Reference no: EM13475356
Economists have long argued that free trade produces gains for all countries that participate in a free trading system, but as the next wave of globalization sweeps through the U.S. economy, many people are wondering if this is true, particularly those who stand to lose their jobs because of this wave of globalization. In the popular imagination for much of the past quarter century, free trade was associated with the movement of low-skill, blue-collar manufacturing jobs out of rich countries such as the United States and toward low-wage countries-textiles to Costa Rica, athletic shoes to the Philippines, steel to Brazil, electronic products to Malaysia, and so on.
While many observers bemoaned the "hollowing out" of U.S. manufacturing, economists stated that high-skilled and high-wage white-collar jobs associated with the knowledge-based economy would stay in the United States. Computers might be assembled in Malaysia, so the argument went, but they would continue to be designed in Silicon Valley by high-skilled U.S. engineers.
Recent developments have some people questioning this assumption. As the global economy slowed after 2000 and corporate profits fell, many American companies responded by moving white-collar "knowledge-based" jobs to developing nations where they could be performed for a fraction of the cost. During the long economic boom of the 1990s, Bank of America had to compete with other organizations for the scarce talents of information technology specialists, driving annual salaries to more than $100,000. However, with business under pressure, the bank cut nearly 5,000 jobs from its 25,000-strong U.S.-based IT workforce. Some of these jobs were transferred to India, where work that costs $100 an hour in the United States can be done for $20 an hour.
One beneficiary of Bank of America's downsizing is Infosys Technologies Ltd., a Bangalore, India, information technology firm where 250 engineers now develop IT applications for the bank. Other Infosys employees are busy processing home loan applications for Greenpoint Mortgage of Novato, California. Nearby in the offices of another Indian firm, Wipro Ltd., five radiologists interpret 30 CT scans a day for Massachusetts General Hospital that are sent over the Internet. At yet another Bangalore business, engineers earn $10,000 a year designing leading-edge semiconductor chips for Texas Instruments. Nor is India the only beneficiary of these changes.
Accenture, a large U.S. management consulting and information technology firm, moved 5,000 jobs in software development and accounting to the Philippines. Also in the Philippines, Procter & Gamble employs 650 professionals who prepare the company's global tax returns. The work used to be done in the United States, but now it is done in Manila, with just final submission to local tax authorities in the United States and other countries handled locally.
Some architectural work also is being outsourced to lower-cost locations. Fluor Corp., a Texas-based construction company, employs some 1,200 engineers and draftsmen in the Philippines, Poland, and India to turn layouts of industrial facilities into detailed specifications. For a Saudi Arabian chemical plant Fluor is designing, 200 young engineers based in the Philippines earning less than $3,000 a year collaborate in real time over the Internet with elite U.S. and British engineers who make up to $90,000 a year. Why does Fluor do this? According to the company, the answer is simple. Doing so reduces the prices of a project by 15 percent, giving the company a cost-based competitive advantage in the global market for construction design.
Read the Country Focus "Moving U.S. White-Collar Jobs Offshore." And answer the questions below.
• a. Who benefits from the outsourcing of skilled white-collar jobs to developing nations? Who are the losers?
• b. Will developing nations like the United States suffer from the loss of high-skilled and high-paying jobs?
• c. Is there a difference between the transference of high-paying white-collar jobs, such as computer programming and accounting, to developing nations and low-paying blue-collar jobs? If so, what is the difference, and should government do anything to stop the flow of white-collar jobs out of the country to countries such as India?