03-13-2004, 04:46 AM
Outsourcing: what to do?As more U.S. companies move jobs overseas, debate rages on answers to a divisive issue.March 1, 2004: 5:42 PM EST By Mark Gongloff, CNN/Money staff writerNEW YORK (CNN/Money) -
If you haven't turned on a TV or read a magazine or a newspaper recently, you probably haven't heard that your job is moving overseas. Odds are, it's not, of course. But a growing number of jobs are, and many of them are higher-skilled jobs that once seemed immune to outsourcing.U.S. companies moving jobs offshore has helped keep the job market in its most painful slump since World War II, creating tremendous worry for millions of workers and triggering a vigorous national debate about how best to respond.Here are some of the more common proposals, along with some of the arguments for and against:Scrap WTO, trade pactsSome people argue the United States should simply pull out of the World Trade Organization, NAFTA and other world trade pacts, a view proposed by three candidates for president: Rep. Dennis Kucinich, D-Oh., Rev. Al Sharpton and Ralph Nader."The WTO, as long as we belong to it, will not let us protect the jobs," Kucinich said in a debate last week. "This is the reason why we have outsourcing going on right now. We can't tax it. We can't put tariffs on it."Kucinich says he would withdraw from most existing trade agreements and negotiate new agreements on a case-by-case basis, requiring trading partners to meet certain environmental, labor and human rights standards.Critics say similar protectionist steps have led to slower economic growth and would likely do so again."We need reforms that will enable us to thrive in a dynamic, open, world market and not seek to shut our borders and go down a path proven to lead to reduced national wealth and overall lower standards of living," said Aaron Lukas, a trade policy analyst at the Cato Institute, a libertarian think tank.Of course, none of the proponents of these measures are likely to become president this year, and such proposals would be unlikely to pass Congress.Other Democrats, including Sen. John Kerry, the leader in the race to face President Bush this fall, and his closest rival, Sen. John Edwards, suggest less drastic measures, including greater enforcement of existing trade pacts.Protect government contractsEspecially loathsome to opponents of outsourcing is the idea of federal and state governments sending jobs overseas, right alongside "Benedict Arnold" companies, as Kerry calls them.In that vein, Congress in January passed a law requiring that government functions shifted to contractors had to go to contractors in the United States. In Indiana and New Jersey this year, two state government contracts to move call-center work offshore were canceled under political pressure. And dozens of anti-outsourcing bills await action in federal and state legislatures.Critics of the bills say they would save just a handful of jobs and cost millions of dollars to taxpayers, potentially doing more harm than good."There's a hidden cost that can play out," said Stuart Anderson, executive director of the National Foundation for American Policy (NFAP), a pro-trade group. These measures can discourage foreign investment in the states that enact them, leading to job losses that "far outweigh the number of jobs saved at some call center in New Jersey or Indiana."Slow visa entriesTemporary work visas for high-skilled foreign workers also irritate outsourcing opponents. Not only do they take jobs from U.S. workers in the short run, but visa holders sometimes return home and make future offshore outsourcing even easier for U.S. companies."I find it rather ironic that people who claim to wear the free market mantle would turn around and support government meddling in the marketplace of labor -- right now we have the government encouraging people to dump their cheap labor here," said Scott Kirwin, founder of the Information Technology Professionals Association of America (ITPAA), a worker's rights group.Supporters say many visa holders end up staying in the United States, helping U.S. companies develop new technologies that create jobs and becoming consumers in the broader domestic economy."I find it ironic that some of the same folks against jobs going overseas also don't want people to come here who would be benefiting and creating more jobs in the United States," said the NFAP's Anderson.Caller IDSen. Kerry and other outsourcing critics also want to require workers in overseas call centers to reveal their location in service calls.Not only would such a measure carry on the spirit of the existing requirement to mark foreign-made goods with their country of origin, it might also allow customers to decide whether they want to discuss personal information with a call-center worker in, say, Vietnam, where privacy laws may not be as stringent as they are in the United States.Opponents say this will hurt how call-center workers do their jobs, meaning the U.S. companies using those centers will have to pay more for their services.Compromise alternatives could be to pass measures that would ensure the privacy and security of customers' information.Helping displaced workersIt's all well and good to discuss the long-term economic benefits of trade, as most economists do. But those arguments ring hollow with the millions of workers who will be unemployed or have lower standards of living while they wait for those benefits to come to fruition."People lose in trade, and because our social safety nets here are so thin to begin with, the resistance is greater than it is in some of the other industrial countries," Lael Brainard, a senior fellow at the Brookings Institution, a left-leaning Washington think tank, said in a January speech on outsourcing.Some possible solutions include increased unemployment insurance, wage insurance, and a system that would let workers carry health benefits from job to job.Such measures would require government spending, and so are viewed with some skepticism by conservatives -- but they're likely to be politically popular, and conservatives don't dismiss them out of hand."We have to acknowledge that individuals can face transition costs when trade barriers come down," said Lukas of the Cato Institute.EducationLukas and like-minded conservatives, including President Bush and Fed Chairman Alan Greenspan, believe an even better response is to improve grade-school education and spend government money retraining workers at community colleges."The capacity of workers, after being displaced, to find a new job that will eventually provide nearly comparable pay most often depends on the general knowledge of the worker and the ability of that individual to learn new skills," Greenspan told Congress last month.While almost everyone agrees that U.S. grade-school education could be better, some critics doubt education is the only answer to outsourcing, noting many unemployed workers already have advanced degrees.In January, for example, there were more unemployed workers 25 or older with college degrees than there were unemployed workers without high school diplomas, according to the latest Labor Department data."No one criticizes the higher education system here -- that's why we still draw as many foreign students as we do," said Kirwin of the ITPAA. "Most of the jobs we're sending abroad currently require a college education just to get in the door.
