Volume
4, No. 2, August 2004NEW ECONOMY INFORMATION SERVICE E-BULLETIN
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In this issue:
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OFFSHORE OUTSOURCING: HOW MUCH ARE FIRMS REALLY SAVING?
Policymakers have been struggling to find ways to address rising public concern over the issues of offshoring. Now comes a new study to argue that the presumed savings can fall quite short of expectations, opening up the possibility that American workers can be helped to become competitive with much lower-paid foreign workers. The report was released at a conference on July 19 organized by New Jobs for New York, that commissioned the study. The author, Howard Rubin, a consultant and professor emeritus at the City University of New York looked at the 100 largest public companies in New York City, most of which are engaged in offshore outsourcing. But whereas the average cost savings cited by companies is 44%, closer analysis found that "the true savings can sometimes be less than half of that." The reason is that raw salary differentials are not the only cost factors that must be considered. A complete accounting should also include the costs of planning, transition, start-up, technology and communications, remote management and oversight, and other travel and logistical expenses. When these are factored in, domestic labor costs in areas such as upstate New York fall within 10% to 20% of the costs of offshore locations. According to Reuter's, Rubin said that "Companies may not be looking at the whole picture when they go offshore." One of the companies in his survey allowed for $20,000 per person in annual salaries when planning for offshore outsourcing. But costs for onshore management, communications and other items boosted that figure to $45,000. Rubin notes that a computer programmer in Buffalo or Syracuse, New York, earns an average of about $53,000 a year. "Suddenly what looked like a major advantage is only a moderate one," he said. Figures on both sides of our partisan divide have expressed concern about the long-term implications of outsourcing. Senator Hillary Clinton, a panelist at the New York conference, explored the implications of Rubin's analysis. In a Wall Street Journal Commentary she wrote "...we have the potential to be competitive" if we have a strategy that focuses on "innovation, new job creation, workforce development, connectivity expansion, and collaboration between industry, academia, labor and government." Republicans have also proposed strategies to keep good jobs here in the U.S. Don Manzullo, Chairman of the U.S. House of Representatives Small Business Committee, has questioned those in government and business who see offshore outsourcing a benign economic development. At a committee hearing on the importance of education and worker training for small businesses, Manzullo argued that: "... to foster and sustain both this Nation's worldwide competitiveness and domestic job growth requires making lifelong career training and education a national priority." Manzullo has co-sponsored legislation (H.R. 4392 introduced by Congressman Weller (R-IL) on May 19, 2004) to amend the Internal Revenue Code to allow a credit against income for certain IT education and training expenses. According to Manzullo, the legislation "addresses the critical problem of providing a high tech workforce capable of mastering the ever changing advances in the design and manufacture of increasingly sophisticated products, especially those connected with computers and information technology." The Progressive Policy Institute, a centrist think tank linked to the Democratic Party, has issued a series of reports that also call on the United States to develop a "national competitiveness strategy." Its proposals include boosting innovation, investing in American workers, increasing funding for math and science education, making it easier for foreign scientists and engineers to work in the United States, stopping currency manipulation, enforcing global trade rules and ending subsidies given to companies that move production overseas. (Senators John Kerry and Joseph Lieberman have called for legislation that embodies similar ideas). In addition, PPI calls for a new bargain with American workers. "If workers accept a rapidly changing and highly competitive economy, government policy should empower individuals with effective tools to adapt to change." For example, companies should be forced to provide at least three months' advance notice of layoffs due to offshoring; Trade Adjustment Assistance benefits should be extended to service workers; wage insurance should be available to offshored workers; government should improve programs--including unemployment insurance--focused on displaced workers generally, and do more to help communities impacted by offshored jobs.
GREENSPAN ON JOBS, WAGES, SKILLS & AND THE FUTURE OF DEMOCRACY
Intense debate over the jobs picture has raged during the U.S. economy's wobbly recovery. One view argues that most of the jobs being created are in lower-wage industries such as retail, hospitality, personal services and temporary work. According to the
Economic Policy Institute, industries whose share of total employment is expanding pay average wages 13% lower than those in industries where employment is contracting.
Greenspan disputed this view, contending that measuring employment gains by industry does not reveal whether jobs are low- or high-paying, because of wide divergences of pay within industries. A new hire in a retail company, for example, could just as well be a manager of global operations as a hamburger flipper.
