Student Projects:Outsourcing PPF:Dorwin Notes

Bringing the Jobs Home

FUTURE

Forrester Research predictions:

• >800k WC jobs offshored by 2005
• 3.4m WC jobs offshored by 2015

UCB, Haas School of Business: 14m

PRESENT

Immigration:

• ~10% have qualified under skilled worker provisions
• ~75% arrive under the “family reunification” principle
  • “It has led to: chain migrations, older immigrant population, more burdens on the welfare state, and highly concentrated enclaves of immigrants from the same country.” – page 44
• typical immigrant is older than the typically US native
• proportion of immigrants >65 is greater than proportion of US population
  • immigrant >65 2x as likely as natives to depend on Supplemental Security Income (sends checks to the elderly poor)
• unskilled immigrant estimated to drive down wages by about 1-3%

Costs: Nat Acad of Sciences estimates

• college-educated immigrant delivers +$198k impact on fiscal picture
• <HS education costs ~$13k
• 100k college grads rather than HS dropouts would generate $21 billion over their lifetimes

H1-B Visas

• first-come, first-served
• once taken, can’t hire anyone no matter how valuable
• can push companies to offshore because they can’t hire the person in the US.
• 65k slots in 2004
• filled by February in 2004
• Kicked out of the country after receiving training and job experience
  • Becomes an ideal candidate for outsourcing (or may create own business)

Student Visas

• Similarly backwards
• Attract smart people, expand their minds, then kick them out to work in their home countries and compete against US
• They return smart, fluent, and familiar with US culture – perfectly suited to take an outsourced job

Education

• 50-60% of US high-tech graduate degrees go to Americans
• US colleges will award 61k undergraduate engr degrees in 2004.
  • China 195k
  • India 129k
  • Japan 103k

Creating jobs

• 1998 – 1/4 of Silicon Valley companies run by Indian and Chinese engineers
  • $17B sales
  • 58k jobs
• 2000 – nearly 1/3 of CEOs at Si Valley tech companies are Indian or Chinese

Recommendations on Immigration (page 44):

• eliminate family reunification
• award points for education, work experience, youth, and language proficiency
• cut back the number of entrants by 10% for each point rise in the unemployment rate during recession years to alleviate worries about job displacement
• offer an IQ test to those who cannot demonstrate educational achievement

Taxes

• US’s 40% effective tax rate is 1/3 higher than the average of Organization of Economic Cooperation and Development countries; even higher than France and Germany.
• US has a worldwide tax system that taxes profits made anywhere in the world, not just in the US as most other major countries do.
• Rep. Charles Rangel, senior Democrat on Ways and Means Committee stated, “It is no longer a question of whether the U.S. tax coed encourages the export of American jobs. We now know it does.”

Companies avoid hiring permanent employees to avoid wrongful termination lawsuits (page 115):

• They hire temporary workers (according to one report 14 to 22 percent more than the otherwise would)
• About 500k temp workers may not have full-time jobs because of rigid termination rules

A study of Indian pro-worker legal acts showed that the acts incited lower investment, fewer jobs, and less manufacturing output.

Thoughts: The US should welcome intelligent people rather than have them receive outsourced jobs

• bring the brains to contribute to the US society
• Counter: But will they take American jobs?

In his book, Todd Buchholz argues that foreign workers do not push down US wages. He sites a Federal Reserve Bank of Atlanta study from 2003 that found that visiting workers were more highly educated than typical Americans and earned nearly 15 percent more than US workers. However, he fails to address the fact that while they may not be push down average wages paid in the US, foreign workers may take the jobs or the higher paying jobs that would have otherwise gone to Americans.

Misc. Notes

Motivation

• The strong productivity and employment climate in the US in the last century has been shaped by creative policies, such as the GI bill after World War II and innovative research and development policies in the 1990s. (http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=222088) Therefore, it is plausible, and perhaps expected, that strong and imaginative policies can overcome the issues raised by globalization and overseas outsourcing.

• It is not just those that have lost their jobs to offshore outsourcing that are suffering as a result. Offshoring has contributed to stagnant wages and declining benefits for those who still have jobs. - http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=81390
• In the long term, Americans will avoid occupations that they consider likely to be sent overseas. This can be just as damaging to the economy as the original act. - http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=81390
  • There is historical precedence for this in the manufacturing sector. Job losses compounded with the belief that policymakers would allow it to continue led people to seek careers in other sectors. The result was that companies often found themselves searching for skilled manufacturing workers. (http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=81390) Thus, the jobs that were available could not be filled, leading to additional problems for the economy and more reasons to send the work offshore.
  • A similar result could occur in the IT sector. If people choose to seek other careers, innovation will slow, negatively impacting the US economy, and the pool of qualified native US workers will shrink. As a result, American IT companies may have to look overseas to find qualified workers, either through offshore workers or bringing foreign workers to the US, such as through H-1B visas. Because IT jobs often see some of the greatest productivity growth, their exodus would damage the US economy, and therefore US living standards. -http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=81390
  • As Christian E. Weller, a senior economist at the Center for American Progress, states, “When Americans have faith that enough jobs will exist in a given field, they will train for them.” - http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=81390

Economics

• The conventional wisdom of economics predicts that trade will raise the national income in the US while leaving most workers poorer. In addition to harming directly displaced workers, trade also harms workers who are subsequently competing against each other for the remaining jobs. - http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=38079
• In addition to companies, workers whose jobs are insulated from competition with displaced labor also benefit from trade. Service sector trade could significantly shrink the size of this group, thus shrinking the number of beneficiaries of trade - http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=38079

Statistics

• Jobs lost to outsourcing and projections