Outsourcing Jobs
Life's tragedy is that we get old too soon and wise too late.
What Can We Do?
Some of you may have heard that there were pickets up at 545 West Grand in Oakland.
One of the questions we hear most often here is "what is the union doing to prevent our jobs from being contracted out"?
The short answer is not much.
The contracting out of work is not prohibited by the contract, although we never miss an opportunity to let the company know of our displeasure over the erosion of our jobs.
The more appropriate question is, what can you as members do to help stop the outsourcing of the work that rightfully belongs to you.
The answer to this question is PLENTY!
Local 9415 had an informational picket at 545 W. Grand to welcome Mike
Rodriguez, the Anti-Union Attorney for at&t (SBC) that was instrumental
in CWA going on strike in 2004. Mike was there to talk to our members
on the "at&t Bring it Home" campaign. So, they were there to talk about
the "at&t Bring our Jobs Home Campaign".
This is exactly the type of participation and unity that can make a difference when at&t management has meetings to talk about its strategy for the future. We need to give them something else to consider.
Our respect and congratulations to Local 9415 members who came to welcome Mr. Rodriguez!
Microsoft, Others Pour Money Into India
Microsoft plans to pour $1.7 billion into India over four years and employ another 3,000 people to deepen its presence in the fast-growing software player, Chairman Bill Gates said Wednesday.
About half of the money will be spent on its existing research and development center, its global software delivery unit and expanding to 33 more cities by opening retail outlets.
"We have about 4,000 people in India. We would be growing that by 3,000 over the next several years," Gates told a news conference.
Many large foreign companies plan more investment in India, attracted by low costs, an educated work force, and an economy forecast to grow 7 percent to 7.5 percent in the fiscal year to March.
Among big technology groups, chipmaker Intel and network equipment maker Cisco Systems have announced billion-dollar investments in the past two months.
Gates said Microsoft will focus on research to help the spread of low-cost computing in India, where high entry-level costs limit the spread of computers among its billion-plus people.
Microsoft has launched software in local Indian languages to ride a software boom in the world's second-most-populous country.
Microsoft's plans follow Intel saying Monday it will pour $1.1 billion into its Indian operations, including setting up a venture fund to take stakes in start-ups.
In October, Cisco said it planned to invest $1.1 billion over the next three years and triple its staff numbers in India.
U.S. bank JPMorgan Chase said this week it hopes to hire 4,500 graduates in India over the next two years.
Latest Estimates
New figures on offshore outsourcing suggest that American companies are sending even more white-collar jobs to low-wage countries such as India, China and Russia than researchers originally estimated.
Roughly 830,000 U.S. service-sector jobs — ranging from telemarketers and accountants to software engineers and chief technology officers — will move abroad by the end of 2005, according to a report released Monday by Forrester Research Inc.
The Cambridge, Mass.-based firm projected in 2002 that 588,000 jobs would move overseas by the end of next year.
Forrester also increased its long-term job loss prediction, estimating that 3.4 million jobs will leave the United States by 2015. The company originally predicted long-term job loss of 3.3 million positions — a figure that members of Congress and labor activists said was cause for great alarm. Researchers said the short-term losses surged as companies began experimenting, but the long-term numbers will likely moderate.
Forrester analysts boosted their short-term job loss expectations by 40 percent based on updated job data based provided by the U.S. Department of Labor.
Lead researcher John C. McCarthy said widespread publicity over the cost savings associated with offshoring — increasingly a topic of partisan debate in the presidential campaign _ may have hastened the trend. The average computer programmer in India earns roughly $10 per hour, compared to more than $60 per hour for the average American.
"People were reading about offshoring at their breakfast table," McCarthy said in a phone interview. "That made a lot of (chief information officers) who were unaware of the cost savings consider moving in that direction."
Executives in the financial services and technology industries have embraced the trend. Tech hubs such as Silicon Valley, Seattle and Austin, Texas, have higher unemployment than the nation at large.
But the Forrester report says a new wave of white-collar offshoring among manufacturing companies — automobile parts suppliers and agribusineses, for example — will bring the trend to other parts of the country, particularly the Midwest.
The region is still reeling from the offshoring of blue-collar jobs to low-wage countries in eastern Europe, Latin America and China. It's unclear what impact the loss of accountants, programmers and business analysts would have in places such as Detroit, Chicago and Cincinnati, McCarthy said.
Tide Is Still Going Out
Since 2001, the nation has lost more than 2.5 million manufacturing jobs and more than 850,000 professional service and information sector jobs. No one knows for sure how many of these jobs have been lost due to increased import competition and shifts in production abroad, since no comprehensive official data are collected. Various independent estimates indicate the number of white-collar jobs lost to shipping work overseas over the past few years is in the hundreds of thousands and millions are at risk in the next five to ten years. But the number of jobs lost need not be overwhelming in order to concern policymakers: increased overseas outsourcing also undermines wages and working conditions in those jobs left behind and threatens the long-term health of the economy.
How Many Jobs Have We Lost?
More than 3 million manufacturing jobs have disappeared since 1998, and the Economic Policy Institute estimates 59 percent—or 1.78 million—of these jobs have been lost due to the explosion in the U.S. manufacturing trade deficit over the period.