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Tech outsourcing: Here to stayDespite some alarmist talk about moving jobs overseas, outsourcing will remain a hot tech trend.January 19, 2004: 9:57 AM EST By Paul R. La Monica, CNN/Money Senior WriterThis story was originally published in October, 2003.NEW YORK (CNN/Money) -- Executives at some of the nation's biggest technology companies have been talking tough when it comes to the touchy topic of losing jobs to companies in other countries.In a speech in New York this month, Intel CEO Craig Barrett said India, China and Russia were emerging as big threats, due to their strong education systems.Barrett stressed that the United States needs to improve its own system, adding that the government should spend more on research and development to protect the nation's lead in technology -- which has long been a source of growth for the world's largest economy.Intel (INTC: Research, Estimates) Chairman Andy Grove made similar comments in a speech last week.And earlier this year, Cisco Systems (CSCO: Research, Estimates) CEO John Chambers said if U.S. tech companies were forced to expense stock options for employees, that could curtail the use of options at home and send skilled workers overseas in search of potentially lucrative options packages.But U.S. tech companies may be overstating the threat from foreign companies. Many of these same companies are choosing to outsource to take advantage of lower labor costs in other countries.Laurence Gordon, vice president of marketing at Cognizant Technology Solutions (CTSH: Research, Estimates), a software and consulting firm that specializes in offshore outsourcing, said that labor costs for workers in India are often a tenth of what equivalently skilled workers would make in the United States. Most of Cognizant's employees are based in India.And few see any slowdown in overseas outsourcing, especially since technology is making it easier to have workers in remote locations working together."There's no difference sending work from San Francisco to San Jose over the Internet than sending it from Bangalore to San Jose over the Internet," said John Challenger, CEO of outplacement firm Challenger, Gray & Christmas. "So there is going to be declining pay for technology workers in a global marketplace."According to tech research firm Gartner, 10 percent of info tech jobs with U.S.-based tech companies will be based in countries in emerging markets by the end of 2004.Trend is not going awayThe trend isn't new and may be overstated.For example, a spokeswoman for Cisco points out that more than 70 percent of its employees are based in the United States. For its part, Intel has moved about 500 jobs -- less than 1 percent of its domestic work force -- to other countries over the last two years, a spokeswoman said.Michael Mahoney, managing director of EGM Capital, a hedge fund focusing on technology, said that tech jobs were being shipped overseas during the bull market of the late 1990s but since the overall unemployment rate was much lower, nobody cared.He thinks that once the labor market picks up, assuming it does, worries about a tech "job crisis" will fade. He notes it's unlikely that Washington will move to limit or ban outsourcing, despite calls from some federal and state lawmakers to do so."Anybody who thinks the federal government is going to do anything to reverse the outsourcing trend is smoking dope," said Mahoney.Jeroen Tas, president and vice chairman of Mphasis, another IT outsourcing firm in India, said his company is sensitive to the issue but adds people need to realize that U.S. firms are choosing to outsource in order to cut costs and retain an edge."This is not a zero-sum game," said Tas. "Ultimately, it makes U.S. companies more competitive."
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Protectionism: all talk, no actionJob-saving protectionist proposals are mostly hot air -- and that's a good thing, economists say.October 13, 2003: 5:09 PM EDT By Mark Gongloff, CNN/Money Staff WriterNEW YORK (CNN/Money) - Amid the jobless economic recovery in the United States, President Bush and politicians from both major parties are trumpeting protectionist measures they promise will save jobs. But analysts say these measures are precisely the wrong medicine for the world's largest economy -- and say chances are they won't be passed anyway.Though the latest recession was declared over in November 2001 by the gurus at the National Bureau for Economic Research, the job market never got the message -- one million jobs have been lost since then. Many of them have gone overseas, as manufacturers and some service providers have taken advantage of low labor costs in places like China, India and the Phillippines."Of the 2.7 million jobs lost since employment's peak, roughly a third have been lost to overseas competition, and most if not all of those jobs are not coming back," Mark Zandi, chief economist at Economy.com, told CNNfn Friday. "And that trend is going to continue."Meanwhile, a weak Chinese currency is often blamed for the continuing deterioration of the U.S. manufacturing sector, by keeping Chinese-made goods cheap relative to U.S.-made goods. And the situation is only getting worse; the Commerce Department said last week that the goods deficit with China grew to a monthly record of $11.7 billion in August.The low price of manufactured goods from overseas also has pushed inflation lower, raising fears of a potential "deflationary" spiral, in which prices fall, corporate profits sink and the economy suffers.Election year prompts posturingAs a result, President Bush, up for re-election in 2004, has put pressure on China to float its currency, the yuan, which the Chinese government keeps virtually on par with the dollar.Democratic presidential candidates have called for tougher labor standards in China and other U.S. trading partners. And several protectionist bills -- such as the Currency Harmonization Initiative through Neutralizing Action (CHINA) Act of 2003, which would slap tariffs on Chinese imports if China doesn't float its currency -- have been introduced in Congress."We simply cannot allow countries like China, to continue their illegal, anti-free market trade practices," Rep. Mark Green (R-Wis.), one of the CHINA Act's sponsors, said at a recent Congressional hearing. "Their practices are costing us jobs."All of this sort of talk makes economists, who favor free trade, very nervous."Protectionist sentiment in a slow-growth economy in the leadup to an election tops our worry list," David Rosenberg, chief North American economist at Merrill Lynch said recently, citing Green's comment and some of the bills floating through Congress.Economists generally believe that unfettered trade improves living standards around the world, in part by keeping prices low and allowing for the free exchange of ideas and capital.In a more practical sense, protectionism could impact economic activity in the near term, some economists say. Their fear is that pending bills such as the American Manufacturing Jobs Retention Act of 2003, which would force U.S. employers to keep half their work force in the United States, could undercut corporate profits and lead to even more U.S. layoffs."The U.S. body politic is now taking dead aim at China, making it the poster child for the latest outbreak of scapegoatism," Morgan Stanley chief economist Stephen Roach, who has testified before Congress about these issues, said in a recent research note. "The risk is that the blame game won't stop there. America's multinational corporations could well be next in line..."All talk, no actionFortunately -- or unfortunately, depending on your perspective -- few of these protectionist measures seem likely to pass, according to many political analysts."Are there any real protectionist proposals that have chance of enactment? No," said Greg Valliere, political economist at Charles Schwab Washington Research. "The most negative thing I would say is that the prospects for further trade liberalization are not great, but what we've got in place will stay in place."For one thing, some of the protectionist measures on the table would violate America's international trade agreements and invite massive retaliation from trading partners, said former Treasury Department official Jeffrey Schott, now a senior fellow at the Institute for International Economics and the author of several books on trade."Many of the bills that have been introduced are designed only to send a strong signal, both to our trading partners and to [the president]," Schott said. "Most are not designed to be implemented into law."What's more, the Bush administration's recent experiment in protectionism, a steel tariff imposed in March 2002, has had only mixed results at best. It may have helped steel producers in Pennsylvania and West Virginia -- states with critical electoral votes for Bush's re-election effort -- but U.S. steel users say they have suffered from it, resulting in thousands of additional job cuts."The government should have learned its lesson from steel tariffs -- they were a big disaster," said Matthew Ellis, an economist at Wachovia Securities. "I don't think these protectionist measures will be passed."Ellis and other economists believe the only right medicine for the U.S. economy and the millions of U.S. workers displaced by the movement of jobs overseas is patience. Though things look bleak now, they say, the U.S. economy has undergone such massive changes before, shifting from agriculture to manufacturing early in the 20th century and from manufacturing to information in the late 20th century.As painful as those changes were in the short term, they eventually raised standards of living. The key, many economists believe, is to make sure the American work force is well-educated and able to take advantage of the next big shift in the economy."To stop globalization would be the exact wrong thing to do; we have to embrace what's happening," said Zandi of Economy.com. "It's in place and will remain in place. We need to help [unemployed workers], make them better trained and skilled so they can get better jobs."
