Week 4, DQ 3
Unions in developed countries often oppose imports for low-wage countries and advocate trade barriers to protect jobs from what they often characterize as "unfair" import competition. Do you think that this argument is in the best interests of (A) the unions, (B) the consumer and (C) the country as a whole? Before answering, please read the article below.
Moving U.S. White-Collar Jobs Offshore
Economists have long argued that free trade produces gains for all countries that participate in a free trading system, but as the next wave of globalization sweeps through the U.S. economy, many people are wondering if this is true, particularly those who stand to lose their jobs as a result of this wave of globalization. In the popular imagination for much of the past quarter century, free trade was associated with the movement of low-skill, blue-collar manufacturing jobs out of rich countries such as the United States and toward low-wage countries - textiles to Costa Rica, athletic shoes to the Philippines, steel to Brazil, electronic products to Malaysia, and so on. While many observers bemoaned the "hollowing out" of U.S. manufacturing, economists stated that high-skilled and high-wage, white-collar jobs associated with the knowledge-based economy would stay in the United States. Computers might be assembled in Malaysia, so the argument went, but they would continue to be designed in Silicon Valley by high-skilled U.S. engineers.
Recent developments have some people questioning this assumption. As the global economy slowed after 2000 and corporate profits slumped, many American companies responded by moving white-collar, "knowledge-based" jobs to developing nations where they could be performed for a fraction of the cost. During the long economic boom of the 1990s, Bank of America had to compete with other organizations for the scarce talents of information technology specialists, driving annual salaries to more than $100,000. But with business under pressure, between 2002 and early 2003, the bank cut nearly 5,000 jobs from its 25,000-strong, U.S.-based information technology workforce. Some of these jobs were transferred to India, where work that costs $100 an hour in the United States can be done for $20 per hour.
One beneficiary of Bank of America's downsizing is Infosys Technologies Ltd., a Bangalore, India, information technology firm where 250 engineers now develop information technology applications for the bank. Other Infosys employees are busy processing home loan applications for Greenpoint Mortgage of Novato, California. Nearby in the offices of another Indian firm, Wipro Ltd., five radiologists interpret 30 CT scans a day for Massachusetts General Hospital that are sent over the Internet. At yet another Bangalore business, engineers earn $10,000 a year designing leading-edge semiconductor chips for Texas Instruments. Nor is India the only beneficiary of these changes. Accenture, a large U.S. management consulting and information technology firm, recently moved 5,000 jobs in software development and accounting to the Philippines. Also in the Philippines, Procter & Gamble employs 650 professionals who prepare the company's global tax returns. The work used to be done in the United States but now it is done in Manila, with just final submission to local tax authorities in the United States and other countries handled locally.
Some architectural work also is being outsourced to lower-cost locations. Flour Corop.l, a California-based construction company, employs some 1,200 engineers and draftsmen in the Philippines, Poland and India to turn layouts of industrial facilities into detailed specifications. For a Saudi Arabian chemical Flour is designing, 200 young engineers based in the Philippines earning less than $3,000 a year collaborate in real time over the Internet with elite U.S. and British engineers who make up to $90,000 a year. Why does Flour doe this? According to the company, the answer is simple. Doing so reduces the prices of a project by 15 percent, giving the company a cost-based competitive advantage in the global market for construction design.
The companies that outsource such skilled jobs clearly benefit from lower costs, enhanced competitiveness in the global economy and greater profits. American consumers benefit from the lower prices made possible by global outsourcing. Developing nations such as India and the Philippines with a good supply of well-educated, skilled, and (by global standards) low-cost labor also benefit. However, some observers wonder how much the United States will suffer from the loss of highly-skilled and high-paying jobs and whether this trend will not ultimately depress the salaries of white-collar employees nationwide. And if that happens, might not this have negative implications for the entire U.S. economy.
Unions in developed countries often oppose imports for low-wage countries and advocate trade barriers to protect jobs from what they often characterize as "unfair" import competition. Do you think that this argument is in the best interests of (A) the unions, (B) the consumer and (C) the country as a whole? Before answering, please read the article below.
Moving U.S. White-Collar Jobs Offshore
Economists have long argued that free trade produces gains for all countries that participate in a free trading system, but as the next wave of globalization sweeps through the U.S. economy, many people are wondering if this is true, particularly those who stand to lose their jobs as a result of this wave of globalization. In the popular imagination for much of the past quarter century, free trade was associated with the movement of low-skill, blue-collar manufacturing jobs out of rich countries such as the United States and toward low-wage countries - textiles to Costa Rica, athletic shoes to the Philippines, steel to Brazil, electronic products to Malaysia, and so on. While many observers bemoaned the "hollowing out" of U.S. manufacturing, economists stated that high-skilled and high-wage, white-collar jobs associated with the knowledge-based economy would stay in the United States. Computers might be assembled in Malaysia, so the argument went, but they would continue to be designed in Silicon Valley by high-skilled U.S. engineers.
Recent developments have some people questioning this assumption. As the global economy slowed after 2000 and corporate profits slumped, many American companies responded by moving white-collar, "knowledge-based" jobs to developing nations where they could be performed for a fraction of the cost. During the long economic boom of the 1990s, Bank of America had to compete with other organizations for the scarce talents of information technology specialists, driving annual salaries to more than $100,000. But with business under pressure, between 2002 and early 2003, the bank cut nearly 5,000 jobs from its 25,000-strong, U.S.-based information technology workforce. Some of these jobs were transferred to India, where work that costs $100 an hour in the United States can be done for $20 per hour.
One beneficiary of Bank of America's downsizing is Infosys Technologies Ltd., a Bangalore, India, information technology firm where 250 engineers now develop information technology applications for the bank. Other Infosys employees are busy processing home loan applications for Greenpoint Mortgage of Novato, California. Nearby in the offices of another Indian firm, Wipro Ltd., five radiologists interpret 30 CT scans a day for Massachusetts General Hospital that are sent over the Internet. At yet another Bangalore business, engineers earn $10,000 a year designing leading-edge semiconductor chips for Texas Instruments. Nor is India the only beneficiary of these changes. Accenture, a large U.S. management consulting and information technology firm, recently moved 5,000 jobs in software development and accounting to the Philippines. Also in the Philippines, Procter & Gamble employs 650 professionals who prepare the company's global tax returns. The work used to be done in the United States but now it is done in Manila, with just final submission to local tax authorities in the United States and other countries handled locally.
Some architectural work also is being outsourced to lower-cost locations. Flour Corop.l, a California-based construction company, employs some 1,200 engineers and draftsmen in the Philippines, Poland and India to turn layouts of industrial facilities into detailed specifications. For a Saudi Arabian chemical Flour is designing, 200 young engineers based in the Philippines earning less than $3,000 a year collaborate in real time over the Internet with elite U.S. and British engineers who make up to $90,000 a year. Why does Flour doe this? According to the company, the answer is simple. Doing so reduces the prices of a project by 15 percent, giving the company a cost-based competitive advantage in the global market for construction design.
The companies that outsource such skilled jobs clearly benefit from lower costs, enhanced competitiveness in the global economy and greater profits. American consumers benefit from the lower prices made possible by global outsourcing. Developing nations such as India and the Philippines with a good supply of well-educated, skilled, and (by global standards) low-cost labor also benefit. However, some observers wonder how much the United States will suffer from the loss of highly-skilled and high-paying jobs and whether this trend will not ultimately depress the salaries of white-collar employees nationwide. And if that happens, might not this have negative implications for the entire U.S. economy.
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