Goldman Sachs estimates 400,000–600,000 professional services and information sector jobs moved overseas in the past few years, accounting for about half of the total net job loss in the sector over the period. A Deloitte Research survey found one-third of all major financial institutions are already sending work offshore, with 75 percent reporting they would do so within the next 24 months. A U.C. Berkeley study found 25,000 to 30,000 new outsourcing-related jobs advertised in India by U.S. firms in just one month in 2003.
One service sector hard hit by job losses is information technology, especially software. The pro-outsourcing consulting firm Global Insight estimates we lost 104,000 information technology jobs to offshore outsourcing between 2000 and 2003, more than a quarter of the 372,000 jobs lost in the sector overall during the period. The Economic Policy Institute found employment in U.S. software-producing industries fell by 128,000 jobs from 2000 to early 2004, while about 100,000 new jobs producing software for export to the U.S. were created in India over the same period of time.
States are outsourcing public sector jobs as well, though most state governments do not know exactly how many. At least forty states contract out administration of electronic benefit cards for the food stamps program offshore. In one audit, the state of Washington found 36 out of 41 agencies were contracting out work overseas. A recent study by INPUT Research projects outsourcing of state and local government technology contracts will grow from $10 billion last year to $23 billion in 2008.
From November 2002 to January 2004, the U.S. Department of Labor certified 246,398 workers who lost their jobs due to trade for Trade Adjustment Assistance (TAA). This is in addition to the estimated 1,112,775 workers who were certified for TAA between 1994 and the end of 2002. These figures are very under-inclusive: they only count workers who know about the TAA program, apply for it, and qualify under the program’s strict eligibility requirements. The numbers do not include most service sector workers or workers who have lost their jobs due to shifts in production to China—neither group is eligible for TAA. Nor do they include workers erroneously denied TAA certification by the Labor Department.
The Economic Policy Institute estimates that between 1993 and 2000, our lopsided trade policies, reflected in the explosive increase in the U.S. trade deficit, cost Americans a net 3 million jobs and job opportunities. The growth in the NAFTA trade deficit alone is associated with nearly 900,000 lost jobs and job opportunities through 2002.
How Many Jobs Will Be Lost?
Forrester Research Inc. predicts U.S. employers will move 3.4 million white-collar jobs and $136 billion in wages overseas by 2015. The outplacement firm Challenger, Gray and Christmas estimates the number of service-sector jobs moving overseas each year will hit 588,000 by 2005. A University of California at Berkeley report finds 14 million jobs are at risk of being sent offshore, and predicts job losses will exceed the Forrester study’s projections.
Gartner Inc., a high-tech forecasting firm, estimates 10 percent of computer services and software jobs will be moved overseas by the end of this year, while a study by Meta group projects 40 percent of corporate tech operations will move offshore by 2008.
A survey by Deloitte Research found the world’s 100 largest financial services firms expect to shift $356 billion worth of operations and about two million jobs to low-wage countries over the next five years. Another Deloitte survey of 42 global telecom operators projects 275,000 jobs in the sector will be sent off-shore by 2008.
What Are the Broader Impacts?
Economic theory predicts increased trade will lower wages for lesser-skilled occupations, and thus increase income inequality. Though economists’ estimates vary, increased trade is likely responsible for about 20 percent of the recent increase in income inequality in the U.S. This translates into a decrease in real wages for the majority of American workers—roughly a 6 percent loss for the two-thirds of workers who lack a college degree.
Recent wage trends confirm what economic theory would predict. Real wages have stagnated since 1973, even though productivity has grown rapidly. For the majority of the American workforce, real wages have stagnated since 1973 and have actually fallen in the last year. Since real wages are adjusted for inflation, they take into account any benefits workers enjoy from lower costs resulting from increased imports.
The Economic Policy Institute reports wages in the industries in which jobs are being created are, on average, 21 percent lower than wages in those industries in which jobs are disappearing. In addition, expanding industries are less likely to provide workers with health insurance than industries cutting jobs. EPI also found jobs losses are hitting higher-paid software occupations even harder than other software jobs.
Increased employer mobility also hurts workers by decreasing their bargaining power. As it becomes easier for companies to move work overseas, employers use the threat of sending work overseas to squelch union organizing drives and win concessions at the bargaining table.
Trade-related job loss does not just hurt individual workers and their families. Entire communities are affected negatively as tax revenues fall, dependency on public assistance increases, and incomes stagnate. And as the off-shoring and job loss spreads to sectors with higher technology and skills that drive innovation and productivity, it puts the long-term competitiveness of the American economy at risk.
Where Have The Jobs Gone?
Have you ever wondered how many companies are sending their work overseas, and just who thery are?
If you'd really like to find out, follow this link:
Who's Offshoring
China Fighting For U.S. Jobs
China aims to expand its $2.6 billion software outsourcing industry by as much as sixfold to rival that of India in the coming five years, a senior official at the Chinese Ministry of Information Industry said Wednesday.
"Our domestic software industry is bigger than India's and our hardware industry is much, much bigger than India's, but we plan to build an even larger outsourcing industry," Zhang Qi, director-general in charge of software development at the ministry, said at a conference in Beijing.
China's cabinet, or State Council, issued a series of policies this year that will offer tax incentives to Chinese software companies that sell outsourcing services overseas.
The Philippine unemployment rate fell in April as the number of jobless dropped for the first time since July, the government said.
Unemployment was 12.9 percent compared with 13.7 percent a year before and 11.3 percent in January, the National Statistics Office said. The number of jobless dropped to 4.79 million people from 5 million a year before. That is the first decline since a 192,000 drop in July.
