 1964--when the bracero program ended--to 1976, INS apprehensions increased from 86,597 to 875,915 (and have remained at roughly that level or higher ever since).

This is not to say that workers who entered the bracero program did not experience problems or even hardships. The point is that when legal entry to work was widely permitted, illegal entry to the United States was an order of magnitude lower. And immigration enforcement officials understood this. At a congressional hearing in the 1950s, a top INS official was asked about stopping illegal immigration if Mexican agricultural workers could no longer come in legally. He replied, "We can't do the impossible, Mr. Congressman."

Congress can certainly choose to maintain the status quo, which is an enforcement-only approach. However, the evidence is strong that current policies--or even more hardened versions of them--are ineffective. From 1990 to 2000, illegal immigration increased by 5.5 million as the number of U.S. Border Patrol agents rose from 3,600 to nearly 10,000.

Existing policies also contribute to two unintended consequences: (1) More than 300 young men and women die each year trying to cross dangerous terrain or wade rivers. (2) The difficulty of an illegal crossing causes more migrants to stay in the United States after making it, rather than work for a short time and return to Mexico.

One needs a scorecard to follow the politics of immigration. But one thing worth remembering is that the main anti-immigration groups that feed information to Capitol Hill are neither conservative, Republican, nor genuinely interested in stopping illegal immigration. The politically potent groups are on the left, both unions and the anti-immigration groups, including the radical wing of the environmental movement, which favors sharp reductions in the population levels of the United States to as low as 150 million. Since newcomers increase the U.S. population or maintain it at its current size, these latter groups do not want anyone coming here legally either, no matter how helpful that would be in reducing illegal entry.

Meanwhile, Bush's critics on the right, led in the House by Colorado Republican Tom Tancredo, are wrong on key aspects of the president's proposal.

This is not an amnesty. The definition of an amnesty is an unconditional pardon. Bush's proposal requires the payment of a fine and does not guarantee a green card to anyone. In contrast, the 1986 amnesty signed by President Reagan allowed permanent residence for anyone present in the country within certain dates.

The proposal is not a repeat of the 1986 law. In 1986, Congress largely wiped the slate clean but failed to provide any new mechanisms for individuals to enter and work legally, thus ensuring another buildup of the illegal population.

This is not the end of the American worker. Any temporary worker program will contain labor protections. Moreover, Americans who may now feel they compete unfairly with someone here illegally (who is thus too scared to make problems for the boss) will no longer face that problem.

THE POLITICS for the administration are complicated but not daunting. Critics say the president is proposing immigration reform for political reasons and at the same time argue that most Americans oppose it. Both can't be true. In fact, President Bush started working on this issue as early as February 2001 and neared completion of a proposal prior to the September 11 attacks, which delayed consideration of the initiative. Moreover, the polling data on this issue are so ambiguous that no one can say it's a clear vote-getter, even among Hispanics. Despite the cynicism that greets almost any proposal emanating from Washington, one should not discount the most obvious explanation for the initiative: The president believes it's good for the country.

Another political wrinkle: While the proposal is said to upset the president's ideological base, in fact, there are many conservative enthusiasts, including senators Larry Craig and John McCain and congressmen Chris Cannon, Jeff Flake, and Jim Kolbe, who have called for a "market-based solution to a market-based problem." Moreover, the business community strongly supports immigration reform, and pro-immigrant groups like the National Immigration Forum have made positive statements. This will enable the administration to make the Democrats play policy, not politics--or face public criticism from pro-immigrant groups.

Still, there is room for the president to improve his proposal and at the same time increase the prospects for genuine reform.

First, he can actively engage on his call for legal immigration increases, which would largely eliminate criticism from the left that the proposal does not provide a realistic path to permanent residence for workers. Large, multiyear increases in the "Other Workers" employment category is one approach to take, which means workers with less than a bachelor's degree could receive green cards if sponsored by their employers. Another approach would be to remain open to some form of "earned legalization" concept, requiring prospective work in the country for a period of years. (Such a concept is already contained in two existing congressional measures, the McCain-Kolbe-Flake bill and the AgJobs Act.)

Second, the administration can closely monitor support for more modest legislation, such as for agricultural guest workers, and see whether taking a bite out of the apple first will make it easier to then move a larger initiative.

Third, if the path to permanent residency becomes more realistic as part of a bipartisan agreement, the White House will have to keep its eye on the centerpiece--establishing a flexible temporary worker program for employers--making sure that later agency regulations do not destroy the utility of the visas, as has happened before.

By combining enforcement with new temporary worker visas, the president's plan carries with it a tremendous opportunity to reduce illegal entry into the United States, freeing Border Patrol agents to focus on more serious concerns like terrorism. It would make controlling the border far more manageable and make known to authorities anyone seeking legal status. Now, who was saying that the president no longer had a domestic agenda?

