Down and Out in White-Collar America Professionals have never had a tougher time finding a job. It's not just the economy; the rules of the game are changing.
(FORTUNE Magazine) – As far as Brian Hill's four kids are concerned, nothing has really changed. Dad still dons a suit and tie every morning and catches the 7:45 A.M. train to downtown Chicago, spends the day at a desk by a window on the 11th floor, and returns home to the leafy suburb of Winnetka in time for dinner and maybe a game of catch in the backyard. But the 40-year-old engineering exec has been out of work for three months now. His last job was with a small energy-consulting firm. Now his office is an outplacement center where he searches for work along with some 30 other professionals. Hill is relatively lucky--down the hall, 58-year-old Mike Thompson has been looking for more than a year, often going months without landing even an interview. Hill is out there making the rounds, and seems enthusiastic when potential employers tell him that his resume is great and that he "shouldn't be on the street for long." His attitude is still good, and as Hill will tell you, that's more important than fancy degrees or work experience. "Getting up every morning and going downtown helps me keep focused," says Hill after another day of working the phones and searching the Net. "My kids think I'm still working. My oldest knows I'm looking for a job, but not that I'm out of work."
Finding a job has always been hard, of course, even for someone like Hill, who holds a bachelor's in engineering as well as an MBA. But whether you're a newly minted college grad or a seasoned exec with FORTUNE 500 experience, the job market now is the harshest it's been in decades--bleaker than the "white-collar recession" of the early 1990s and by many counts even more severe than the downturn of the early 1980s. "I've been in this business for over 20 years, and it's the worst I've ever seen," says David Hoffmann, CEO of DHR International, a Chicago-based recruiting firm. "Nothing even comes close to this."
At first glance, the pain seems hard to understand. After all, at 6.1%, the unemployment rate is still well below the 7.4% it averaged in the 1980s and early '90s. The stock market has gained 13% since January, while corporate profits are up 15% from last year's levels. And for all the talk of double dips and deflation, the economy is growing--by 1.9% in the first quarter, according to just-released government numbers.
So what's keeping people like Hill and Thompson from finding jobs? The rudderless recovery and economic uncertainty deserve much of the blame. But it's bigger than that. Increasingly, supereducated and highly paid workers are finding themselves traveling the same road their blue-collar peers took in the late '80s. Then, hardhats in places like Flint, Mich., and Pittsburgh were suffering from the triple threat of computerization, tech-led productivity gains, and the relocation of their jobs to offshore sites. Machines--or low-wage foreigners--could just as easily do their work.
The white-collar crowd was concerned, but they knew that those three forces would also help get the American economy humming. And they did. Now that trust has come back to haunt them. Technology has allowed companies to handle rising sales without adding manpower. Gains in productivity mean one white-collar worker can do the work that would have taken two or three of his peers to do ten years ago. All that has led to slower wage growth. Back in 2000 wages for professional and technical workers were growing by nearly 5% annually--today they're rising by less than 2% a year.
The scariest blue-collar parallel, however, is only just beginning to be felt in the white-collar world: overseas competition. Like automakers that moved production from Michigan to Mexico or textile firms that abandoned the Southeast for the Far East, service firms are now shifting jobs to cheaper locales like India and the Philippines. It's not just call centers anymore. Indian radiologists now analyze CT scans and chest X-rays for American patients in an office park in Bangalore, not far from where Ernst & Young has 200 accountants processing U.S. tax returns. E&Y's tax prep center in India is only 18 months old, but the company already has plans to double its size. Corporate America is quickly learning that a cubicle can be replicated overseas as easily as a shop floor can.
None of this bodes well for the jobless white-collar workers who are hoping that a more robust recovery will bring the next paycheck. The numbers of those who are searching are staggering. Of the nine million Americans out of a job, 17.4% are managers or specialty workers, according to a study of Labor Department data by Hofstra University economist Irwin Kellner. During the 1990-91 recession only 10% of that group was unemployed. Even after the much deeper recession of the early 1980s, just under 8% of unemployed workers were white collar. Sure, there are more white-collar workers today, but joblessness among them has risen faster than their share of the overall job market.
"White-collar workers and college graduates are in a state of shock," says Kellner. "It appears these job losses are permanent. They're not necessarily coming back when the economy does."