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No fix for manufacturingEconomists doubt the Bush administration's efforts will fix a sector long in decline.September 3, 2003: 11:28 AM EDT By Mark Gongloff, CNN/Money Staff WriterNEW YORK (CNN/Money) - The Bush administration has launched a campaign to recover some of the millions of U.S. manufacturing jobs that have been lost in recent years, but many economists believe these efforts will be futile; most of these jobs are simply never coming back. "I understand for a full recovery, to make sure people can find work, that manufacturing must do better," Bush told a crowd of workers in Richfield, Ohio, in a Labor Day speech. "And we've lost thousands of jobs in manufacturing."Actually, since March 2001, when the National Bureau of Economic Research said the latest recession began, manufacturing has lost 2.3 million jobs, making up the bulk of the 2.7 million total jobs the economy has lost.But manufacturing layoffs began long before the recession; since hitting its latest peak in March 1998, manufacturing employment has shrunk by 3 million jobs. In fact, the number of people employed in manufacturing in July 2003 -- 14.6 million -- was almost exactly the same as the number employed in manufacturing in July 1945.In his speech, Bush cited the steady outflow of manufacturing jobs overseas, especially to China, where labor costs are cheap, and he called for a "fair playing field when it comes to trade" -- a not-so-subtle call for China to float the value of its currency, the yuan, which is now tied to the U.S. dollar and may be undervalued by as much as 40 percent.U.S. manufacturers say this imbalance keeps Chinese goods cheaper, making them more competitive overseas and putting U.S. exports at a disadvantage."It is time for the administration to get tough with the Chinese," Jerry Jasinowski, president of the National Association of Manufacturers, said last week.Thanks in part to such pressure from U.S. companies, Treasury Secretary John Snow went to Beijing this week to ask China's government to float the yuan.Reports have varied about the success of Snow's mission, but they haven't exactly been good. The Wall Street Journal said China was unlikely to float its currency at all, while the Associated Press and the Washington Post said China had promised to make its currency more flexible -- some day -- but offered no timetable for doing so.But, as the Bush administration is probably aware, China was never going to cut its currency completely loose right away, owing to the massive disruption such a move might cause."If China was to completely get rid of its currency peg, and the yuan became completely convertible, it would fall under pressure," said Ashraf Laidi, chief currency analyst at MG Financial Group in New York. "It would become another Thai baht," a currency that was slammed by speculative selling in 1997, causing a crisis that spread to other Asian nations.Scapegoating ChinaInstead, Laidi and other analysts said, China is more likely to build up its financial markets through liberalization and slowly give its currency more rope.As part of the requirement for its entry into the World Trade Organization, China already is required to enact some trade reforms by 2005, which should help liberalize its markets. That liberalization could be accompanied by some currency reform, which could be at least help the rest of the world's economy a little bit, according to some analysts."China has a depressing effect on prices across the globe, partly because of the currency undervaluation," said Anindya Chatterjee, emerging markets strategist at IDEAglobal.com Ltd. "Affecting the currency will change the cost of capital and labor."Other analysts aren't so sure. In a July research note entitled "The Scapegoating of China," Morgan Stanley chief economist Stephen Roach said China's real strengths lie in its infrastructure, its quality control, its "passion for and commitment to reform" and other assets unrelated to currency value."I honestly believe that if China were to revalue [its currency] upward by 10 percent -- a change I do not expect nor advise -- its exports would suffer minimal loss of market share," Roach said.Policy misdirection?In his Labor Day speech, Bush also promised the creation of at least one guaranteed new U.S. job -- an assistant secretary at the Commerce Department to focus on manufacturing, "to make sure our manufacturing job base is strong and vibrant."Commerce Secretary Don Evans is scheduled to release details of the administration's plan to fix manufacturing on Sept. 15, but the Washington Post reported Wednesday that there are "hints" it will be little more than a repackaging of some older policy proposals.In any event, it seems unlikely the administration will be able to reverse the steady decline of manufacturing as a function of the total U.S. economy -- in 1946, 32 percent of all U.S. jobs were in manufacturing. Now, just 12 percent are in factories.( In early 1900s a quarter of Population was employed in Agriculture vs one fortieth in late 20th century approx 2% population with more than enough to feed US and rest of the world! â Sundar)Some of this has to do with China and other sources of cheap labor, but much of it has to do with productivity gains, or the ability of factories to use technology to make more goods with fewer workers. Though the process is painful now, economists said, it should pay off in higher standards of living in the future."As we learned in Economics 101, a declining manufacturing sector is part of the normal process as an economy develops," Wachovia Securities economist Matthew Ellis wrote in a recent research note that called for policy makers to focus on re-training workers and avoid protectionist policies -- such as last year's steel tariff -- that could be harmful in the long run.
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Intel: U.S. could lose tech edgeCEO Barrett outlines initiatives that the U.S. must take to maintain tech supremacy.October 3, 2003: 11:32 AM EDT By Paul R. La Monica, CNN/Money Senior WriterNEW YORK (CNN/Money) - Intel CEO Craig Barrett says the U.S. government needs to do more to support the struggling U.S. technology industry in order to stave off competition from emerging markets such as China and India. Although the world's largest semiconductor company increased its sales outlook for the third quarter in August, citing signs of improved demand for desktop and notebook computers, Barrett did not sound incredibly upbeat about the U.S. tech sector's future in a keynote address to the Executive Council of New York's Ten Awards Thursday evening.Barrett, quoting New York Yankee Hall of Famer Yogi Berra, said "the future ain't what it used to be." He added that the biggest threats to U.S. technology companies are no longer from nations such as Japan and Germany, but emerging economies such as Russia, China and India. He joked that the only growth industry in Silicon Valley right now is gubernatorial candidates.More and more tech companies are relying on outsourcing to cut costs and in many cases, tech jobs are moving overseas due to cheaper labor costs. Barrett said one way that the U.S. could stem job losses would be by improving education.He called the K-12 system in the U.S. one of the world's worst and said that other countries like China and India are gaining an edge not merely because employees work for lower wages but also because of a stronger educational background in those nations.More subsidies, less interference on options wantedIn another jab at the federal government, Barrett said there needs to be more subsidies for research and development efforts in the science and technology field. He pointed out that the three industries that receive the most assistance from the government are agriculture, steel and soft lumber."Why does the U.S. subsidize three industries of the 19th century and no industries of the 21st century?" Barrett quipped. The remark was met with loud applause by the audience of New York area business leaders.Finally, Barrett went on the attack against the Financial Accounting Standards Board and Securities and Exchange Commission for their efforts to force stock options to be expensed.This issue is the source of intense debate on Wall Street. Some high profile investors, most notably Warren Buffett, maintain that options are a form of compensation and therefore should be treated as an expense on companies' profit and loss statements.But many tech executives, including Barrett, claim that valuation models for stock options are flawed and that expensing options would create a drag on earnings. Barrett repeated that mantra Thursday evening, saying that if options had to be expensed, it would cause the effective elimination of broad based options grants for tech employees.And that, Barrett argued, would make it even tougher for U.S. tech companies to attract skilled tech talent since other countries, including China, are promoting the use of stock options in order to attract higher quality employees."I'm trying to figure out why the Communists in China think this is a good idea and we think this is a bad idea," Barrett said.Still, other tech companies have found a solution to that problem. Microsoft, for example, announced in July that it would stop awarding employees stock options and would instead give them restricted stock as a form of equity compensation.