Hyundai Development, South Korea's largest maker of apartment blocks, received an 800 billion won, or $788 million, contract to build four berths in Busan, the world's fifth-largest container port.
Malaysian inflation accelerated in May to its highest since February 1999, reinforcing expectations that the central bank would raise interest rates for the first time in seven years. The consumer price index rose 3.1 percent from a year earlier.
China Petrochemical, which owns Asia's biggest oil refiner, is seeking a $1 billion loan to fund oil and gas exploration and to expand overseas.
Korea Gas, the world's biggest buyer of liquefied natural gas, said it might complete the purchase of a 10 percent stake in China Gas Holdings, worth about $31 million, by the end of September.
Japan's Fair Trade Commission said Mitsubishi Heavy Industries, Nippon Steel and 16 other companies had rigged bids to build bridges for the government. Kawasaki Heavy Industries, Mitsui Engineering & Shipbuilding and Sumitomo Heavy Industries are among China targets India in outsourcing race.
Fighting For Jobs
Employees of IBM Corp., members of the Alliance@IBM, CWA Local 1701, will call on shareholders to support several critical resolutions at the IBM annual meeting set for Tuesday, April 26 in Charleston, S.C.
Alliance members and other proposal proponents will be available in front of the Charleston Convention Center, 5001 Coliseum Dr., North Charleston, for media interviews beginning at 8:30 a.m., on April 26, prior to the meeting start. They will also address the annual meeting on key issues.
IBM employees and retirees face many critical issues, such as the loss of jobs due to IBM's increased focus on offshoring and cost cutting that has hit employees and retirees hard, as well as the impact on workers of costly and in many cases, inadequate, medical benefits, said Lee Conrad, national coordinator for the Alliance.
"IBM employees continue to be extremely concerned about job security," said Conrad. "Offshoring and the training of replacements is ongoing, employees are finding that the job performance evaluation system is being used as a club to force workers out of the company in lieu of public 'resource actions,' PC Division employees now find themselves working for a Chinese corporation, and there are rumblings of further job cuts following IBM's recent first quarter announcement."
"Clearly the IBM that many employees and US citizens remember no longer exists. It has become 'just another company,'" Conrad said. Further, IBM management now is blaming the pension plan for the financial woes of the first quarter, when in fact, the clever accounting practices of the past have finally caught up with the company, he added.
Earl Mongeon, Alliance Chapter representative from Vermont, questioned the stockholder meeting process as it has been run in the past. "This meeting is the stockholders meeting, not the Board of Directors and CEO's meeting. Putting the question and answer section after the adjournment is undemocratic and infringes on the rights of stockholders for full disclosure and dialogue. It's time to put good corporate governance back in the IBM stockholder meeting," said Mongeon.
Alliance members are encouraging support for these resolutions:
#4 Pension and Retirement Medical. This resolution calls for an end to age discrimination in retirement policies by allowing all employees, regardless of age, to choose the promised pension and retirement medical insurance plan that were in effect prior to 1995 and 1999, when IBM unilaterally adopted drastic cuts and changes.
#5 Executive Compensation. This resolution directs that the compensation of senior executives will be determined without taking into account "income" that is derived from current defined benefit pension plans. That means senior executives will be compensated on their actual performance, not the additional earnings generated by "pension income."
#6 Expensing Stock Options. This resolution requests that the board of directors establish a policy of expensing the costs of all future stock options issued by the company in the annual income statement.
#7 Disclosure of Executive Compensation. This resolution calls on the board of directors to establish a policy of full and transparent disclosure of all compensation issued.
#8 Offshoring. This resolution requests that the board of directors establish an independent committee to investigate, evaluate and report on the risk to the damage to the company's brand name and reputation resulting from its on-going outsourcing initiatives.
Believe The Numbers
The current administration is very intent on telling us that jobs are on the increase, but the numbers tell the real story.
Articles
Reuters employees OK US strike over outsourcing
Bush Cousin Opposes Markey on Bill
Union, legislators, unemployed join forces against offshoring
Click here for additional articles
Reuters employees OK US strike over outsourcing
CBS Marketwatch.com
February 18, 2005
By David B. Wilkerson
(San Francisco, CA) Reuters journalists in the U.S. overwhelmingly authorized a strike on Friday, frustrated by the company's outsourcing plans and more than two years without a contract.
The workers, represented by the Newspaper Guild of New York, voted 302 to 4 to authorize a walkout, Barry Lipton, president of the union, in an interview.
Last month, more than 350 Reuters U.S. employees staged a byline strike, protesting the outsourcing of editorial jobs to low-wage countries, as well as issues related to health care and retirement benefits.
Lipton said the same concerns led to Friday's vote.
"Nothing has changed, unfortunately," he said. "We've been negotiating [with Reuters] for two years, and now's the time to bring this to a conclusion successfully."
A Reuters spokesman said the United Kingdom-based news and financial information provider is "committed to achieving a fair and equitable contract for all concerned."
The two sides will talk today and are scheduled to continue negotiations through March, Lipton said.
Speaking to MarketWatch last month, Lipton asserted that outsourcing has not freed up U.S. Reuters reporters to do more in-depth stories, as they had been told would be the case, because of "an extraordinarily high error rate" at its Bangalore, India, office.
