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U.S. jobs jumping ship
Cheap offshore labor is not just for manufacturing any more -- is your job heading overseas, too?
March 13, 2003: 3:50 PM EST
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - As painful as February's big job cuts were, what's even more painful is that many of those jobs are never coming back, as U.S. employers in a wide range of industries move more and more jobs overseas.

That's old news for manufacturers, who have been cutting jobs and moving them offshore for decades, but it's a trend that's also starting to gather steam in a number of service industries, especially information technology, formerly one of America's best-paying industries.

"By 2004, more than 80 percent of U.S. executive boardrooms will have discussed offshore sourcing, and more than 40 percent of U.S. enterprises will have completed some type of pilot or will be sourcing IT (information technology) services," Gartner Inc. (IT: Research, Estimates), a technology consulting firm, said in a study late last year.

U.S. businesses, battered by a three-year bear market in stocks and an economy that can't seem to find its footing, are developing a taste for super-cheap overseas labor in developing countries, where workers are increasingly better-trained, especially if they've spent significant time working in the United States on temporary visas.

A recent survey of 145 U.S. companies by consultant Forrester Research found that 88 percent of the firms that look overseas for services claimed to get better value for their money offshore than from U.S. providers, while 71 percent said offshore workers did better quality work.

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That's news that can't stay quiet for long, and companies like Microsoft (MSFT: Research, Estimates), Intel (INTC: Research, Estimates) and CNN/Money parent company AOL Time Warner (AOL: Research, Estimates) already are responding.

"Over the next 15 years, 3.3 million U.S. service industry jobs and $136 billion in wages will move offshore to countries like India, Russia, China and the Philippines," Forrester analyst John McCarthy predicted in a report last year. "The IT industry will lead the initial overseas exodus."

What spending slump?

While tech spending by U.S. businesses has been underwater since the tech bubble of the late 1990s popped in 2000, countries such as India, China, Ireland, Israel and the Philippines all are experiencing a boom in exporting IT services.

"Analysts who predicted India's software exports to the United States would drop on account of shrinking IT spending in that country were surprised to see exports actually rise to this region," the National Association of Software and Services Company, an IT industry association in India, said recently.

“ I bought my first house in 1999 -- that was a very big deal for me -- and now I have to sell it, only because they won't hire Americans. It's devastating. ”
Donna Bradley,
Unemployed IT specialist in Mesa, Ariz.

NASSCOM predicts that the Indian "business process outsourcing" industry -- a narrow category that includes customer-support call centers -- will export $21 billion to $24 billion worth of services by 2008 and employ more than 1.1 million Indian workers.

Those workers -- in one narrow segment of the outsourcing industry in just one country -- would replace about 1 million U.S. workers, according to consulting firm Gartner.

"This is not counting the offshore services provided by other countries such as the Philippines, Ireland and Jamaica, or the other IT services that are likely to [use] offshore resources," a Gartner study said. "The scale of job migration potential is quite significant."

To be sure, these countries all compete with each other for business -- in its 2002 annual report, Indian outsourcing firm Wipro Ltd. (WIT: Research, Estimates) warned "wage increases in India may prevent us from sustaining [our] competitive advantage and may" hurt profits -- but they all provide cheaper labor than the United States.

The Contact Center Association of the Philippines, an industry group for suppliers of customer support call centers, boasts that Filipino workers' salaries are just a quarter to a fifth of those in the United States, with programmers earning $250 to $700 a month, compared with $1,600 to $3,600 in the U.S., and project managers making $700 to $1,150 a month, compared with $3,600 to $7,100.

Irresistibly lured by such rock-bottom costs, a wide array of companies -- including Microsoft, Intel, Citigroup (C: Research, Estimates), Hewlett-Packard (HPQ: Research, Estimates), Procter & Gamble (PG: Research, Estimates), AT&T (T: Research, Estimates) and AIG (AIG: Research, Estimates) -- all have turned to Filipino companies for call center and other IT services.

In one call center in Pampanga province, 850 Filipinos answer customer service calls for Internet service provider America Online, a member of the AOL Time Warner family.

Broader impact still distant

Most economists believe the offshore outsourcing trend is not substantial enough yet to have a big impact on the broader U.S. economy -- imports of business services account for less than 1/20 of 1 percent of gross domestic product, the broadest measure of the nation's economy.

But economists are starting to take note of the trend.

"If it's not a big story yet, it could become one," said Josh Bivens, a labor economist at the Economic Policy Institute, a Washington think tank that focuses on labor issues.

At the least, it's not making the weak job market in the United States any better. Employers cut 321,000 jobs in February, bringing employment outside the farm sector down to 109.2 million, the Labor Department reported last week, ringing alarm bells about the health of the U.S. economy.

Nearly 8.5 million people are unemployed, which gives workers who do have jobs less leverage when asking for a raise; as a result, wage and salary growth has begun to slow, and that in turn is threatening consumer spending, which fuels more than two-thirds of the economy.

IT workers feel the pain

In few areas has the competition for jobs had a bigger impact on wage growth than in the IT industry. In the 1990s, it seemed all one had to do to buy a ticket to Easy Street was learn a programming language or how to manage corporate computer networks.

Those good old days are long gone, with unemployment rising, IT spending in a deep slump and software services moving offshore.

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What's more, some IT professionals and immigrant groups complain that U.S. employers manipulate the H-1B visa system, which allows college-educated people from overseas to work in the United States for up to six years. They're supposed to be paid a "prevailing wage," but many employers pay them as little as possible. With such cheap labor available right here in the United States, there's even less reason for IT wages to rise.

"I talked about salary with a company last week, and they were paying between $30 and $35 an hour," said Donna Bradley, an IT specialist in Mesa, Ariz., who's been out of work since August 2002. "In August I was making $45 an hour."

It didn't matter; Bradley, 49, didn't get the job and is selling her house and moving to Maryland to live with her daughter while she continues to look for work.

"The irony is that I was a single mother, and I raised five kids by myself and put myself through school," Bradley said. "I bought my first house in 1999 -- that was a very big deal for me -- and now I have to sell it, only because they won't hire Americans. It's devastating."

Still, Bradley's experience is not yet the norm in this country. Many firms have found that there are difficulties -- including the risk of inspiring anger among their U.S. workers -- in moving white-collar jobs offshore. For that reason, most U.S. companies are still just dipping their toes in the water.

"We saw this in manufacturing -- firms started off slow and stayed close to home," said labor economist Heather Boushey of the Center for Economic and Policy Research, another Washington think tank. "But then it hit a 'moment,' and many more firms started doing it because it became impossible to compete without workers overseas.

"We're not there yet in the non-manufacturing sector, by any stretch of the imagination," she said.  Top of page

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