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Education may not be the answerGreenspan, Bush say education is the best response to offshore outsourcing. They may be wrong.February 23, 2004: 3:34 PM EST By Mark Gongloff, CNN/Money Staff WriterNEW YORK (CNN/Money) - Alan Greenspan and President Bush believe the best response to the movement of U.S. jobs offshore is the same thing it's always been: educating U.S. workers so they can get better-paying jobs. But some people losing jobs overseas are already highly educated, and some economists doubt education will fully ease the pain -- American workers may have to learn to live with lower wages, or policy makers may have to come up with other ideas.After several decades in which U.S. manufacturing jobs moved overseas steadily, white-collar jobs -- including information technology, customer service, accounting and more -- have begun to flow offshore in recent years as well, as multinational companies take advantage of a cheaper, ever-more-skilled, global labor force.These trends, along with technological advancements, have helped keep the U.S. job market in its longest slump since World War II. Though the economy has grown for nine straight quarters, there are still 2.3 million fewer workers on non-farm payrolls than at the beginning of the 2001 recession.The sluggishness of the labor market has heightened consumer anxiety, kept wage growth slow and put political pressure on President Bush, who is running for re-election in November.In his State of the Union address in January, Bush suggested the solution was to better educate the U.S. work force, and he proposed giving money to community colleges for this purpose, among other initiatives.In a speech on Friday and in his semi-annual Congressional testimony earlier last week, Federal Reserve Chairman Greenspan put his influential stamp of approval on these ideas, saying education has been the key to labor-market transitions in the past -- first from agriculture to the Industrial Age, then from the factory floor to the Information Age."The capacity of workers, after being displaced, to find a new job that will eventually provide nearly comparable pay most often depends on the general knowledge of the worker and the ability of that individual to learn new skills," Greenspan said.Greenspan and many other economists say they firmly believe there will be new jobs eventually, even if it's nearly impossible right now to predict what those new jobs will be.Only if workers are well-educated, these economists believe, will they be able to jump into these new jobs when they materialize."What we do know is that the system manages to work -- we've been dealing with import penetration in this country for over three decades," said UBS chief economist Maury Harris. "Over that period of time, the unemployment rate has had its ups and downs, but there's been no trend increase in unemployment."Harris said a high level of patent applications suggest new jobs are on the way, and census statistics show more Americans have higher levels of education than ever before."I think we're probably more adaptable now than we were in the past," Harris said. "Education is the key to that -- it makes you flexible."It may already be helping -- according to the latest Labor Department data, among people 25 years of age or older, the unemployment rate for people with at least some college is just 3.7 percent, while the rate for people with a high school degree or less is 5.9 percent.Too much supply, not enough demandNot all economists think the answer is that simple, however. For one thing, it's not as if the foreign workers taking U.S. jobs are uneducated -- many of them not only speak English, but are also just as skilled as the U.S. workers they're replacing.What's more, the current movement of jobs offshore is more dramatic than usual, thanks to the quickened pace of globalization and new technologies that make international communication easier than ever.The opening of societies such as China and India, with large populations that value education and have lower living costs -- the New York Times on Sunday profiled a customer-service representative living in Bangalore, India, who was able to pay rent, have a cell phone, make frequent visits to night clubs, buy new clothes and send money to her parents, all on a salary of just $400 a month -- has tapped a rich vein of new workers. (Purchase power of US 18 Cents in India is equivalent of a $ in USA! Data as of 2001/2002 - Sundar)If the global economy does not grow fast enough to raise the level of demand to match that vast new supply of workers, some economists worry, then the price of labor -- wages and salaries -- will certainly fall, with or without education."There are so many low-paid people who are educated that education is simply not the answer," said Robert Brusca, chief economist at Native American Securities in New York. "The answer is, you will be unemployed if this is not stopped."Brusca believes that, for the foreseeable future, the most reliable source of jobs for U.S. workers will be in services that cannot be moved offshore, such as health care, plumbing and automobile repair.Though nurses, plumbers and auto mechanics can make a great deal of money, the generally high wages of the late 1990s -- when a tech-investment bubble was accompanied by a tech-hiring bubble, some economists believe -- might simply be unattainable."Do you have to be reeducated? Maybe not -- maybe you just need to accept a lower wage rate," said Paul Kasriel, chief economist at Northern Trust in Chicago.Kasriel doubts the implications of this pay slowdown are too worrisome in the long run. He believes global economic growth has been slow mostly because post-bubble imbalances are still working themselves out, and that eventually workers in Bangalore, Beijing and Bucharest will get richer and want to buy more stuff, increasing global demand and pushing wages higher."At some point we will have equalization, where an employer will be indifferent between hiring someone in Bangalore or Chicago," Kasriel said -- though he admitted that could be a long time coming.The fear among some bearish economists is that, while the world waits for that equalization to take place, labor-market sluggishness in high-wage, developed countries such as the United States could keep global demand anemic, threatening the global economic recovery."To the extent that hiring in high-wage, developed economies continues to lag, the sustainability of any impetus to private consumption can be drawn into serious question," Morgan Stanley chief economist Stephen Roach wrote in a research note to clients on Monday.
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Greenspan notes 'unease' about jobsCentral bank chairman says worker education is the key to helping displaced workers find jobs.February 20, 2004: 3:30 PM EST By Mark Gongloff, CNN/Money Staff WriterNEW YORK (CNN/Money) - Federal Reserve Chairman Alan Greenspan said Friday that the steady movement of U.S. jobs offshore should help the economy in the long run, but that American workers needed to be better-prepared to take whatever higher-skilled jobs come along to replace the lost jobs. Greenspan noted that, in recent years, new technology has helped businesses produce more with fewer workers, while globalization has led to an increasing flow of U.S. jobs moving overseas.This process is good for the broader economy in the long run, he said, helping to raise standards of living, but is causing "inevitable stresses and anxieties" in the short run."There is a palpable unease that businesses and jobs are being drained from the United States, with potentially adverse long-run implications for unemployment and the standard of living of the average American," Greenspan said in prepared remarks delivered to the Greater Omaha Chamber of Commerce.His solution to the problem, as he told Congress last week, is to do a better job of educating American workers."The capacity of workers, after being displaced, to find a new job that will eventually provide nearly comparable pay most often depends on the general knowledge of the worker and the ability of that individual to learn new skills," Greenspan said.He said this process has been working in the U.S. economy for many decades, helping workers find new work and pushing wages steadily higher, and he saw no reason why it should stop now."Over the long sweep of American generations and waves of economic change, we simply have not experienced a net drain of jobs to advancing technology or to other nations," he said.The labor market has only recently shown signs of emerging from its longest slump since World War II. Payrolls are still 2.3 million jobs lighter than they were when the 2001 recession began. Despite nine straight quarters of economic growth after that recession ended, businesses have only recently begun to add to their payrolls.A combination of weaker-than-usual economic growth and strong productivity gains -- enabling businesses to milk more work from fewer workers -- have conspired to keep hiring anemic. But many economists believe those trends will reverse this year, leading to more hiring.Still, many economists also believe that the effects of globalization and technological advance could keep hiring less robust than in other recoveries. The prospect of further labor-market pain has led politicians of both major parties to talk increasingly of protectionist measures that would limit free trade.Greenspan, in his speech on Friday, warned that such measures would be counterproductive."Protectionism will do little to create jobs," he said, "and if foreigners retaliate, we will surely lose jobs."Some liberal think tanks and politicians have called for measures that would be somewhat less drastic -- though still unpalatable to some companies -- such as offering tax incentives to firms who keep jobs in the United States or requiring trading partners to adhere to certain labor standards.
