Outsourcing could create 'wage compression' for IT workers An ITAA study says outsourcing is good for the economy -- but not necessarily for IT workers
News Story by Patrick Thibodeau
MARCH 31, 2004 (COMPUTERWORLD) - WASHINGTON -- In building a case for public policy that supports the offshoring of U.S. jobs, economists rely heavily on a history that says free trade has moved the country ahead economically.
But that doesn't mean an IT worker who loses his job because of offshore outsourcing will ultimately land a better one.
"Some workers may have to take a job that pays less than their [current job]," and some IT workers will face "wage compression" as a result of overseas wage competition, said Nariman Behravesh, chief economist at Waltham, Mass.-based Global Insight Inc.
But Behravesh, whose firm was hired to study the impact of offshoring on the IT industry for the Information Technology Association of America (ITAA), said more IT jobs will be created in the U.S. than lost offshore because of productivity gains and lower prices on goods and services with cost savings that are reinvested in new products and technologies. In the 1990s, while some 3 million manufacturing jobs in the U.S. were lost, 25 million jobs were generated, he said.
Although offshoring resulted in a loss of about 104,000 IT jobs last year, productivity gains related to the move toward offshore outsourcing created 193,000 jobs in other sectors, a net gain of 90,000 jobs, according to the report, which was released yesterday.
Lawrence Klein, one of the report's authors and a 1980 Nobel laureate in economics, said that when the U.S. stopped making TV sets, "people thought that was a disaster." But those workers moved on to other things, he said. "The American way has always been to move to higher value-added," meaning better-paying work, he added.
Some argue, however, that the current offshore trend is different, so the U.S. could be trading some of its best-paying jobs for lower-paying ones.
"This trend to offshore productive jobs in the U.S. economy is making us less productive and not stimulating the economy," said Lee Price, research director at the Washington-based Economic Policy Institute.
For instance, when overseas manufacturing led to the loss of textile jobs, there was a shift to more productive, higher-paying jobs, said Price. "The opposite is happening [with] computer software offshoring," he said. IT workers who lose their jobs aren't necessarily getting better-paying work, he argued.
"We are giving up some of the most productive jobs in our economy," said Price.
Moving jobs to low-wage nations hasn't been the chief culprit for job losses in the IT sector, which has seen 372,000 jobs disappear since 2000. About 268,000 of those jobs were lost for other reasons, including the recession and productivity gains achieved as a result of technology improvements, according to the ITAA report.
Although spending for global sourcing is expected to increase from $10 billion in 2003 to $31 billion by 2008, total savings from offshore outsourcing is predicted to grow from $6.7 billion to $20.9 billion during the same period, the report said.
Offshore outsourcing may be having other effects. Enrollment of computer science and computer engineering students at universities that offer engineering programs is flat after years of continuous grow, according to Richard Heckel, a researcher at Engineering Trends, a Houghton, Mich.-based firm that analyzes engineering education trends.
In the fall of 2001 and the fall of 2000, enrollment totaled roughly 80,000 students, more than double the 35,000 students enrolled in computer science and computer engineering programs in 1996. Heckel said it's too early to call this the start of a trend, but he said engineering enrollments often rise and fall in response to economic conditions.
"It will only turn around when hiring begins again, and we haven't seen that yet, and we will be in a period of declining enrollment for maybe some time," said Heckel.
The Institute of Electrical and Electronics Engineers recently said that the unemployment rate for computer scientists and systems analysts reached an all time high of 5.2% last year.