Cesar Conda, who served as Vice President Dick Cheney's domestic policy adviser, is a board member of Empower America. Stuart Anderson, former staff director of the Senate Immigration Subcommittee, is executive director of the National Foundation for American Policy.

NEW YORK (CNN/Money) - In December, the State of Indiana cancelled a $15 million contract to upgrade its computer system. Why? Because workers from India would have been working on the government job.

The Hoosiers garnered national headlines. But Indiana isn't the only state that's backtracking from contracts that involve hiring foreign workers, a process called "off-shoring."

Politicians in at least eight states this year are slated to vote on bills that aim at banning foreign workers from public contracts. They include Connecticut, Florida, Indiana, Maryland, Michigan, New Jersey, North Carolina and Washington.

Meanwhile, there are eight bills pending in Congress that in some way restrict the use of foreign workers in the United States or limit non-citizens from participating in government contracts.

One of those bills is from presidential candidate John Kerry. The Democratic senator wants call center operators to identify themselves and their location.

The Kerry bill wouldn't ban offshoring, but it's nevertheless seen as part of the growing backlash -- and a sure sign that the issue will make its way into presidential debates, as well.

In fact, the use of foreign workers to perform government tasks "is causing both Democrats and Republicans to feel pressure from constituents," says Justin Marks, research analyst National Conference of State Legislatures. "I don't think it will go away any time soon."

The issue once garned scant notice. In Maryland, Democratic Assembly member Pauline Menes introduced a bill last year seeking to prohibit contractors or subcontractors from hiring overseas employees to perform work for the state. "It got no attention whatsoever," said Menes. "It was under the radar screen. No one seemed to know or care. I just assumed interested parties would come and speak. Well, they didn't."

But suddenly, Menes says, her phone is ringing off the hook.

"I have a folder of e-mails, letters and calls from newspeople all over the country," said Menes who will reintroduce her legislatoin in coming weeks. "The whole issue has just caught fire."

Despite hue and cry over the issue, off-shoring isn't a new phenomenon. Blue-collar workers have watched jobs move overseas for years, and many unions have opposed legislation, such as NAFTA, that they said threatened American jobs.

What's different now is that white-collar and service professionals - from IT workers to tax preparers, even radiologists - have joined the ranks. Forrester Research estimates that 3.3 million white-collar jobs, representing $136 billion in wages, will move offshore in the next 15 years.

Such predictions don't sit well when current job prospects are dim.

Michigan Rep. Steve Bieda, Democrat, who has introduced anti-offshoring legislation in his state and has launched an online anti-offshoring petition drive to support his bill.

Bieda learned offshoring was a potent issue when he was campaigning door-to-door last year. Unemployed constituents kept giving him the same story. "It was like a uniform answer: 'I worked for this company and my job was outsourced to foreign nationals," he said. "It was quite an eye-opening experience."

In Washington State, for example, Rep. Sandra Romero and Rep. Zack Hudgins, both Democrats, introduced a bill that would ban non-U.S. workers from state jobs. Romero said she decided to co-author the bill after she was contacted by state employees who live in her district.

"They're very concerned," she said. "How can state employees compete with 50-cent-an-hour employees in overseas, like India for example?"

The controversy puts states in an awkward position. Do they save taxpayer money or try to save constituents' jobs?

Consider the case of Indiana. The $15.2 million contract the state cancelled with Tata America International Corp. was $8.1 million cheaper than the next lowest bid. No Indiana-based firm even bid on the job.

Nevertheless, state lawmakers are poised to make sure similar deals aren't made in the future. Specifically, a proposed bill seeking to ban non-U.S. citizens from working on state jobs will be introduced to the Indiana Senate in January.

"It's a bipartisan issue," says Jeff Drozda, the Republican state senator who introduced the bill. "The bottom line is we're standing up for American workers or we're not."

Drozda argues that cost savings from cheaper contracts aren't necessarily what they seem.

"If we can't employ Hoosiers who are out of work, then they'll rely on the state for assistance," he says. "So while it may initially cost more to pay for a contract [employing U.S. workers], over the long term, it will have a positive benefit."

Others disagree.

"It doesn't make sense that taxpayers in Indiana, for example, should have to pay more for services so people in Florida or somewhere else can get more jobs," said Stuart Anderson, executive director at National Foundation for American Policy, a newly formed think tank devoted to trade and immigration issues.

"All you do is take more money out of taxpayers' hands that could be used for something more useful, like education or other purposes. These are political decisions that have no economic or fiscal basis."

One thing seems clear, says Marks from the National Conference of State Legislatures: "There will be more debate on this, that's for sure."