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If you haven't turned on a TV or read a magazine or a newspaper recently, you probably haven't heard that your job is moving overseas. Odds are, it's not, of course. But a growing number of jobs are, and many of them are higher-skilled jobs that once seemed immune to outsourcing.U.S. companies moving jobs offshore has helped keep the job market in its most painful slump since World War II, creating tremendous worry for millions of workers and triggering a vigorous national debate about how best to respond.Here are some of the more common proposals, along with some of the arguments for and against:Scrap WTO, trade pactsSome people argue the United States should simply pull out of the World Trade Organization, NAFTA and other world trade pacts, a view proposed by three candidates for president: Rep. Dennis Kucinich, D-Oh., Rev. Al Sharpton and Ralph Nader."The WTO, as long as we belong to it, will not let us protect the jobs," Kucinich said in a debate last week. "This is the reason why we have outsourcing going on right now. We can't tax it. We can't put tariffs on it."Kucinich says he would withdraw from most existing trade agreements and negotiate new agreements on a case-by-case basis, requiring trading partners to meet certain environmental, labor and human rights standards.Critics say similar protectionist steps have led to slower economic growth and would likely do so again."We need reforms that will enable us to thrive in a dynamic, open, world market and not seek to shut our borders and go down a path proven to lead to reduced national wealth and overall lower standards of living," said Aaron Lukas, a trade policy analyst at the Cato Institute, a libertarian think tank.Of course, none of the proponents of these measures are likely to become president this year, and such proposals would be unlikely to pass Congress.Other Democrats, including Sen. John Kerry, the leader in the race to face President Bush this fall, and his closest rival, Sen. John Edwards, suggest less drastic measures, including greater enforcement of existing trade pacts.Protect government contractsEspecially loathsome to opponents of outsourcing is the idea of federal and state governments sending jobs overseas, right alongside "Benedict Arnold" companies, as Kerry calls them.In that vein, Congress in January passed a law requiring that government functions shifted to contractors had to go to contractors in the United States. In Indiana and New Jersey this year, two state government contracts to move call-center work offshore were canceled under political pressure. And dozens of anti-outsourcing bills await action in federal and state legislatures.Critics of the bills say they would save just a handful of jobs and cost millions of dollars to taxpayers, potentially doing more harm than good."There's a hidden cost that can play out," said Stuart Anderson, executive director of the National Foundation for American Policy (NFAP), a pro-trade group. These measures can discourage foreign investment in the states that enact them, leading to job losses that "far outweigh the number of jobs saved at some call center in New Jersey or Indiana."Slow visa entriesTemporary work visas for high-skilled foreign workers also irritate outsourcing opponents. Not only do they take jobs from U.S. workers in the short run, but visa holders sometimes return home and make future offshore outsourcing even easier for U.S. companies."I find it rather ironic that people who claim to wear the free market mantle would turn around and support government meddling in the marketplace of labor -- right now we have the government encouraging people to dump their cheap labor here," said Scott Kirwin, founder of the Information Technology Professionals Association of America (ITPAA), a worker's rights group.Supporters say many visa holders end up staying in the United States, helping U.S. companies develop new technologies that create jobs and becoming consumers in the broader domestic economy."I find it ironic that some of the same folks against jobs going overseas also don't want people to come here who would be benefiting and creating more jobs in the United States," said the NFAP's Anderson.Caller IDSen. Kerry and other outsourcing critics also want to require workers in overseas call centers to reveal their location in service calls.Not only would such a measure carry on the spirit of the existing requirement to mark foreign-made goods with their country of origin, it might also allow customers to decide whether they want to discuss personal information with a call-center worker in, say, Vietnam, where privacy laws may not be as stringent as they are in the United States.Opponents say this will hurt how call-center workers do their jobs, meaning the U.S. companies using those centers will have to pay more for their services.Compromise alternatives could be to pass measures that would ensure the privacy and security of customers' information.Helping displaced workersIt's all well and good to discuss the long-term economic benefits of trade, as most economists do. But those arguments ring hollow with the millions of workers who will be unemployed or have lower standards of living while they wait for those benefits to come to fruition."People lose in trade, and because our social safety nets here are so thin to begin with, the resistance is greater than it is in some of the other industrial countries," Lael Brainard, a senior fellow at the Brookings Institution, a left-leaning Washington think tank, said in a January speech on outsourcing.Some possible solutions include increased unemployment insurance, wage insurance, and a system that would let workers carry health benefits from job to job.Such measures would require government spending, and so are viewed with some skepticism by conservatives -- but they're likely to be politically popular, and conservatives don't dismiss them out of hand."We have to acknowledge that individuals can face transition costs when trade barriers come down," said Lukas of the Cato Institute.EducationLukas and like-minded conservatives, including President Bush and Fed Chairman Alan Greenspan, believe an even better response is to improve grade-school education and spend government money retraining workers at community colleges."The capacity of workers, after being displaced, to find a new job that will eventually provide nearly comparable pay most often depends on the general knowledge of the worker and the ability of that individual to learn new skills," Greenspan told Congress last month.While almost everyone agrees that U.S. grade-school education could be better, some critics doubt education is the only answer to outsourcing, noting many unemployed workers already have advanced degrees.In January, for example, there were more unemployed workers 25 or older with college degrees than there were unemployed workers without high school diplomas, according to the latest Labor Department data."No one criticizes the higher education system here -- that's why we still draw as many foreign students as we do," said Kirwin of the ITPAA. "Most of the jobs we're sending abroad currently require a college education just to get in the door.
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Tech outsourcing: Here to stayDespite some alarmist talk about moving jobs overseas, outsourcing will remain a hot tech trend.January 19, 2004: 9:57 AM EST By Paul R. La Monica, CNN/Money Senior WriterThis story was originally published in October, 2003.NEW YORK (CNN/Money) -- Executives at some of the nation's biggest technology companies have been talking tough when it comes to the touchy topic of losing jobs to companies in other countries.In a speech in New York this month, Intel CEO Craig Barrett said India, China and Russia were emerging as big threats, due to their strong education systems.Barrett stressed that the United States needs to improve its own system, adding that the government should spend more on research and development to protect the nation's lead in technology -- which has long been a source of growth for the world's largest economy.Intel (INTC: Research, Estimates) Chairman Andy Grove made similar comments in a speech last week.And earlier this year, Cisco Systems (CSCO: Research, Estimates) CEO John Chambers said if U.S. tech companies were forced to expense stock options for employees, that could curtail the use of options at home and send skilled workers overseas in search of potentially lucrative options packages.But U.S. tech companies may be overstating the threat from foreign companies. Many of these same companies are choosing to outsource to take advantage of lower labor costs in other countries.Laurence Gordon, vice president of marketing at Cognizant Technology Solutions (CTSH: Research, Estimates), a software and consulting firm that specializes in offshore outsourcing, said that labor costs for workers in India are often a tenth of what equivalently skilled workers would make in the United States. Most of Cognizant's employees are based in India.And few see any slowdown in overseas outsourcing, especially since technology is making it easier to have workers in remote locations working together."There's no difference sending work from San Francisco to San Jose over the Internet than sending it from Bangalore to San Jose over the Internet," said John Challenger, CEO of outplacement firm Challenger, Gray & Christmas. "So there is going to be declining pay for technology workers in a global marketplace."According to tech research firm Gartner, 10 percent of info tech jobs with U.S.-based tech companies will be based in countries in emerging markets by the end of 2004.Trend is not going awayThe trend isn't new and may be overstated.For example, a spokeswoman for Cisco points out that more than 70 percent of its employees are based in the United States. For its part, Intel has moved about 500 jobs -- less than 1 percent of its domestic work force -- to other countries over the last two years, a spokeswoman said.Michael Mahoney, managing director of EGM Capital, a hedge fund focusing on technology, said that tech jobs were being shipped overseas during the bull market of the late 1990s but since the overall unemployment rate was much lower, nobody cared.He thinks that once the labor market picks up, assuming it does, worries about a tech "job crisis" will fade. He notes it's unlikely that Washington will move to limit or ban outsourcing, despite calls from some federal and state lawmakers to do so."Anybody who thinks the federal government is going to do anything to reverse the outsourcing trend is smoking dope," said Mahoney.Jeroen Tas, president and vice chairman of Mphasis, another IT outsourcing firm in India, said his company is sensitive to the issue but adds people need to realize that U.S. firms are choosing to outsource in order to cut costs and retain an edge."This is not a zero-sum game," said Tas. "Ultimately, it makes U.S. companies more competitive."
