Workforce

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Workforce Employer Responses to OffshoringMay
13th, 2005Brookings Trade Forum Offshoring
White Collar WorkWashington, DC

• Ron Hira, Ph.D., P.E.
• Assistant Professor of Public Policy
• Rochester Institute of Technology
• rhira_at_mail.rit.edu
• 585-475-7052

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Identifying the Offshoring Problem

• Low Job Creation gt Low Reemployment Rates
• Tough Adjustment process
• Despite large monetary and fiscal policy stimulus
• 1 in 3 displaced workers remain unemployed
• Change in mix of occupations
• US workers have to shift to new unknown
  occupations
• Mal-distribution of Costs Benefits
• Workers bear most of the costs
• Differs from 1980s competitiveness

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The Offshoring Problem

• Downward Pressure on US Wages for Tradable
  Occupations
• Silver lining according to some industry reps
• US IEEE members experienced decline in wages from
  2002 to 2003 for the first time since surveys
  began in 1973
• Future Generation Receiving a Signal
• CRAs survey showed a 23 drop in BS enrollments
  in 2003 in Computer Science
• MIS dept enrollments down substantially

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How Much Work Has Moved Offshore?

• No One Knows
• No one in government is collecting data
• Commerce Department pilot study of 335k complete
• GAO survey concludes current government data
  provide limited insight.
• 2million study underway by NAPA
• Most recent official data is 2003, before
  offshoring took off

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How Much Work Has Moved Offshore?

• Companies Reluctant to Reveal Plans
• Creates many practical problems what will move
  and what will stay?
• Estimates From Self-Interested Firms
• Forrester, Gartner, Deloitte,
• Some High Skill/High Wage Work Is Moving
• It Is Accelerating
• Increasing in scale scope

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No Policy Action

• Wide Media Attention, But No Policy Action
• Poor Data Enables Any Convenient Explanation
• Companies Dont Feel Any Urgency to Fix a Problem
  They Dont Experience
• Focused on protecting the status quo
• Change topic to competitiveness

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Policy Responses

• Collect Objective Data
• Jobs leaving, staying, new ones being created
• Improved Matching System Between Employer Needs
  Worker Skills
• Job openings data
• Bill Gates claims difficulty in finding skilled
  technology workers
• MSFT added 500 net new US employees between June
  03 04

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Policy Responses

• Reform H-1B L-1 Visas
• A form of labor dumping?
• Major IT offshore outsourcers business model
  based on lower cost H-1B L-1 workers
• Human Capital Tax Investment Credit
• High skill workers understand market well
• Dont link it to employers
• Workers interests may not be aligned
• Portability of Healthcare Insurance and Pensions

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Policy Responses

• Trade Adjustment Assistance for Services Workers
• Begin Experimenting on Workforce Retraining
  Programs Immediately
• New type of displaced worker
• Reform Tax Incentives
• Recent tax package passed by Congress
  re-instituted the tax deferral for foreign income
• Wage Insurance
• Worker Notification WARN

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Policy Responses

• Lifelong Learning
• Pragmatic Approach to Government Procurement
• Buy American?
• Spectrum RD vs. Purchasing Pencils
• Where does IT Services fit?
• Where are shades of gray?
• Presidential Commission Sen. Lieberman
• Take politics out of it

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Policy Responses With Less Impact

• Broadband Deployment
• Stock Option Expensing
• More Money for Physical Sciences Engineering
  RD
• Graduate More Engineers
• Are we utilizing the ones we have?
• Import More Technology Workers
• Are we capturing these workers or are they simply
  temporary

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Implications

• Implications for Workers
• Government not going to help anytime soon
• Need to manage your career(s)
• Implications for Educators
• Adjusting curriculum without knowledge of what
  jobs are going and staying
• Increasing the Hz

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Implications for Industry

• Larger geographic dispersion of talent
• Understanding multiple labor pools/markets
• Managing global development teams
• Increased Competition - Increased Opportunities
• Managing Employee Morale/Loyalty
• Backlash
• Keeping valued employees difficult during good
  labor markets