Student Projects:IT Outsourcing
Contents
IT Outsourcing Policy: Alternatives for Mitigating the Impact of OffShoring
Abstract
The debate over outsourcing--companies sending work offshore--is muddled with rhetoric and panic. Focusing on the IT industry, we first analyze the economic and technological rational for outsourcing. The media and politicians blame outsourcing for the jobless recovery; we marshall labor and trade statistics to dispel that myth. Nonetheless, outsourcing displaces IT workers. To mitigate this effect, we recommend policies such as extended unemployment insurance, industry and corporate retraining programs with emphasis on skills that are less likely be outsourced, and requiring companies to provide advanced notice. A tax on outsourcing to fund displaced worker assistance programs is also considered. In short, outsourcing does move IT jobs to cheaper labor markets overseas, but economic data show that the phenomenon will not decimate the IT industry in the U.S. On the contrary, new IT jobs will be creates as more mundane jobs move offshore.
Outline
Background: Technology makes outsourcing easy
1. Technology standards makes it easy for foreign engineers to produce software
2. Transporting data over the Internet is also free, making it economically feasible for IT work to be done offshore by foreign skilled workers for a lower price
- Outsourcing is not the problem, but it still gets blamed for job loss (a short-sighted diagnosis of the problem)
Why Outsourcing makes sense for companies and global economic growth
1. Decrease cost in competitive global market
2. Theory of comparative advantage
- In reality, we should look at productivity gains and other factors
- Outsourcing is good and the media/the public are overreacting
- Basic economics (theory of comparative advantage)
Job loss are due to the (1) business cycle; (2) increase in productivity; (3) outsourcing
Government Policy
1. promote investment and job creation in new industries and markets
2. education; encourage education for production of ideas we will train you with higher skills case your job disappears
3. insurance for unemployment (government can provide welfare safety nets); we will give you insurance in case your job disappears
4. keeping ideas/innovation in US, stop sending well educated skilled workers back home TechNet
Result: economies of developing nations will naturally strengthen by doing business with US (import US equipment and consumer goods)
Main points
1. real problem is not outsourcing
- blamed for job loss
- other factors to look at: productivity and slow economic growth
2. displaced workers need help
3. what types of IT jobs are most likely to stay in US
Our policy recommendations: government should
- Collect more specific, accurate data about outsourcing
- Create and implement social welfare policies like unemployment insurance and career assistance for displaced workers
- Target new industry and export markets
- Decrease panic about outsourcing
- Negotiate and enforce rights for workers in developing countries
Criteria
- Effect on IT industry
- Effect on number of IT jobs
- Effect on imports and exports of IT products
- Political feasibility
- Fiscal feasibility
Policy Alternatives
Provide the public with facts about outsourcing
1. Fund independent research to understand which jobs are going offshore and at what magnitude.
"Requires the Secretary of Labor shall implement a system to collect data on adversely affected service workers that includes the number of workers by State, industry, and cause of dislocation of each worker.
The Secretary of Commerce shall conduct a study and report to the Congress on ways to improve the timeliness and coverage of data on trade in services, including methods to identify increased imports due to the relocation of United States firms to foreign countries, and increased imports due to United States firms obtaining services from firms in foreign countries."
The Domestic Workforce Protection Act
Provide a Safety Net for displaced workers
1. Expand the Trade Adjustment Assistance Reform Act of 2002 programs: wage insurance, wage supplements during career transitions, health insurance, retirement plans, childcare, relocation assistance, and retraining on the job. Federal and state governments must do a better job of publicizing the existence of the TAA program.
2. Government should give grants to fund regional development programs in industrial clusters where companies and jobs are moving offshore.
3. "Require companies that offshore 15 or more jobs to provide at least three months notice of their intentions to offshore. It also requires notification to the Departments of Labor, which compile similar notices and information in order to transmit a report to Congress and the President on the offshoring of jobs." Jobs for America Act of 2004
Encourage Lifelong Learning
1. Offer American tech companies tax breaks for continuing education programs for employees
2. Encourage trade assocations to develop curricula for transiting workers into more promising career paths.
3. Increase limits on lifelong learning tax credits
Sub Topics
Mitigating negative impact
3. Policies for helping displaced workers -- Hong Qu, Gianna Segretti
Crafting Long term public policy goals
4. Educational and research policies to keep future generations of Americans competitive -- Ian Carpe, Sandy Tesch
Member List
- Ian Carpe, UC Berkeley, iancarpe@berkeley.edu [User:iancarpe]
- Hong Qu, UC Berkeley, hqu@sims.berkeley.edu [User:Hong]
- Gianna Segretti, UCB, giannasegretti@yahoo.com
- Sandy Tesch, UCB, User:sandy01, sandy01@berkeley.edu
Project Goals
References
"Offshoring" Service Jobs: Bane or Boon and What to Do?
How Outsourcing Creates Jobs for Americans
Outsourcing, Offshoring, and Globalization
Offshore Outsourcing Resource Center
[http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2004/03/07/MNGRT5G2C11.DTL Offshoring's giant target: the Bay Area Silicon Valley could face export of 1 in 6 jobs -- worst in nation]
Offshore Outsourcing: American Competitiveness and the 50+ Worker
[http://www.economist.com/agenda/displayStory.cfm?story_id=2454530
The great hollowing-out myth]
Hong's Outsourcing bookmarks on delicious
Outline
Jobs in information technology are being outsourced. The U.S. government can help displaced workers by crafting policy that will: 1)decreasing outsourcing, 2)creating new higher-end jobs, and 3)closing the international wage gap.
- Decrease outsourcing
- Create new higher end jobs
- Close wage gap
- Executive summary
- Problem background (Sandy and Ian): why do we need to help displaced workers?
- Alternatives (for helping displaced workers)
o Decrease outsourcing (Gianna)
o Regulatory
- Conditional government contracts
o Incentive-based
- Subsidies/tax breaks for businesses that stay here/create re-training programs
- Incentives to bring overseas jobs back to US
o Create new higher-end jobs (Hong)
o Closing wage gap (Sandy and Ian)
- Criteria
o IT industry is strengthened
- Employment rate goes up
- Quality of standard of living here and US goes up
- Job security goes up
- Rise in per capita income
- Average salary of number of IT jobs increases
- Number of new, non-exported IT jobs increases
- Size of IT industry as a whole is growing
- New IT ventures/companies increases
o Financial feasibility o Political feasibility
Random Notes
- Keep jobs from moving overseas
- Increase quality of the jobs/education here in US
o Continuing education tax break o Ex: IBM's $25 million
- Increase wages for IT jobs in developing countries (labor rights)
o Offer them money, military protection o Set international minimum wage (increase wages a little bit [small effect in US, but large effect in developing nation, therefore prompting other companies to increase wage as well])
- Keep foreign workers here after they finish school
o Sometimes their countries pay for them, sometimes the American university pays for them o American workers may be upset that foreign workers are taking their jobs o US offers a high quality of life vs. their companies have paid for them to come
- Questions about regulating businesses - how can we regulate things that are not physical?
- Look at what the EU is doing
- What jobs will always stay overseas (trends in what jobs are being lost to outsourcing every year)
- Technology sector that would be easier to keep in US: innovation, R&D, entertainment/video games (?) - but there is a lot of R&D there, too
o US education system encourages independent thinking o But what about foreign students learning here?
