Outsourcing and H1B Visas -- Downturn in the Economy will make candidates even more skittish
It is just six more weeks before Americans choose their new president. With the shake-out on Wall Street, blue chip financial institutions crumbling, and the markets gyrating, we can expect higher decibel rhetoric about saving the jobs of American workers and of the need to crack the whip on American industries and corporations that outsource well-paying American jobs. The three presidential debates and one vice presidential debate scheduled between September 26 and October 15 are sure to include some sharp back-and-forth about who will save American jobs and how they will do so. The economy looms as the most important issue in the elections, and there is sure to be testy exchanges between the candidates about who will best protect the American worker, and who is going to improve the economy.
From an India point of view, it would seem like that the candidate who acknowledges outsourcing as an inevitability in a globalized world should win the election. This candidate would be even more attractive if he also supports the increase of H1B visas available to Indians to come work in the U.S. We could quote Prof. Jagdish Bhagwati of Columbia University as favoring both globalization and the increase in movement of workers across national borders since he is among those economists and commentators who are sanguine about the effects of globalization. But that is not necessarily the sentiment on “Main Street,” and therefore we can expect to see both Barack Obama and John McCain to waffle on the two issues.
Obama has shared his views about outsourcing and H1B visas. In a recent interview, he said: “Highly skilled immigrants have contributed significantly to our domestic technology industry. But we have a skills shortage, not a worker shortage. There are plenty of Americans who could be filling tech jobs given the proper training. I am committed to investing in communities and people who have not had an opportunity to work and participate in the Internet economy as anything other than consumers.”
Let us look at outsourcing first. Depending on who is doing the counting, it is estimated that the U.S. would have lost some 3.3 million jobs by 2015 to outsourcing. A Cornell University and University of Massachusetts-Amherst study in 2004 said the actual number of jobs lost to outsourcing in 2004 was 406,000 compared with 204,000 in 2001. The loss of white collar jobs – in accounting, engineering, technical support and other professional jobs -- as many as 200,000 jobs each year is what led to the outcry on outsourcing in the United States. What makes the loss of these jobs even more difficult is that the U.S. Department of Labor’s Trade Adjustment Assistance (TAA) program only offers compensation to workers who lose jobs that produce a “product,” as defined by TAA rules, and so, those who lose jobs in the IT sector and call centers are not provided any safety net.
While a McKinsey Global Institute estimate said that global outsourcing returns 45 to 55 percent in net savings to corporations, with added profits from the sale of American products (especially IT) to run the offshore operations, the pros or the cons of outsourcing are defined differently by those who have lost their jobs and by those who have found one. For example, a survey in 2004 of 7,300 senior executives around the globe about what they thought of outsourcing was revealing: while 93 percent of Indian executives thought that outsourcing was good for business, only 58 percent of U.S. executives thought so.
Industry figures show that more than half (53 per cent) of companies plan to increase outsourcing spending in 2008, up from 38 per cent in 2006 and 48 per cent in 2007, according to a survey of 250 IT professionals by US-based outsourcing and business process outsourcing (BPO) company Syntel. The study of BPO trends for 2007 surveyed major global companies in the insurance, banking, telecom, retail and banking industries. It found that tech support and customer care departments continue to be the most commonly outsourced divisions, standing at more than 60 per cent and 40 per cent respectively, and that India and the USA are the most popular locations, chosen by about 70 per cent and 60 per cent of respondents.
Vivek Wadhwa, of Duke University, said in a 2006 BusinessWeek article that outsourcing or off-shoring of jobs was here to stay but the problem was not just job loss but the loss of research and entrepreneurship that was more detrimental to U.S. competitiveness. According to studies done then of the 57 major research initiatives announced over a period of a few years only five were located in the U.S. Wadhwa therefore argued that globalization had rapidly led to critical research and development functions moving offshore. According to Wadhwa, the U.S. could lose its competitive edge unless Americans figured out how to keep research in the U.S.
Wadhwa, as a North Carolina based entrepreneur, was one of the first to outsource software development to Russia in 1992. Now, in his new avatar as an executive-in-residence at the Pratt School of Engineering at Duke, Wadhwa leads cutting-edge research teams that seek to find out what exactly are the reasons for off-shoring work, and the effects of such off-shoring. While the Fuqua School of Business at Duke found that work was going outside because of a lack of skilled labor in the U.S., Wadhwa’s team came to the conclusion that work was transferred for cost-saving.
The H1B issue is a corollary to the larger outsourcing issue. Foreign workers coming to the United States on temporary H1B visas to work on specific projects and then return home is not playing out as it was ideally expected to play out. For example, a number of Indian “techies,” who came to the U.S. to work on the millennium or Y2K problem, stayed back in the U.S. and applied for permanent residency. When the 1990s tech bubble burst, and when tech stocks plummeted, the IT industry realized that if they were going to survive, they would have to drastically cut the costs of running their IT programs and tech back offices. “We need more H1B visas,” argued influential industry leaders like Bill Gates of Microsoft.
To a query by this author, Wadhwa had this to say about H1B visas and where the two candidates stood on the issue: “I believe that both have policies which are about the same – both are supportive of skilled and unskilled immigration. My concern is that they are too focused on the H1B issue – which is, I believe, less important than the issue of green cards. We already have over a million skilled workers here on temporary visas such as H1B’s. These people are presently working for American companies and are stranded in ‘immigration limbo’ because there just aren’t enough green cards available (120,000 visas available per year for EB1-3 categories and 7% per country limit = 8400 green cards per year for Indians which are the largest group waiting for visas).”
Wadhwa also revealed that he has talked to Barack Obama’s people who have asked him for information and advice on these issues. According to Wadhwa, “… Obama is trying very hard to strike a balance between unemployed tech workers who oppose immigration and employers who say they desperately need more immigrants. I am sure that McCain will also do the right thing.”
So, what we may hear during the debates may not necessarily be what we will see after the elections.
Published originally by the Observer Research Foundation, New Delhi, http://184.108.40.206/usem/Issue9/04indo-us.htm