At the bleeding edge of the blue-collarization trend are techies--not just the twentysomethings who jumped on dot-com jobs either, but people like Jim Klinck, a 52-year-old IT exec out of West Windsor, N.J. Klinck joined MetLife straight out of college, and by the late 1990s was responsible for software application development throughout the company, reporting directly to the CIO. Once upon a time, working for an insurance company was about as secure a white-collar job as you could find. Klinck never expected to go anywhere else. But in the fall of 2001, after spending 27 years at the insurance giant, Klinck was laid off along with hundreds of other MetLifers.
Klinck earned more than $200,000 a year at MetLife, managed more than 1,000 people, and knows languages and programs ranging from Fortran to PeopleSoft, but cold-calling for jobs has been--well, cold. "I thought it would take a while, but I didn't think it would take this long," says Klinck, who looks for work from his home. So far he's been consulting to keep busy and landing about two interviews a month. "If I've sent people my stuff and haven't heard back in a week and a half, I call them," he says. "Honestly, it's not something I like to do, but you learn how to do it. It's just about kick-starting yourself."
As someone who has been out of work for more than six months, Klinck has earned the title of "long-term unemployed" according to the Labor Department classification. Traditionally a college degree or senior-executive experience protected people from the threat of years of unemployment. Not in this economy, says Jeffrey Wenger, a labor economist with the liberal Economic Policy Institute (EPI). An analysis of Labor Department data by EPI found that in 2002, 18.1% of the long-term unemployed had college degrees, up from 14% in 2000. Similarly, 20.1% were from the executive, professional, and managerial category, compared with 14.2% in 2000. "Not only are college-educated workers becoming unemployed more often, but they're staying unemployed longer," says Wenger. "I think they're surprised at how the economy can mistreat you."
Business school students aren't just studying in Starbucks; they're worried they'll end up working there. At the University of Chicago Graduate School of Business, 96% of grads in 2000 had an offer when they collected their sheepskin. Only 72% of last year's grads were as lucky--and this year isn't shaping up any better. Even at Harvard the percentage of grads without job offers has gone from 3% in 2000 to 13% now. For schools further down the food chain, almost half the class will graduate without even one offer.
While the situation for budding execs or out-of-work ones like Jim Klinck is tough, keep in mind that the overall unemployment rate for white-collar workers is just 3%, about half the overall unemployment rate of 6.1%. So why does it seem so bad? Because three years ago only 1.5% of white-collar workers were jobless. "It's relative," says Wenger. "It's about the direction of the numbers and what you're accustomed to. If you're poor, 3% unemployment is like manna from heaven. But if you're a professional worker who never expected to be out of work, it's rough."
The economy will recover from its current doldrums. No one doubts that. But trends playing out half a world away--in places like the steamy southern Indian city of Bangalore--should temper any job seeker's excitement. That city, which boasts high-speed fiber-optic cables under its chaotic and crowded streets, is the center of India's high-tech industry. Along with New Delhi, India's capital, Bangalore is a magnet for American companies looking to move jobs to places where skilled labor costs a fraction of what it does in the U.S.
Plunging bandwidth prices make talking and sharing data over the Internet easier and cheaper for companies. At first the work was mostly limited to call centers--phone American Express with a query about a corporate card bill, and there's a good chance you'll be talking to Delhi. But in the past two or three years companies have turned to India and the Philippines for much more sophisticated tasks: financial analysis, software design, tax preparation, even the creation of PowerPoint presentations. Sometimes this work is outsourced, with a local company providing the manpower. In the case of giants like Ernst & Young, a more accurate term for this trend is "offshoring"--the workers are E&Y employees; they're just located overseas.
This phenomenon is still in its infancy, but it's already sending ripples through the service economy. E&Y's Bangalore tax-preparation center has been operating full-time for only 18 months. Yet already it's paying off. "There's no question [the office] has allowed us to lower prices in the U.S. and capture market share," says Alan Kline, E&Y's Americas director of tax operations. "We're not H&R Block. Each return we do is a custom job. But this has allowed us to lower prices and be much more competitive. We're getting new jobs because of India." E&Y's Bangalore office is the mirror image of a similar center in Indianapolis, says Kline, and the firm uses the same metrics to evaluate the performance of the 200 chartered accountants (the local equivalent of a CPA) in Bangalore as it does with the 200 CPAs in Indiana. "The work product is almost identical," raves Kline. "You cannot underestimate the quality of the people. It's amazing how good they are."