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Protectionism: all talk, no actionJob-saving protectionist proposals are mostly hot air -- and that's a good thing, economists say.October 13, 2003: 5:09 PM EDT By Mark Gongloff, CNN/Money Staff WriterNEW YORK (CNN/Money) - Amid the jobless economic recovery in the United States, President Bush and politicians from both major parties are trumpeting protectionist measures they promise will save jobs. But analysts say these measures are precisely the wrong medicine for the world's largest economy -- and say chances are they won't be passed anyway.Though the latest recession was declared over in November 2001 by the gurus at the National Bureau for Economic Research, the job market never got the message -- one million jobs have been lost since then. Many of them have gone overseas, as manufacturers and some service providers have taken advantage of low labor costs in places like China, India and the Phillippines."Of the 2.7 million jobs lost since employment's peak, roughly a third have been lost to overseas competition, and most if not all of those jobs are not coming back," Mark Zandi, chief economist at Economy.com, told CNNfn Friday. "And that trend is going to continue."Meanwhile, a weak Chinese currency is often blamed for the continuing deterioration of the U.S. manufacturing sector, by keeping Chinese-made goods cheap relative to U.S.-made goods. And the situation is only getting worse; the Commerce Department said last week that the goods deficit with China grew to a monthly record of $11.7 billion in August.The low price of manufactured goods from overseas also has pushed inflation lower, raising fears of a potential "deflationary" spiral, in which prices fall, corporate profits sink and the economy suffers.Election year prompts posturingAs a result, President Bush, up for re-election in 2004, has put pressure on China to float its currency, the yuan, which the Chinese government keeps virtually on par with the dollar.Democratic presidential candidates have called for tougher labor standards in China and other U.S. trading partners. And several protectionist bills -- such as the Currency Harmonization Initiative through Neutralizing Action (CHINA) Act of 2003, which would slap tariffs on Chinese imports if China doesn't float its currency -- have been introduced in Congress."We simply cannot allow countries like China, to continue their illegal, anti-free market trade practices," Rep. Mark Green (R-Wis.), one of the CHINA Act's sponsors, said at a recent Congressional hearing. "Their practices are costing us jobs."All of this sort of talk makes economists, who favor free trade, very nervous."Protectionist sentiment in a slow-growth economy in the leadup to an election tops our worry list," David Rosenberg, chief North American economist at Merrill Lynch said recently, citing Green's comment and some of the bills floating through Congress.Economists generally believe that unfettered trade improves living standards around the world, in part by keeping prices low and allowing for the free exchange of ideas and capital.In a more practical sense, protectionism could impact economic activity in the near term, some economists say. Their fear is that pending bills such as the American Manufacturing Jobs Retention Act of 2003, which would force U.S. employers to keep half their work force in the United States, could undercut corporate profits and lead to even more U.S. layoffs."The U.S. body politic is now taking dead aim at China, making it the poster child for the latest outbreak of scapegoatism," Morgan Stanley chief economist Stephen Roach, who has testified before Congress about these issues, said in a recent research note. "The risk is that the blame game won't stop there. America's multinational corporations could well be next in line..."All talk, no actionFortunately -- or unfortunately, depending on your perspective -- few of these protectionist measures seem likely to pass, according to many political analysts."Are there any real protectionist proposals that have chance of enactment? No," said Greg Valliere, political economist at Charles Schwab Washington Research. "The most negative thing I would say is that the prospects for further trade liberalization are not great, but what we've got in place will stay in place."For one thing, some of the protectionist measures on the table would violate America's international trade agreements and invite massive retaliation from trading partners, said former Treasury Department official Jeffrey Schott, now a senior fellow at the Institute for International Economics and the author of several books on trade."Many of the bills that have been introduced are designed only to send a strong signal, both to our trading partners and to [the president]," Schott said. "Most are not designed to be implemented into law."What's more, the Bush administration's recent experiment in protectionism, a steel tariff imposed in March 2002, has had only mixed results at best. It may have helped steel producers in Pennsylvania and West Virginia -- states with critical electoral votes for Bush's re-election effort -- but U.S. steel users say they have suffered from it, resulting in thousands of additional job cuts."The government should have learned its lesson from steel tariffs -- they were a big disaster," said Matthew Ellis, an economist at Wachovia Securities. "I don't think these protectionist measures will be passed."Ellis and other economists believe the only right medicine for the U.S. economy and the millions of U.S. workers displaced by the movement of jobs overseas is patience. Though things look bleak now, they say, the U.S. economy has undergone such massive changes before, shifting from agriculture to manufacturing early in the 20th century and from manufacturing to information in the late 20th century.As painful as those changes were in the short term, they eventually raised standards of living. The key, many economists believe, is to make sure the American work force is well-educated and able to take advantage of the next big shift in the economy."To stop globalization would be the exact wrong thing to do; we have to embrace what's happening," said Zandi of Economy.com. "It's in place and will remain in place. We need to help [unemployed workers], make them better trained and skilled so they can get better jobs."