"Subscribers don't understand where some of that product is coming from," he said. "It's really deteriorating the image of Reuters within their own client base."
Reuters said the Bangalore employees were meeting its standards. Of the 1,200 to 1,500 employees Reuters ultimately plans to install at its Bangalore center, at least 50 of them will be editorial, the Newspaper Guild of New York said.
Management also intends to consolidate its London and Washington picture-editing desks in Singapore in another wage-slashing move, according to the union.
Reuters' U.S.-listed shares were down 49 cents at $47.28 in afternoon trading. See related story on Reuters' efforts in the U.S.
Bush Cousin Opposes Markey on Bill
The Boston Globe
February 17, 2005
By Rick Klein
(Washington, DC) Representative Edward J. Markey, who has been touting a bill to keep thousands of data-entry jobs generated by healthcare companies from going overseas, ran into a spirited opponent between the sushi boat and the open bar at an inaugural party last month: Jonathan S. Bush, the Waltham healthcare entrepreneur and President Bush's cousin.
Bush is the president of athenahealth Inc., which employs about 200 low-wage workers in India to enter medical data for its clients, including many doctors and hospitals in Massachusetts. Bush insists Markey's proposal would put his company out of business, leaving 370 workers in Markey's own district out of work.
The contretemps between the two men offered a glimpse into the increasingly heated politics of outsourcing, and whether global free trade creates US jobs or takes them away. It also could be a preview of a larger debate to come, when the president launches a planned nationwide system of medical records, creating tens of thousands of data-entry jobs, jobs that, barring the success of Markey's bill, could easily and cheaply be filled by workers in India.
Markey and Jonathan Bush engaged in an impromptu debate at the reception hosted by Governor Mitt Romney at Washington's Mandarin Oriental last month. Bush, the son of former President George H. W. Bush's younger brother Jonathan, said Markey would drive up healthcare costs in Massachusetts; Markey countered that he is trying to protect privacy and save jobs that could go to lower-income people in Eastern Massachusetts.
"Markey's bill would kill us," Bush said later. "We're providing a very valuable service, and we're netting a huge number of jobs. This is crazy."
Markey, a Malden Democrat who is cochairman of the Congressional Privacy Caucus, is seeking to outlaw the transmission of any health or financial information about US citizens to people in other nations: The bill would prohibit outsourcing of jobs in financial services and insurance as well as in healthcare.
The congressman justifies outlawing the outsourcing of medical-data jobs on the grounds that other countries do not have nearly as extensive privacy laws as the United States. His bill, which he filed last year and intends to reintroduce in Congress this year, aims to protect consumers' privacy and American jobs in a single measure, according to the congressman.
"It's becoming increasingly clear that both our jobs and our privacy are being shipped offshore, and federal regulators aren't doing nearly enough to stop it," Markey declared. "If their business is in Boston, the bill doesn't affect them. If the business is in Bombay, then they need to get the individuals' permission."
The measure was bottled up by the Republican-controlled Congress last year. But it is part of a package of measures supported by the Democratic leadership to slow the offshoring of jobs, and Markey said consumer privacy and offshoring are bipartisan issues in an era of identity theft and the loss of US jobs to distant countries.
Though athenahealth has not had any problems with personal records leaking into the public domain, incidents involving other companies have drawn alarm. In 2003, a Pakistani woman who entered data for the University of California-San Francisco Medical Center threatened to display patients' medical records publicly unless she was paid more money.
Jonathan Bush argues that the bill is not needed, because US-based companies are covered by health privacy laws regardless of where they hire workers.
"If that data, while under our control, was in any way compromised, we're dead meat if something goes wrong with that information," said Bush, who cofounded athenahealth in 1997.
Bush said Markey's bill could actually harm patients' privacy, because money now being spent on protecting privacy would instead have to be spent to pay higher wages to American data-entry workers: "Because we have [the low-wage workers], we can afford to do a very sophisticated and elaborate blinding system to separate identity from the information."
Athenahealth hires about 200 workers in India to enter medical records, lab results, and billing and insurance claims into computers. Bush said those workers cost between $6 and $8 an hour to hire including overhead associated with their work stations and managers and estimated that similar work would cost twice as much in the United States. He said he did not know how much the individual workers make because the work is contracted through another firm in India.
He said athenahealth's partners in India also give the company the flexibility to hire additional workers whenever they are necessary, something that would be more difficult to achieve in the United States, which has costly bureaucratic requirements whenever a new employee joins a company. Plus, many of the Indian workers hold advanced degrees, making them far more qualified for the job than the pool of talent that would be available in America, Bush said.
Markey concedes that healthcare providers could face steeper costs under his measure, but he insists that electronic data are still cheaper to process than paper records, and that cost should not be a factor when it comes to protecting personal privacy.
"We don't have federal marshals in Bombay," he said. "These records are the most sacred information a family has, and Americans don't view privacy as a commodity. It's not a razor blade. It's not an automobile. It's a value. It's the identity of their family."
US companies are covered by federal privacy-protection provisions, but the problem comes in enforcement, said Jonathan Bogen, president of HealthCIO, a consulting company on health privacy issues. Workers in India may not be properly trained, and the federal government has no way to check up on how private data is being handled by overseas workers, Bogen said.
