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U.S. jobs jumping ship
Cheap overseas labor is not just for manufacturers any more -- is your job headed offshore too?
January 19, 2004: 10:24 AM EST
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - As painful as the labor market has been lately, what's even more painful is that many of the 2.5 million jobs lost in the past few years are never coming back.

That's because U.S. employers in a wide range of industries are moving more and more jobs overseas.

That may be old news for manufacturers, who have been cutting jobs and moving them offshore for decades, but it's starting to gather steam in services, 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.

In fact, some of the biggest firms in the United States have been seriously discussing outsourcing recently. On Monday, the Wall Street Journal reported that officials at IBM (IBM: Research, Estimates), the world's biggest computer maker, discussed saving about $168 million beginning in 2006 by moving thousands of programming jobs overseas, according to internal documents the paper obtained.

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An IBM spokesman wouldn't comment on the documents, according to the journal, but acknowledged IBM plans to move about 3,000 U.S. jobs overseas this year.

In July, a labor group called the Washington Alliance of Technology Workers published on its Web site a link to a Power Point presentation given by Microsoft (MSFT: Research, Estimates) Senior Vice President Brian Valentine on July 2, entitled "Thinking About India."

In the presentation, Valentine cites all the advantages to moving operations to India, including the chance to "leverage the Indian economy's lower cost structure," where a company can get "two heads for the price of one."

Valentine's presentation said several firms -- including Cisco (CSCO: Research, Estimates), General Electric (GE: Research, Estimates) and Dell Computer (DELL: Research, Estimates) -- already "have this religion" and that it was "time for Microsoft to join the party."

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Microsoft spokeswoman Stacy Drake told CNN/Money Valentine's presentation was simply an effort to encourage employees "to think globally and explore ways to improve our customer reach."

"We will continue to have the majority of our core development work in the United States," Drake said.

IBM told the Times it was simply trying to invest "around the world, including the United States, to build capability and deliver value as defined by our customers."

A developing taste for offshore labor

U.S. businesses, battered by the recent three-year bear market in stocks and an economy struggling to find its footing, have already developed a taste for super-cheap 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.

“ 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.

Microsoft, in fact, was one of the industry leaders in this regard, having opened facilities in Shanghai before other competitors.

A February 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 while 71 percent said offshore workers did better quality work.

That's news that can't stay quiet for long, and companies like Hewlett-Packard (HPQ: 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 2002 report. "The IT industry will lead the initial overseas exodus."

How will it affect the economy?

Though Gartner has said the impact of overseas outsourcing could be "significant," many economists doubt the trend is big enough yet to disrupt 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.

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But economists are starting to take note. "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 doing much to end the longest U.S. labor-market slump since World War II. More than 9.3 million people are unemployed, giving employed workers less leverage when seeking a raise. As a result, wage and salary growth has begun to slow, 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 days are gone, with unemployment rising, IT spending in a slump and software services moving offshore.

What's more, some IT professionals and immigrant groups complain that U.S. employers manipulate H-1B and L1 visas, which let college-educated people from overseas work in the United States temporarily. 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 (in March), 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."

(This article, originally published in March, has been updated.)  Top of page

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