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No fix for manufacturingEconomists doubt the Bush administration's efforts will fix a sector long in decline.September 3, 2003: 11:28 AM EDT By Mark Gongloff, CNN/Money Staff WriterNEW YORK (CNN/Money) - The Bush administration has launched a campaign to recover some of the millions of U.S. manufacturing jobs that have been lost in recent years, but many economists believe these efforts will be futile; most of these jobs are simply never coming back. "I understand for a full recovery, to make sure people can find work, that manufacturing must do better," Bush told a crowd of workers in Richfield, Ohio, in a Labor Day speech. "And we've lost thousands of jobs in manufacturing."Actually, since March 2001, when the National Bureau of Economic Research said the latest recession began, manufacturing has lost 2.3 million jobs, making up the bulk of the 2.7 million total jobs the economy has lost.But manufacturing layoffs began long before the recession; since hitting its latest peak in March 1998, manufacturing employment has shrunk by 3 million jobs. In fact, the number of people employed in manufacturing in July 2003 -- 14.6 million -- was almost exactly the same as the number employed in manufacturing in July 1945.In his speech, Bush cited the steady outflow of manufacturing jobs overseas, especially to China, where labor costs are cheap, and he called for a "fair playing field when it comes to trade" -- a not-so-subtle call for China to float the value of its currency, the yuan, which is now tied to the U.S. dollar and may be undervalued by as much as 40 percent.U.S. manufacturers say this imbalance keeps Chinese goods cheaper, making them more competitive overseas and putting U.S. exports at a disadvantage."It is time for the administration to get tough with the Chinese," Jerry Jasinowski, president of the National Association of Manufacturers, said last week.Thanks in part to such pressure from U.S. companies, Treasury Secretary John Snow went to Beijing this week to ask China's government to float the yuan.Reports have varied about the success of Snow's mission, but they haven't exactly been good. The Wall Street Journal said China was unlikely to float its currency at all, while the Associated Press and the Washington Post said China had promised to make its currency more flexible -- some day -- but offered no timetable for doing so.But, as the Bush administration is probably aware, China was never going to cut its currency completely loose right away, owing to the massive disruption such a move might cause."If China was to completely get rid of its currency peg, and the yuan became completely convertible, it would fall under pressure," said Ashraf Laidi, chief currency analyst at MG Financial Group in New York. "It would become another Thai baht," a currency that was slammed by speculative selling in 1997, causing a crisis that spread to other Asian nations.Scapegoating ChinaInstead, Laidi and other analysts said, China is more likely to build up its financial markets through liberalization and slowly give its currency more rope.As part of the requirement for its entry into the World Trade Organization, China already is required to enact some trade reforms by 2005, which should help liberalize its markets. That liberalization could be accompanied by some currency reform, which could be at least help the rest of the world's economy a little bit, according to some analysts."China has a depressing effect on prices across the globe, partly because of the currency undervaluation," said Anindya Chatterjee, emerging markets strategist at IDEAglobal.com Ltd. "Affecting the currency will change the cost of capital and labor."Other analysts aren't so sure. In a July research note entitled "The Scapegoating of China," Morgan Stanley chief economist Stephen Roach said China's real strengths lie in its infrastructure, its quality control, its "passion for and commitment to reform" and other assets unrelated to currency value."I honestly believe that if China were to revalue [its currency] upward by 10 percent -- a change I do not expect nor advise -- its exports would suffer minimal loss of market share," Roach said.Policy misdirection?In his Labor Day speech, Bush also promised the creation of at least one guaranteed new U.S. job -- an assistant secretary at the Commerce Department to focus on manufacturing, "to make sure our manufacturing job base is strong and vibrant."Commerce Secretary Don Evans is scheduled to release details of the administration's plan to fix manufacturing on Sept. 15, but the Washington Post reported Wednesday that there are "hints" it will be little more than a repackaging of some older policy proposals.In any event, it seems unlikely the administration will be able to reverse the steady decline of manufacturing as a function of the total U.S. economy -- in 1946, 32 percent of all U.S. jobs were in manufacturing. Now, just 12 percent are in factories.( In early 1900s a quarter of Population was employed in Agriculture vs one fortieth in late 20th century approx 2% population with more than enough to feed US and rest of the world! â Sundar)Some of this has to do with China and other sources of cheap labor, but much of it has to do with productivity gains, or the ability of factories to use technology to make more goods with fewer workers. Though the process is painful now, economists said, it should pay off in higher standards of living in the future."As we learned in Economics 101, a declining manufacturing sector is part of the normal process as an economy develops," Wachovia Securities economist Matthew Ellis wrote in a recent research note that called for policy makers to focus on re-training workers and avoid protectionist policies -- such as last year's steel tariff -- that could be harmful in the long run.
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Intel: U.S. could lose tech edgeCEO Barrett outlines initiatives that the U.S. must take to maintain tech supremacy.October 3, 2003: 11:32 AM EDT By Paul R. La Monica, CNN/Money Senior WriterNEW YORK (CNN/Money) - Intel CEO Craig Barrett says the U.S. government needs to do more to support the struggling U.S. technology industry in order to stave off competition from emerging markets such as China and India. Although the world's largest semiconductor company increased its sales outlook for the third quarter in August, citing signs of improved demand for desktop and notebook computers, Barrett did not sound incredibly upbeat about the U.S. tech sector's future in a keynote address to the Executive Council of New York's Ten Awards Thursday evening.Barrett, quoting New York Yankee Hall of Famer Yogi Berra, said "the future ain't what it used to be." He added that the biggest threats to U.S. technology companies are no longer from nations such as Japan and Germany, but emerging economies such as Russia, China and India. He joked that the only growth industry in Silicon Valley right now is gubernatorial candidates.More and more tech companies are relying on outsourcing to cut costs and in many cases, tech jobs are moving overseas due to cheaper labor costs. Barrett said one way that the U.S. could stem job losses would be by improving education.He called the K-12 system in the U.S. one of the world's worst and said that other countries like China and India are gaining an edge not merely because employees work for lower wages but also because of a stronger educational background in those nations.More subsidies, less interference on options wantedIn another jab at the federal government, Barrett said there needs to be more subsidies for research and development efforts in the science and technology field. He pointed out that the three industries that receive the most assistance from the government are agriculture, steel and soft lumber."Why does the U.S. subsidize three industries of the 19th century and no industries of the 21st century?" Barrett quipped. The remark was met with loud applause by the audience of New York area business leaders.Finally, Barrett went on the attack against the Financial Accounting Standards Board and Securities and Exchange Commission for their efforts to force stock options to be expensed.This issue is the source of intense debate on Wall Street. Some high profile investors, most notably Warren Buffett, maintain that options are a form of compensation and therefore should be treated as an expense on companies' profit and loss statements.But many tech executives, including Barrett, claim that valuation models for stock options are flawed and that expensing options would create a drag on earnings. Barrett repeated that mantra Thursday evening, saying that if options had to be expensed, it would cause the effective elimination of broad based options grants for tech employees.And that, Barrett argued, would make it even tougher for U.S. tech companies to attract skilled tech talent since other countries, including China, are promoting the use of stock options in order to attract higher quality employees."I'm trying to figure out why the Communists in China think this is a good idea and we think this is a bad idea," Barrett said.Still, other tech companies have found a solution to that problem. Microsoft, for example, announced in July that it would stop awarding employees stock options and would instead give them restricted stock as a form of equity compensation.