Bush said the jobs he is creating in India are contributing to a boom in that country, with new schools and medical facilities being constructed with the wages he is paying. He sees his company as taking advantage of the best that globalization has to offer lifting up a developing country with jobs that would be difficult to fill in the United States, and forging a new path in the US with an industry that didn't exist a few years ago.
"This is the best thing that could ever happen to the Commonwealth," Bush said.
But Markey said the data-entry jobs should be back in Massachusetts and with medical privacy involved, the importance of bringing the jobs under US oversight is heightened.
"Every method of reducing cost is not equally acceptable," he said.
Union, legislators, unemployed join forces against offshoring
Daily Camera
February 15, 2005
By Alicia Wallace
(Denver, CO) John Coffey has been out of work about eight months. While the 52-year-old computer programmer has looked for jobs in Colorado, around the nation and overseas, the search has been to no avail.
Coffey, who worked at Boulder's IBM site for the majority of his 111/2-year tenure with the company, said he lost his job eight months ago because it was outsourced overseas.
The Colorado AFL-CIO invited Coffey and some Colorado legislators to speak Monday at the Capitol in support of Senate Bill 23, which would ban recipients of state service contracts from offshoring jobs. The bill is sponsored by Sen. Deanna Hanna, D-Westminster, and co-sponsored by Rep. Michael Merrifield, D-Colorado Springs.
At the "Have a Heart" press conference, about 30 supporters stood outside of the Capitol, some holding signs reading: "Happy Valentine's Day. Have a heart and keep our jobs in Colorado."
Senate President Joan Fitz-Gerald, D-Golden, said legislators need to put the needs of their constituents ahead of special interests.
"We value labor as well as capital," Fitz-Gerald said. "We value the sweat of your brow, as well as someone's investment."
Keeping jobs here should become a priority, especially considering the state is 49th in job creation, Hanna said. About 130,000 residents are currently unemployed, she said.
Paul Mendrick, the secretary-treasurer of the Colorado AFL-CIO, agreed.
"Our good manufacturing jobs have been exported overseas, and now they're being followed by our white-collar jobs."
Coffey said he looked to the Colorado legislature to stop that practice.
"It's not good for myself, my family, my community in Longmont, this state and this country," he said.
However, opponents of the bill point to potential negative impacts on the economy, education, research and taxpayers' wallets.
Because the state has more than 10,000 contracts, the cost will be high to reassess each one when they come up for renewal, said Heidi Heltzel, vice president of government affairs for the Colorado Association of Commerce and Industry, which is lobbying against the bill.
Armonk, N.Y.-based IBM, which employs about 4,700 people in Boulder, is one of those contracted businesses. The company makes the state's main central processing unit, according to SB 23's state fiscal impact report.
The bill might not only cut ties with businesses, institutions and higher education facilities here, but also hurt attracting companies, Heltzel said.
"It also has a chilling effect on those businesses that do want to come and do business here and hire Colorado citizens," Heltzel said.
After the press conference ended and while a handful of children headed into the Capitol to deliver "Have a Heart" Valentines to legislators, Coffey stood on the steps and said the local school district is looking for bus drivers, he said, so that might pan out.
"I'll find something eventually," Coffey said. "But I'd prefer to find it in my line of work, which is computers."
Additional Articles of Interest
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Mastek to Set Up Dedicated Cenre for Fidelity
Cincinnati company goes to India to keep up
Focus on Low Labor Costs Lead Customers to Hang Up
The Question Remains: Where Are the Jobs?
Smartmoney.com
February 17, 2005
By Lisa Scherzer
Judging from recent headlines, you'd think the economy is roaring. There are plenty of signs of strength: The unemployment rate fell to a multiyear low of 5.2% in January, gross domestic product grew by 4.4% last year, and on and on.
But labor economists know that the story isn't as rosy as the headlines might indicate. Today's job growth is more than twice as slow as it was after the 1990-91 recession, and in fact is slower than during any recovery since World War II.
According to Jared Bernstein, senior economist at the Economic Policy Institute, a liberal think tank in Washington, D.C., job market conditions are a mixed bag. His February "Jobs Picture" report shows that business services added 25,000 jobs from December 2004 to January 2005, but 17,500 of those were temporary positions — clear evidence that employers remain uncharacteristically cautious about permanent hires even at this stage of the expansion.
The economy-labor disconnect makes some wonder if the weak employment growth is a harbinger of a world in which businesses can rake in increasing profits without much of it trickling down to workers. While profits are at an all-time high, companies remain conservative in terms of expanding and hiring, and wages are flat, Bernstein notes.
We asked this dismal scientist to elaborate on the reasons for the continued labor-market languor, and to issue an outlook for 2005.
SmartMoney.com: Last week the Bureau of Labor Statistics reported that initial jobless claims fell by 13,000 to 303,000, the lowest level since October 2000. But you say those numbers aren't as promising as they sound.
Jared Bernstein: Weekly jobless claims are trending downward as they should. But there are much broader indicators of the situation that tell a story that is mixed at best. No, actually just mixed. We are adding employment consistently now. The job recovery is solidly behind us. But we have new problems — namely, the rate of job growth is disappointing. We are well below the rate we should be in a recovery.
There are concerns among economists that we're stuck in low gear. We're pondering what kinds of structural factors are blocking and jamming the job-creation machine at this point. The president was very excited about the creation of over 2.3 million jobs last year in his State of the Union speech. But the rate of job growth over the past year was 1.7%. That was well below the historical rate in a recovery, which is 3%. Had we been growing at that rate, we'd have another 1.7 million jobs. Our expectations regarding job growth is quite diminished.
