Business Week: Keeping Jobs Onshore

In this blog I continue to take a look at the August 20 and 27 Business Week feature “The Future of Work”.

Let’s start today by taking a look at offshoring and let’s take it from the perspective of a 22 year old college student. That’s what Business Week Software Editor Steve Hamm does in his piece How to Keep Your Job Onshore. Hamm talks about Matt Cavin, a freshman Theology student at Valparaiso University who, one day while on a summer study program a couple of years ago in China, happened to be reading Friedman’s The World is Flat in a Chinese park. As Matt read it was as if a light bulb went off in his head – experiencing first-hand the intensity of Chinese students as they studied English, Math and Science – Friedman’s words about the movement of U.S. jobs off-shore really hit home.

Fast forward – Matt gets back to the U.S. and remaps his future – he ditches the Theology major and will finish a triple major next spring – International Business, Economics and Mandarin. Today Matt sees opportunity – he is not scared but he is running as fast as he can. Matt understands that today just about any job that can be done over the web can be off-shored. It’s not just the computer programmers anymore – it's lawyers, pharmacists, accounting, banking, medicine….. the list is almost endless.

In his piece Hamm also discusses “multidisciplinary skills” and mentions one of my favorites (likely because this is my background) – computer science/engineering and biology. He goes on to discuss how young people in the U.S. must really sit down and plan their careers, Hamm says they must break down their jobs into the tasks that are easy to move and those that are not. They must prepare and ensure that they are excelling in the areas that cannot be easily moved if they want to stay in this country and have successful careers.

Alan S. Blinder from Princeton published an offshorability index study last March. The study pdf is linked here and it's another must read. In the study he classifies 8.2 million current jobs in the U.S. as being “highly offshorable” and 20.7 million more jobs as being “offshorable”. According to Blinder the most likely white collar positions heading offshore are software programmers, data entry clerks, draftsmen and computer research scientists.

How do we react? How do we plan? For us academics – what do we teach? For our students - what do they study? What aspects/pieces of our respective disciplines are offshorable? What pieces are not? As we update our curriculum are we focusing on the parts and pieces that are not highly offshorable? How are we preparing tomorrows workforce?

Like Matt, the student at Valparaiso - are we (you, me, our colleagues, our students) running as fast as we can?

Has Moving Jobs Offshore Hurt Our Economy?

The June 18, 2007 issue of Business Week has an interesting cover story titled The Real Cost of Offshoring. The article, written by Business Week economics editor Michael Mandel, has the following byline: Official numbers show that moving jobs overseas hasn't hurt the economy. Here's why those stats are wrong.

The article describes what Mandel refers to as Phantom Gross Domestic Product (GDP) calculations being made by the U.S. Bureau of Labor Statistics (BLS). The article goes on to describe the GDP as the inflation-adjusted value of all the goods and services produced inside the Unites States and goes on to say "Phantom GDP" arises when the real growth rate of imports is understated...... making it appear that more of the goods and services consumed in the U.S. are produced here.

I'm not an economist and I'm not going to pretend to be any kind of expert. I will try and explain and summarize based on the Business Week piece. According to Mandel, "Phantom GDP" happens four ways:

1. Offshoring - The cost of manufacturing most products offshore is commonly cheaper than it is in the U.S. What's kept some of the manufacturing in the U.S. has been reliability. Today foreign manufacturers are becoming more reliable and this increase in reliability is sometimes considered a "Productivity Improvement" by the BLS. So let's consider a U.S. manufacturer that moves production from the U.S. to China. The combined cost decline and increase in productivity, as the result of the offshoring, are sometimes miss-booked as part of the U.S. GDP growth.

2. Intangibles - the article mentions how R&D is also being shifted off shore. Now R&D is an expense that does not result in direct production of product. As R&D is shifted offshore, it is sometimes considered a cost cut by the BLS and may be indicated as an increase in productivity.

3. New Goods - the article mentions consumer electronics (offshored from the U.S. long ago) which typically have short life cycles. Think about just about any electronic device - next generation products are technologically more advanced and typically cheaper than predecessors. These improvements and cost cuts are sometimes credited by the BLS to the U.S. even though the R&D and production are being done offshore.

4. Cross-Country Shifts - Companies are constantly searching for the lowest cost supplier. As production of a product moves from one country to a lower cost country (example: from Mexico to China) there is a decline in cost of that product. Part of that decline in cost can show up in BLS GDP data.

The Business Week article quotes Michael Horrigan, BLS Associate Commissioner as follows:

"Capturing the shift from domestic to foreign production [or vice versa] and its associated impact on prices is at the forefront of methodological challenges we face."

This is an incredibly difficult challenge. Pick up a copy of Business Week if you can - it is a very good read. You can also listen to a podcast of Mandel's cover story here.