According to a
Washington Times article, Greenspan acknowledged that "The skill premium for skilled workers versus lesser-skilled continues to widen. Real wages have been rising, but there's been a disporportionate rise in the 20 percent of payrolls which were supervisory workers." These are workers who generally have higher qualifications, while the wages of hourly workers, who are less skilled, have barely budged.
Wages of the lesser skilled have not kept up with inflation for much of the past 50 years. But, according to the Washington Post's account, Greenspan attributes this to the fact that "We have not been able to keep up the average skill level in our workforce to match the required increases of increasing technology."
On the other hand, Greenspan repeated calls to improve education and skills so that workers can qualify for the well-paying but highly technical jobs being created in our economy. (Federal programs for workforce training have been cut recently). The Federal Reserve Chairman also, to the surprise of some, added his voice to those (for the most part on the Left) who warn that "the effective increase in the concentration of incomes...is not desirable in a democratic society."
DISCOURAGED OR WHAT?
A number of explanations have been offered for the angst that many Americans express about the state of our economy. One is the shakiness of the recovery, evidenced by a shortfall in job creation that some contend is not really captured in the official unemployment figures.
It has been argued that the U.S. unemployment rate would be much higher than the current 5.5% if all the people who have simply dropped out of the labor market were counted as unemployed.
Recessions are thought to generate so much pessimism that some job seekers become discouraged and simply stop looking for work, only returning to the labor force when the economy improves.
One widely cited report by New York Times columnist Edmund Andrews ("A Growing Force of Nonworkers," July 18) notes that since June of 2000 the number of adults "not in the labor force" -- those who don't have jobs and are not looking for them -- has grown by 4.4 million. Andrews then speculates that if these 4.4 million are in fact "discouraged job seekers" then "the pool of untapped labor could become a cauldron of frustration and resentment." Andrews' article has been circulated by some who expect that this cauldron may boil over to influence the outcome of this November's elections.
Some of our readers surely believe strongly that more good jobs are needed in America, and that the Bush Administration has not done enough to create and keep them. Yet even they may want to question an analysis that can significantly overstate the extent to which available data show that vast numbers of potential workers are indeed discouraged. Sound strategies for strengthening our job market must be based on sound understandings of what is really going on.
Data from the Bureau of Labor Statistics BLS shows that the number of persons "not in the labor force" has been rising steadily for over a decade -- through periods of both boom and recession. In 1994 the number of adults not in the labor force stood at 65.7 million. That figure has risen each year to reach 74.6 million in 2003.
Can these millions -- or the 4.4 million who have joined their ranks since June of 2000 -- properly be considered "discouraged workers" who despair of finding decent work? A look at BLS tables for 2002 and 2003 suggests caution about such an assumption. The Census Bureau's Current Population Survey that provides this BLS data actually asks a number of questions that peel some layers off the riddle of who is not in the labor force, and why (See Table 1).
Table 1 Persons not in the labor force by desire and availability
for work (in thousands) 2002 2003 Total
not in the labor force 72,707 74,658 Do not want a job now 68,029 69,932 Want a job 4,677 4,726 Did not search for work in previous
year 2,673 2,631 Searched for work in previous year 2,004 2,096 Not available to work now 565 564 Available to work now 1,439 1,531 Reason not currently looking: Discouragement over job prospects Reasons other than discouragement Family responsibilities In school or training Ill health or disability Other 369 1,070 150 238 107 575 457 1,075 153 239 113 570 Labor Force Statistics from the Current Population Survey
The second line in Table 1 shows that of some 74.6 million persons who in 2003 were classified as not in the labor force, almost 70 million (close to 94%) said that they did not want a job at the time they were interviewed. Further down the column there is a specific number for those who said the reason they were not currently looking for work was that they were discouraged about their job prospects. In 2003 these 457 thousand "discouraged" respondents amounted to just a little over one half of one per cent of all those who said they were not in the labor force. Although this group may not be as large as some observers have suggested, it is surely a significant group, and its concerns deserve attention. A closer look at the survey data may offer some clues about what kind of attention may be most appropriate.
In 2002 and 2003 roughly 72% of all persons not in the labor force were either between the ages of 16 and 24 or were over age 55. Fully 62% of non-participants in the labor force were women. (See Current Population Survey, p. 245.) A fair proportion of the over-55 year-olds probably consider themselves retired, and a substantial group of the women are likely to be homemakers. Fully five per cent of the respondents who said they were not in the labor force but who also said they would like to have jobs explained that the reason they were not in the labor force at the time was because they were "in school or in training." Those between 16 and 24 not in the labor force who said they did not want jobs were not asked follow up questions about their situations, but it seems reasonable to assume that many of these were also pursuing education or training.