And how cheap. Starting pay for an American accountant, says Kline, typically ranges from $40,000 to $50,000. In Bangalore the accountants are paid less than half that. Those kinds of savings make outsourcing and offshoring irresistible for FORTUNE 500 giants desperate to cut costs. Last year NeoIT, which advises companies on moving IT and back-office work overseas, helped U.S. companies transfer nearly 1,000 jobs offshore, primarily to India and the Philippines. By April 2003 it had already shifted an equal amount. "Companies are saying, 'I've had enough of pilot programs,'" says Atul Vashistha, NeoIT's CEO. "They want significant savings and productivity gains."
In the next 15 years Forrester Research predicts that 3.3 million service jobs will move to countries like India, Russia, China, and the Philippines, with the IT sector leading the way. The financial services industry is expected to be another major job exporter, according to consulting firm A.T. Kearney, shifting more than 500,000 jobs, or 8% of its U.S. workforce, abroad by 2008. "The debate at major financial services companies today is no longer whether to relocate some business functions but rather which ones and where," concludes Kearney managing director Andrea Bierce. "Any function that does not require face-to-face contact is now perceived as a candidate for offshore relocation." That may be a slight exaggeration, but there's no doubt that U.S. financial services firms are making explosive moves overseas. GE Capital's International Services unit, which provides everything from risk calculation to IT services and actuarial analysis for GE worldwide, has grown from 634 employees to 17,000 during the past five years. More than half those workers are in India, and they're not being used for mindless data entry--in India every employee has a college degree, and more than 1,200 have MBAs.
Even health care--the one industry in America that has proved it can raise prices almost at will--is picking up on the benefits of globalization. In the U.S., radiologists are among the best-paid medical specialists, often earning more than $300,000 a year to evaluate MRIs, CT scans, and X-rays. In Bangalore, though, T.K. Kurien's team of 15 U.S.-trained and -licensed radiologists interpret chest X-rays and CT scans from U.S. hospitals for less than half what it would cost here. Kurien and his doctors work for Wipro, an Indian tech giant that does more conventional outsourcing for clients like Delta and Putnam Investments. "We know the level of urgency as the image comes in over the Internet from the U.S.," says Kurien. His team can decide which scans need attention stat and which can wait. Like much of the more sophisticated offshore work, this is all brand-new--Kurien's team set up shop only last November. But he's optimistic that more X-rays will find their way to Bangalore as U.S. insurance firms fight rising health-care costs.
Not surprisingly, the disappearance of well-paid white-collar jobs has caused a stir among American pundits and politicians who barely made a peep when blue-collar union positions were evaporating in the Rustbelt. Lawmakers in New Jersey, Maryland, and three other states have proposed legislation forbidding companies from shifting work on government contracts abroad. In Silicon Valley the rise of Bangalore and India's high-tech economy is often blamed for the shortage of good IT jobs. "It's the flip side of globalization," says NeoIT's Vashistha. "What happened to manufacturing over the last 25 years is now happening in services. You can't really fight it."
Indeed, the truth is that trying to stop those jobs from going elsewhere may be as dubious an exercise as using tariffs to protect the steel industry. That's not to say the dislocations and adjustments caused by offshoring and the other factors racking white-collar workers won't be painful or long lasting. But the answer lies in adaptation rather than stagnation. Ravi Aron, who worked for Citigroup in his native India and is now a professor at Wharton, says the government should encourage both workers and companies to invest in retraining and the acquisition of specialized skills. "Workers should ask, 'Where in the value chain can I position myself?'" says Aron.
There is an upside to offshoring. As companies increase profits and become more competitive, they are likely to reinvest in other areas--and that could mean new jobs back in the States. E&Y's Kline insists that his firm has actually hired more higher-paid execs in the U.S. to supervise the new accountants in India. "As we grow the business, we need more midlevel people," he says.
Of course, that's cold comfort to jobless white-collar folks like Brian Hill. He already has two degrees, and he's staring hard at payments for the mortgage and medical insurance, not to mention the cost of raising four kids. The best hope for Hill and millions like him right now is a pickup in the economy, especially corporate investment. The government's latest job report on June 6 provided little encouragement--unemployment hit a nine-year high. Yet Hill is cautiously hoping that he'll land a new gig soon. His type of work, helping independent energy firms and utilities compete, requires plenty of face time--and it's not about to be shipped off to Bangalore. In the past week he's had three interviews. "Things are starting to happen," he says. One morning soon, he may even be able to go to an actual job, instead of to an outplacement center.