SM: The unemployment rate declined in January to its lowest level since September 2001. The U.S. economy grew by 4.4% last year and companies are expanding. What's causing the sluggish hiring?
JB: [The problem is that] the labor market never gets tight enough to ensure that the benefits of the recovery are broadly shared among working families... The unemployment rate is currently 5.2%. It's widely agreed that that rate is artificially depressed by lots of workers taking themselves out of the labor force. I wrote in my "Jobs Picture" report that the fall in unemployment is due mainly to the labor force participation rate.
The question of what is a tight labor market -- one in which employers need to bid wages up to get the workers they need, particularly in a high-productivity environment -- that mechanism is not really operative right now. Real wages [adjusted for inflation] have been flat or falling over the past few quarters.
SM: How far off are we now in the recovery in terms of employment numbers compared with the recovery after the 1990s recession?
JB: This recovery officially began in November of '01. On average, it takes 21 months to recover jobs lost; this one took 46. The employment peak of the early 1990s jobless recovery was regained in 31 months.
SM: Are more jobs being replaced by technology, in the form of productivity gains?
JB: Companies are able to get by with fewer people. It's commonly argued that faster productivity growth is part of the explanation. But you can't stop there, because that explanation ignores the demand side of the equation. Historically, productivity is usually growing, and growing quickly during a recovery. But at the same time, you have a positive confluence of stronger demand and faster productivity growth leading to more output and more hiring.
Demand gets pent up during a downturn; but during a recovery, there's a spike in demand, a spike in consumption and in hiring. Productivity becomes complementary as demand gets underway. But there was not much of a bounce-back in this instance.
SM: Why do you think it worked out this way?
JB: Partially, it has something to do with the recession being uncharacteristically investor-led. It was never a very deep recession [in GDP terms]. Consumption held up OK. It's also because of lots of personal household debt. Consumption was bolstered by borrowing and equity-financing. All the refinancing added hundreds of billions to consumers' accounts, as did some of the tax cuts — they helped boost consumption, as did a stimulative monetary policy.
SM: What does the current low-interest-rate environment mean for jobs?
JB: With interest rates, the Fed is not so much putting their foot on the break, as taking it off the accelerator... It's a pre-emptive strike against future inflation. The labor market remains quite weak. We had a couple of good months in the last few years and that's it. If you're worried about the current job market, you wouldn't be so sanguine about interest rate hikes.
SM: It seems there's sort of a consensus that after the kind of big surge in productivity we've had, the recent productivity slowdown will benefit job expansion.
JB: There are those folks who think high productivity growth was holding back job growth. I'm a skeptic about that... One of the factors that's driven the jobless recovery that's been underappreciated is the fact that demand has been relatively weak. Consumption has proceeded apace throughout the recovery. But we never got a typical kind of bounce back that you usually get in consumption when a recovery gets under way. That kind of reversal -- that's associated with a building up of confidence in a recovery. If you talk to employers and investors, there's not a lot of faith in the recovery. From the political actors, obviously there's a lot of cheering.
But the question of sustainability in the recovery -- as far as employers are concerned, you can see it in their actions. They rely on temporary work, on offshoring to avoid the costs of fixed hires. Some of it is because of health-insurance costs. Demand has never really caught fire in the recovery. All those factors are still ongoing.
And now we have two new problems. One is slower wage growth. It was a weak year for wage growth. And interest rates rising will dampen households' desire to take on more debt or refinance. That's also been a source of fuel for weak consumption.
SM: Some economists say that a greater share of the jobs that were lost during this current recession aren't going to come back, citing cyclical vs. secular change. (Cyclical change being when the economy expands and contracts with the cycle; and secular change indicates a trend toward a certain way and not coming back.) You wrote in your "Jobs Picture" that factory employment has fallen for the last five months. Could it be that these lost manufacturing jobs are just not going to come back. Could it be a trend?
JB: There's no question that the loss of manufacturing employment has been a secular trend. Cyclical factors accelerated the rate of job losses in the sector in recent years, but we've been shedding factory jobs for many years. That said, I don't think anyone can say with total assurance that these jobs are gone for good. Manufacturing remains an important part of our economy -- a sector that generates many important innovations. Don't just think steel and autos, but think electronics as well.
Also, there are important policy and market variables, such as trade policies and the exchange rate of the dollar that have a strong influence on our manufacturing competitiveness. For the most part, policy makers have not used these policy levers in ways that would boost our manufacturing sector. So part of the problem is our own lack of proper attention to the weaknesses in the sector.
SM: Last year at this time we were also talking about the dismal employment situation. Yet wasn't this latest recession characterized as short and shallow? Was it from the perspective of the labor market?
JB: By no means. In fact, as I show in the "Jobs Picture," it was the longest labor slump on record, going back the late 1930s, when we started tracking these statistics.
Outsourcing Trend Grows in Ohio
Ohio News Now
February 18, 2005
More and more companies appear to be sending jobs overseas and cutting jobs here in Ohio.
The practice of outsourcing appears to have picked up plenty of steam last year.
"We were making money at our factory," Joe Jeter says of his former job at Ranco. "We were profitable. But we weren't profitable enough."
For most of Joe Jeter's adult life, he earned a paycheck from Ranco Manufacturing in Plain City.
