Just before Christmas, workers at IBM got an early lump of coal in their stockings. The company announced plans to ship some 5,000 software-programming jobs to India.
Although the trend toward outsourcing or offshoring has been going on for some time, the IBM announcement got people's attention. New York Times columnist Bob Herbert complained that globalization is now forcing white-collar service workers to follow "the well-trodden path of their factory brethren to lower-wage work, or the unemployment line."
Ironically, much of the move toward offshoring is the result of ill-considered efforts to keep software jobs in the United States. Previously, companies had brought Indian programmers to this country to do their work under a program established in 1990. It provided these foreign workers with H-1B visas that allowed them to work here temporarily. But under pressure to save such jobs for the native-born, the number of visas allowed under this program was reduced from 195,000 to 65,000 in October.
So now, instead of having Indian workers come here, where they spent much of their earnings, companies are contracting with them to work in India, which is where they now spend their earnings. Rather than admit that they were wrong in the first place, the same people who demanded restrictions on foreign workers are trying to get new limits placed on outsourcing, as well. A new report from the National Foundation for American Policy (nfap.net) details this effort and the likely costs. These include higher taxes when laws are passed preventing state and local governments from utilizing cheaper foreign sources for information technology (IT) services.
Pressure is being placed on private companies, as well. Dell Computer and Lehman Brothers both recently announced that they were closing some of their Indian operations and bringing back jobs that were previously outsourced. Reuters reports that many big companies now resist admitting that they are even looking into outsourcing for fear of a political backlash. As a result, these companies may now be depriving investors of important information on their cost-cutting efforts.
The truth is that outsourcing is far less of a threat to American workers than they imagine, and there are significant benefits for the U.S. economy. For starters, there is not a one-for-one relationship between jobs lost here and those gained elsewhere from outsourcing. Boston University researcher Nitin Joglekar has found that outsourcing of IT services typically leads to domestic job losses of less than 20 percent. In other words, for every 100 jobs outsourced to India, only 20 are lost here.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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