Participation in post-secondary educational programs and in adult education has been increasing since the early 1990s as public understanding about the economic returns to education has grown. Lack of education and skills can affect a person's outlook about work. Yolanda Kodrzycki, in her assessment of "Discouraged and Other Marginally Attached Workers", finds that this group has low levels of education. A high 67.2% of the unemployed have no post-secondary schooling, and there is an even higher rate of 75.3% for those who are classified as discouraged workers.
This discussion suggests two points that those who seek to assist and to represent American workers may want to consider. First, a growing number of citizens who are not in the labor force are away pursuing education and training. A substantial proportion of those who can properly be called discouraged about their job prospects have little confidence in their educational qualifications. So, all in all, better access to education and training should make an attractive election year theme.
Our official unemployment rate may underestimate true unemployment in some ways, as the BLS alternative measures of labor underutilization reveal, but those who go looking for the votes of 4.4 million "discouraged workers" may be pursuing a mirage.
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ANOTHER ENDORSEMENT FOR LEARNING PARTNERSHIPS
Another important voice has spoken out on the need for workplace learning partnerships to strengthen workplace skills.
On July 1 the US General Accounting Office (GAO), a congressional investigatory agency, issued "Workforce Challenges and Opportunities For the 21st Century: Changing Labor Force Dynamics and the Role of Government Policies." The report includes staff research and recommendations from a forum attended by government officials, business and union representatives, and academic experts that was hosted by the GAO.
The proposals of the GAO group in many ways parallel those made in April by the Shanker Institute/New Economy Information Service Taskforce Report "Learning Partnerships: Strengthening American Jobs in the Global Economy."
Participants in the GAO forum generally agreed that the United States may soon face tight labor markets, in part because of projected demographic trends, approaching retirement of the baby boom generation, and the need for higher skills.
To increase the number of skilled workers most forum participants emphasized the importance of providing youth and young adults, especially those who will not attend college, with greater opportunities for alternative education and training. Participants called for changes in government supported training programs, including revisions in congressional reauthorization of the Workforce Investment Act that will give greater emphasis to incumbent worker training.
QUALITY EDUCATION MUST INCLUDE LIFELONG LEARNING
In his address to the 2004 Democratic Convention in Boston, Ed McElroy, the newly-elected President of the American Federation of Teachers, talked about the importance of having well-educated Americans who can contribute to solving the problems that the nation faces. Today, these include a weak economy, national security and the healthcare crisis.
In addition to improving education for pre-school, school-age and post-secondary students, McElroy argued that in today's economy “we must have quality, widely-available job training for lifelong opportunities in our changing economy.”
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UK GOVERNMENT AND UNIONS At its National Policy Forum held at the end of July, the UK's Labour Government expanded its strong commitment to education and training in part of a program to strengthen workers' rights. The Government agreed to an extra eight days of "holiday" and more paid time off for workers to improve their skills; employer-run pilot training projects aimed at guaranteeing certain minimum levels of educational attainment; action in sectors of the economy where there is an under-investment in skills, including possibly "training levies"; and trebling the number of "Union Learning Reps" to 22,000. Leaders of the big four unions, sometimes called the "awkward squad" for their restlessness with the Labour government, expressed considerable satisfaction with the overall package that included concessions covering protections for transferred public sector workers, including their pensions; extending the right to strike to all workers; and a commitment to boosting manufacturing. JULY 2004 ECONOMIC POLICY INSTITUTE BOOK Smart Money - Education and Economic Development, by William Schweke, argues that in the United States, growing economic inequality hinders the nation's ability to provide the high-value-added products and services necessary to compete in a global marketplace. The executive summary states: "The most forward-thinking approach to solving these problems and increasing competitiveness is to equip today's and tomorrow's citizens with the skills and attitudes for economic and civic success in an increasingly knowledge-based economy." The book presents research showing that "a nation that invests in education generates real, quantifiable results." For additional information and to purchase the book go to EPI's website. | |||||||||||||||||||||||||||||
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This E-Bulletin is published by the New Economy Information Service
(NEIS), a project of the Foundation for Democratic Education. NEIS
provides information and reviews debate on the impact globalization
and technological change has on democracy at home and abroad.
Current interest focuses on how American workers can be equipped
with the skills they need for decent employment and economic
security, and on how the globalization of the economy and the
expansion of democracy can strengthen one another.
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