Commentary

Offshoring Which Jobs?

This article was published in the Washington Times, June 6, 2004.

The noisy agitation over offshore “outsourcing” died down a bit. But assertions repeated with such stridency often remain believed long after they are proven false.

The original story focused on a supposedly permanent loss of high-paid jobs among computer specialists. These jobs were said to have been lost to India, rather than to cyclical business failures.

“What are the unemployed computer engineers and information technology workers supposed to retrain for?” asked economist Paul Craig Roberts earlier this year. “I know young software engineers who are substitute teachers in middle schools.”

At the same time, the Bureau of Labor Statistics (BLS) released projections of occupations for which the quickest job growth is expected from 2002 to 2012. The following sample shows the average salary in 2002 (in parentheses) followed by the estimated rise in jobs through 2012:

Computer and information scientists ($80,510), up 29.9 percent. Computer software engineers-systems software ($75,840), up 45.5 percent. Computer systems analysts ($64,890), up 39.4 percent.

These and other computer specialists account for more than 96 percent of the nearly 3 million jobs in the BLS category called “Computer and Mathematical Science Occupations” — such as software engineers, programmers, systems analysts and database administrators. These jobs grew at an astonishing pace in the late ’90s and then declined relatively modestly in 2001 and 2002. By 2003, when sensational news stories appeared about a supposedly horrific loss of these jobs, the news was far behind the reality. Computer specialist jobs rose by 54,390 in 2003, or 2 percent. From 2002 to 2012 the BLS expects there to be more than a million additional jobs for computer specialists — an impressive 36 percent increase.

What accounts for the widespread misapprehension many of these jobs vanished last year and that the future will only be worse? One problem is the chronic inability to distinguish between cyclical recessions and secular trends.

As an extreme example, payroll employment in “computer systems design” doubled between April 1996 and April 2001, rising from 679,300 to 1,339,200, before settling back to 1,098,900 by April 2004. People focus on the bust and forget the boom, expecting to see every occupation immediately restored to its previous cyclical peak.

Another reason the press exaggerated the loss of high-tech jobs is that the extreme cycle in Silicon Valley has been wrongly generalized into a nationwide phenomenon. The unemployment rate in San Jose fell from 6.7 percent in July 1994 to 1.3 percent by December 2000. But local unemployment subsequently soared to 9.1 percent by January 2003 — a two-year shakeout as frightening as the corresponding collapse of Silicon Valley stocks. By this March, San Jose unemployment was still 6.8 percent, nearly double the 3.6 percent rate in Orange County. Yet even in 2000-2002, when computer specialist jobs were declining nationwide, Jacob Kirkegaard at the Institute for International Economics (iee.com) showed such jobs rising substantially in Virginia, Maryland and New Jersey.

The idea huge numbers of computer specialist jobs are being outsourced to India implies our own BLS experts must be horribly mistaken. This insult to the BLS is not based on any economic facts but on estimates from Forrester Research — former cheerleaders for the dot.com craze, with no expertise in economics. In an over-publicized 11-page, $249 report, “Forrester has increased its estimate of how many U.S. services jobs will go offshore in the near term. Long term, we believe that our previous projection of 3.3 million by 2015 is still accurate.”

To put such a blue sky “projection” in perspective, the Economist magazine noted the United States routinely loses about 30 million jobs every year (millions even quit) but gains even more. The gullible business press failed to notice Forrester is not talking about a net loss of jobs at all. To do so would require serious economics, of the sort used in BLS projections. Forrester doesn’t do economics, or at least nothing recognizable as economics.

If U.S. companies generate 1.3 million new computer specialist jobs by 2012 but 300,000 of those are in other countries, the net result would still be a gain of 1 million in the United States. The press also missed the fact computer specialists account for merely 14 percent of Forrester’s alleged 3.3 million “outsourced” jobs. Such a small number is perfectly consistent with BLS’ projection the United States alone will experience a net increase of a million computer specialist jobs.

Forrester’s list of service jobs supposedly threatened by offshoring includes nine BLS categories ranging from management to sports. Half the gross job losses supposedly are in the lowest-paying category of “office and administrative support,” such as call centers. Yet Mr. Kierkegaard notes management accounted for two-thirds of all jobs lost among these nine categories from 2000 to 2002. That was not because U.S. corporations were suddenly being managed from the Philippines but because of cyclical white-collar cutbacks in manufacturing. Forrester somehow imagines managerial jobs will account for 9 percent of future service jobs moving offshore, but that only makes sense for branches of U.S. companies that provide face-to-face services to business located abroad (provincial folk may be aghast to learn the first letter in IBM always stood for “international”).

Since the alleged offshoring of high-paying computer-related jobs is an obvious hoax, the outsourcing agitators have lately switched to fretting about low-paying, non-technical jobs at call centers. Sen. John Kerry, Massachusetts Democrat, even introduced a bill last November requiring call center operators to disclose what country they are in. We are assumed to prefer talking to someone in Oregon rather than Ontario (which has a lot of call centers). But the call center worker in Oregon might be a prisoner. Ten state prison systems operate for-profit call centers.

That is one way to avoid the hectic turnover that plagues this unpleasant job the politicians seem so eager to protect. In any case, consumer-to-business communications by phone will be rapidly displaced by automated voice software and broadband Internet, not to mention the virtual ban on telemarketing.

Complain about offshore call centers if you like. Economist Mike Evans finds them the service sector’s equivalent of the Yugo, facing a similar fate. But don’t confuse taking phone orders for the latest televised kitchen gadget with a high-paid, high-tech career. Americans do not send their kids to college so they can sit at a sewing machine all day, or end up in a big room full of tiny cubicles and ringing phones.

Alan Reynolds is a senior fellow with the Cato Institute and a nationally syndicated columnist.