He helped make heat pumps for three decades until his job became someone else's.
"There's no sense me dwelling on the fact that someone is doing my job for pennies on the dollar. I have no control over that," Jeter says.
Today, his $15 per hour is being done for less than a $1 an hour in China.
Joe is one of more than 100 people who lost their job at the North American headquarters for Ranco. Their jobs went to China and Mexico, where labor is a lot cheaper.
At one point, it was rare for Ohio companies to outsource workers. But recent numbers tell another story.
The number of Ohio jobs sent overseas hit record levels last year.
In the first quarter of 2004, roughly 11,000 people lost their jobs. Nine percent of those lost jobs were replaced by positions overseas.
Three months later, of all the jobs lost by Ohio workers, 32 percent of them were replaced by foreign workers.
An in the third quarter of 2004, 42 percent of the jobs lost in the state were shipped overseas.
"Hiring other people to do things is a good thing, especially when they can do it cheaper," Capital University economics professor Dr. Robert Lawson says.
Dr. Lawson believes anyone whose job doesn't require personal contact with a client could be a target for outsourcing, especially if the position is tied to a computer or a phone.
"The key for people is to have a marketable service," Dr. Lawson explains. "If you have something that no one wants to buy, you're not going to be marketable in any economy."
In a few cases, outsourcing is fueling Ohio's economy.
Doug Burnham runs Relizon -- a company that does work other companies no longer want to staff. Typical work consists of printing and data warehousing.
"Depending on the customer, it's anywhere from tens of thousands to millions of dollars that we're saving these companies," Burnham estimates.
Relizon will soon grow into a 300,000 square foot building in Grove City.
But the effects of outsourcing also leave workers like Joe Jeter realizing economic development doesn't leave a lot of openings for a 50 year old who spent his life on an assembly line.
Earlier this month, NiSource, the parent company of Columbia Gas, announced it is considering outsourcing the jobs of hundreds of employees in an attempt to cut costs.
The company has not said if those jobs would remain local or be sent overseas.
Carretek Expands Offshoring Contract
Asia Pulse
February 16, 2005
[Editor's note: exceptions processing involves bank notices to clients in the following areas: stop payment, insufficient funds, account not found, signature verification, etc.]
(Silicon Valley, CA) Carretek LLC, a payment processing company, announced today that it has been awarded a three-year agreement with a US-based company to offshore its cheque exceptions processing.
Carretek is jointly owned by Dallas-based Carreker Corporation, a leading provider of technology and consulting solutions for the financial services industry, and Majesco Software Inc., a subsidiary of Mastek Limited, a leading Indian outsourcing company.
The same client, whose identity was not disclosed, previously contracted with Carretek in August 2004 to offshore another set of transaction processing functions.
With exceptions processing, as with those previously contracted to Carretek, the client expects to realize cost savings in the range of 40 per cent to 50 per cent, announced Carretek.
A key aspect of the agreement was the development of unique processes and technology to process exceptions in near real-time, to guard customer and company privacy, and to comply with regulatory deadlines for processing timeliness.
With Carretek, client information is maintained onshore, while selected data entry and decisioning functions are provided offshore.
Carretek maintains governance and encryption models to ensure full data security.
Mastek to Set Up Dedicated Cenre for Fidelity
Business Line
February 17, 2005
By Krishnan Thiagarajan and Bharat Kumar
MASTEK, the Mumbai-based software services company, is setting up a separate offshore development centre for its client, Fidelity Investments, a large asset management company.
Speaking to Business Line, Mr Sudhakar Ram, CEO, Mastek said, "They (Fidelity Investments) have given us a clear mandate. We will set up the centre in this quarter." He added that a separate centre was necessary since the client required "special security and specific equipment." The number of people working for this client in Mastek would not change.
Asked how the company plans to leverage this client relationship, Mr Ram said, "This (centre) will give us access to the Fidelity network. Now we can do certain processes we could not have done in the past. There is no guarantee of business. It is just that when you have this centre, one can bid for more business (using this client as a reference)."
Mastek has also been evaluating Chennai as a possible location for its newer development centres.
Asked if the centre dedicated to Fidelity would be located in Chennai, Mr Ram said, "The Fidelity centre needs to be up and running quickly. We have only just acquired land in Chennai. The first operations in Chennai would possibly begin in 18 months from now." Mastek has acquired land in the Mahindra City, near Chennai for its centre. This is the first centre for Mastek outside western India. It has centres in Mumbai and Pune.
Responding to whether Mastek plans to expand its focus beyond systems integration, its core capability, in order to remove fluctuations in its revenue streams, Mr Ram said, "Our strength lies in Systems Integration (SI) capability. We are one of the few players from India capable of delivering like this reliably. The only way to remove lumpiness (or volatility in deal flows) is through partnerships and creating a steady deal-flow. We weren't clear a couple of years ago, whether we would get that kind of deal flow as an SI. Now, it looks like we will."
Mastek plans to continue its focus on the government and financial services (including insurance) vertical to target clients in the project-related SI business, particularly in the UK.
Asked if Mastek had any specific strategy to bag more project deals in UK, he said, "Our strategy is to work with partners. Today we are known (in the UK) because of the London Congestion Charge project and the NHS (National Health Service) project. We know what deals are going in the market. So we know who is best to tie up with for each of those deals. We don't have the size or credibility to go on our own. But we have high credibility to go with whoever we think has a good chance of good winning."