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Education may not be the answerGreenspan, Bush say education is the best response to offshore outsourcing. They may be wrong.February 23, 2004: 3:34 PM EST By Mark Gongloff, CNN/Money Staff WriterNEW YORK (CNN/Money) - Alan Greenspan and President Bush believe the best response to the movement of U.S. jobs offshore is the same thing it's always been: educating U.S. workers so they can get better-paying jobs. But some people losing jobs overseas are already highly educated, and some economists doubt education will fully ease the pain -- American workers may have to learn to live with lower wages, or policy makers may have to come up with other ideas.After several decades in which U.S. manufacturing jobs moved overseas steadily, white-collar jobs -- including information technology, customer service, accounting and more -- have begun to flow offshore in recent years as well, as multinational companies take advantage of a cheaper, ever-more-skilled, global labor force.These trends, along with technological advancements, have helped keep the U.S. job market in its longest slump since World War II. Though the economy has grown for nine straight quarters, there are still 2.3 million fewer workers on non-farm payrolls than at the beginning of the 2001 recession.The sluggishness of the labor market has heightened consumer anxiety, kept wage growth slow and put political pressure on President Bush, who is running for re-election in November.In his State of the Union address in January, Bush suggested the solution was to better educate the U.S. work force, and he proposed giving money to community colleges for this purpose, among other initiatives.In a speech on Friday and in his semi-annual Congressional testimony earlier last week, Federal Reserve Chairman Greenspan put his influential stamp of approval on these ideas, saying education has been the key to labor-market transitions in the past -- first from agriculture to the Industrial Age, then from the factory floor to the Information Age."The capacity of workers, after being displaced, to find a new job that will eventually provide nearly comparable pay most often depends on the general knowledge of the worker and the ability of that individual to learn new skills," Greenspan said.Greenspan and many other economists say they firmly believe there will be new jobs eventually, even if it's nearly impossible right now to predict what those new jobs will be.Only if workers are well-educated, these economists believe, will they be able to jump into these new jobs when they materialize."What we do know is that the system manages to work -- we've been dealing with import penetration in this country for over three decades," said UBS chief economist Maury Harris. "Over that period of time, the unemployment rate has had its ups and downs, but there's been no trend increase in unemployment."Harris said a high level of patent applications suggest new jobs are on the way, and census statistics show more Americans have higher levels of education than ever before."I think we're probably more adaptable now than we were in the past," Harris said. "Education is the key to that -- it makes you flexible."It may already be helping -- according to the latest Labor Department data, among people 25 years of age or older, the unemployment rate for people with at least some college is just 3.7 percent, while the rate for people with a high school degree or less is 5.9 percent.Too much supply, not enough demandNot all economists think the answer is that simple, however. For one thing, it's not as if the foreign workers taking U.S. jobs are uneducated -- many of them not only speak English, but are also just as skilled as the U.S. workers they're replacing.What's more, the current movement of jobs offshore is more dramatic than usual, thanks to the quickened pace of globalization and new technologies that make international communication easier than ever.The opening of societies such as China and India, with large populations that value education and have lower living costs -- the New York Times on Sunday profiled a customer-service representative living in Bangalore, India, who was able to pay rent, have a cell phone, make frequent visits to night clubs, buy new clothes and send money to her parents, all on a salary of just $400 a month -- has tapped a rich vein of new workers. (Purchase power of US 18 Cents in India is equivalent of a $ in USA! Data as of 2001/2002 - Sundar)If the global economy does not grow fast enough to raise the level of demand to match that vast new supply of workers, some economists worry, then the price of labor -- wages and salaries -- will certainly fall, with or without education."There are so many low-paid people who are educated that education is simply not the answer," said Robert Brusca, chief economist at Native American Securities in New York. "The answer is, you will be unemployed if this is not stopped."Brusca believes that, for the foreseeable future, the most reliable source of jobs for U.S. workers will be in services that cannot be moved offshore, such as health care, plumbing and automobile repair.Though nurses, plumbers and auto mechanics can make a great deal of money, the generally high wages of the late 1990s -- when a tech-investment bubble was accompanied by a tech-hiring bubble, some economists believe -- might simply be unattainable."Do you have to be reeducated? Maybe not -- maybe you just need to accept a lower wage rate," said Paul Kasriel, chief economist at Northern Trust in Chicago.Kasriel doubts the implications of this pay slowdown are too worrisome in the long run. He believes global economic growth has been slow mostly because post-bubble imbalances are still working themselves out, and that eventually workers in Bangalore, Beijing and Bucharest will get richer and want to buy more stuff, increasing global demand and pushing wages higher."At some point we will have equalization, where an employer will be indifferent between hiring someone in Bangalore or Chicago," Kasriel said -- though he admitted that could be a long time coming.The fear among some bearish economists is that, while the world waits for that equalization to take place, labor-market sluggishness in high-wage, developed countries such as the United States could keep global demand anemic, threatening the global economic recovery."To the extent that hiring in high-wage, developed economies continues to lag, the sustainability of any impetus to private consumption can be drawn into serious question," Morgan Stanley chief economist Stephen Roach wrote in a research note to clients on Monday.
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Greenspan notes 'unease' about jobsCentral bank chairman says worker education is the key to helping displaced workers find jobs.February 20, 2004: 3:30 PM EST By Mark Gongloff, CNN/Money Staff WriterNEW YORK (CNN/Money) - Federal Reserve Chairman Alan Greenspan said Friday that the steady movement of U.S. jobs offshore should help the economy in the long run, but that American workers needed to be better-prepared to take whatever higher-skilled jobs come along to replace the lost jobs. Greenspan noted that, in recent years, new technology has helped businesses produce more with fewer workers, while globalization has led to an increasing flow of U.S. jobs moving overseas.This process is good for the broader economy in the long run, he said, helping to raise standards of living, but is causing "inevitable stresses and anxieties" in the short run."There is a palpable unease that businesses and jobs are being drained from the United States, with potentially adverse long-run implications for unemployment and the standard of living of the average American," Greenspan said in prepared remarks delivered to the Greater Omaha Chamber of Commerce.His solution to the problem, as he told Congress last week, is to do a better job of educating American workers."The capacity of workers, after being displaced, to find a new job that will eventually provide nearly comparable pay most often depends on the general knowledge of the worker and the ability of that individual to learn new skills," Greenspan said.He said this process has been working in the U.S. economy for many decades, helping workers find new work and pushing wages steadily higher, and he saw no reason why it should stop now."Over the long sweep of American generations and waves of economic change, we simply have not experienced a net drain of jobs to advancing technology or to other nations," he said.The labor market has only recently shown signs of emerging from its longest slump since World War II. Payrolls are still 2.3 million jobs lighter than they were when the 2001 recession began. Despite nine straight quarters of economic growth after that recession ended, businesses have only recently begun to add to their payrolls.A combination of weaker-than-usual economic growth and strong productivity gains -- enabling businesses to milk more work from fewer workers -- have conspired to keep hiring anemic. But many economists believe those trends will reverse this year, leading to more hiring.Still, many economists also believe that the effects of globalization and technological advance could keep hiring less robust than in other recoveries. The prospect of further labor-market pain has led politicians of both major parties to talk increasingly of protectionist measures that would limit free trade.Greenspan, in his speech on Friday, warned that such measures would be counterproductive."Protectionism will do little to create jobs," he said, "and if foreigners retaliate, we will surely lose jobs."Some liberal think tanks and politicians have called for measures that would be somewhat less drastic -- though still unpalatable to some companies -- such as offering tax incentives to firms who keep jobs in the United States or requiring trading partners to adhere to certain labor standards.
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