Bags offshoring deal
CHENNAI: Mastek Ltd said on Wednesday that Carretek, its joint venture with Carreker Corporation, has obtained a three-year order from a US company to offshore its cheque exceptions processing.
Not disclosing the name of the client, a statement from Mastek said that the client aims to achieve savings between 40 and 50 per cent due to offshoring. The client expects to continue increasing its offshoring commitment.
Cincinnati company goes to India to keep up; Companies say they save money, benefit workers
Dayton Daily News (Ohio)
February 13, 2005
By Mehul Srivastava
(Bangalore, India) When Cincinnati-based Convergys Corp. started its India subsidiary on Jan. 1, 2001, it had exactly one employee. It now has 10,000 employees in six centers across India.
Anywhere else in the world, that kind of growth would be phenomenal, but in India's outsourcing industry, that's just "healthy."
"Really, it's just a question of keeping up with the industry," said Jaswinder Gumman, country manager for Convergys and the employee who started the subsidiary four years ago.
Convergys cleared nearly $2.4 billion in revenue last year, primarily from helping American companies outsource their billing and customer service needs. Its 60,000 employees are spread across the globe, with 45,000 in North America, 10,000 in India and the rest scattered in countries like the Philippines.
In India, Convergys runs call centers in and around New Delhi and Bombay, and outsources human resources benefits packages for companies - including those in Ohio - in Pune and Hyderabad.
Among its clients are telecommunications companies. Convergys was spun off from Cincinnati Bell, and still has close ties to the phone business.
Gumman said Convergys' global reach had much to do with customer demands.
"When multiple clients suggested that we could perhaps help cut costs by looking at offshoring, we did a little looking around," he said.
The "looking around" brought them to New Delhi, where Convergys now has more employees than the company's corporate headquarters in Cincinnati. But company officials maintain the growth in India has not been at the cost of jobs in America. "By and large, our headcount hasn't really gone down in North America," Gumman said. Convergys' call center employees earn the industry standard wage for a college graduate - about 10,000 rupees or $240 a month. They also receive benefits mandated by the state government, such as medical coverage, tuition reimbursement and pension benefits.
Rent for a one-bedroom apartment in Gurgaon, a city of 140,000 people outside New Delhi, is about 3,500 rupees a month, cheaper if the room is shared. In addition, most young people tend to live with their parents even after they get a job, at least until they get married.
Food is relatively cheap, and call center employees get free meals at work and free transportation. The air-conditioned facilities also feature what Gumman described as "ergonomic furniture, spacious work areas and just a beautiful work atmosphere."
"The myth of the Indian sweatshop is completely not true," he said. "Most of the young people who work here, they live rather well."
India's per-capita income is incredibly low, $300 a year in some areas. While cities like Gurgaon can be expensive, $240 a month is considered a comfortable beginning salary.
For people who do jobs other than answering phones, the figures on salaries are tougher to get. Upper-level managers make between $20,000 and $40,000 a year, a salary that places them among India's upper middle class. Managers like Maneesh Goswami, 37, are making the Indian equivalent of a six-figure salary.
Goswami said his job at Convergys has given him a world view of business.
"When I was making my move (from working for an Indian company to working with Convergys), my friends were telling me I would be back in less than six months," said Goswami, who solves software needs for the company's clients in America. "But I meet them now and I can honestly tell them I have learned so much in the past four years that I never knew was out there."
Convergys would not reveal Goswami's exact salary, but he said his pay has nearly doubled since he joined the company in 2001. Since then, he has traveled to America and the United Kingdom for work.
"I am exposed to global standards for work that no Indian company used for so many years," said Goswami, who managed airports for an India's Jet Airways before joining Convergys. "I learned a whole new way of thinking."
Like other companies in India, Convergys has to train its workers to fit the needs of their American clients. The employees in the call centers go through language training, and its engineers and managers learn to work at the pace of an American company. To keep its talent pool high, the company recruits from 22 cities in India.
Gumman and his colleagues won't speak at length about what Convergys' future plans, but they predict more "healthy" growth.
"I know 'healthy' appears odd in this context," Gumman said. "But that's how fast things are moving in India."
Customer Hang-ups Over Tardy Call Centres
Birmingham Post
February 17, 2005
An increasing number of people phoning call centres are hanging up in frustration because of the time it takes to answer, a report reveals.
More customers than ever are calling contact centres, but more than one in ten hang up before they speak to someone.
The number of abandoned calls has risen for the sixth year in a row, especially to telecoms firms.
Computer firm Dimension Data, which conducted the research, warned firms that their 'fixation' on cutting costs through reducing jobs should not be at the expense of customer satisfaction.
An increasing number of British firms have switched call centre work abroad in recent years to save money, which has led to warnings about the quality of services.
Customers expect calls to be answered quickly and are only willing to wait 65 seconds compared with 71 seconds in 2003, according to research.
Cara Diemont, of Dimension Data, said: 'The boardroom's focus on cost reduction is reflected in a number of call centre trends, which include offshoring and deployment of self-service technology.
'Customers are more demanding. We all want the phone answered quickly and our inquiries handled efficiently and effectively. But shareholders are also demanding and want to see a consistent return on their investment.
'The contact centre is now the main interface between a business and its customers, but our research finds that performance continues to suffer at the expense of costcutting and failure to exploit the benefits of integrated technology.