Perspectives on Offshore Outsourcing And

PERSPECTIVES ON OFFSHORE OUTSOURCING AND RESPONSES IN THE UNITED STATES TO BLUNT THE OUTSOURCING IMPACT

Sarah Zimmerman Department of Marketing and International Business University of Toledo 2801 W. Bancroft St., Toledo, OH 43606 419-530-2923/Fax 419-530-4610 [email protected]

Anthony C. Koh Department of Marketing and International Business University of Toledo 2801 W. Bancroft St., Toledo, OH 43606 419-530-2287/Fax 419-530-4610 [email protected]

ABSTRACT

Offshore outsourcing has become one of the fastest growing trends in global business. In looking for ways to lower costs and improve profits, companies outsourced operations and other processes not core to their business, allowing them to focus more on revenue-creating activities. While outsourcing of processes requiring manual labor has occurred since the 1950’s, the recent and rapid growth in the outsourcing of “white-collar processes” has raised the ire of special interest groups, especially trade unions. This paper provides a look at offshore outsourcing and the responses taken by the federal government and business in the United States to blunt the negative impact of outsourcing.

INTRODUCTION

Offshore outsourcing for companies has become one of the fastest growing trends in the business community. One major reason for this is because firms are looking for ways to lower costs and improve profits. By outsourcing, firms are shifting certain functions that are not part of their core competencies, allowing the firms to focus on what they do best. The rapid growth of technology and declining world barriers to the trade in goods and services has made the outsourcing of functions, and therefore jobs, easier and less expensive. The concept of offshore outsourcing is not a new phenomenon. Since the 1950’s, manufacturing has moved to places where the costs were lowest (Kirkpatrick, 2003). Offshore outsourcing, commonly called “business process outsourcing” (BPO), has become a political “hot potato” because BPO could essentially make labor a commodity; it also now affects white (office work) and pink (service industry) collar workers as well as their blue collar counterparts in manufacturing. In the past, people would argue that the quality of work in the U.S. is and must remain superior to that of workers in foreign nations. This 206 is not the case anymore, according to Dennis McGuire, CEO of TPI: “The shock has been that the quality of [foreign] work is better. It reminds me of when we assumed if something was made in Japan, it was of worse quality. We were wrong.” (Quoted in Kirkpatrick, 2003) Zuckerman (1994), in his essay on the “America’s Silent Revolution,” described the changing face of the U.S. labor force. At the turn of the century (1900), over 50% of jobs were agricultural. By the 1950’s, blue collar jobs were the most prevalent—about 40% of total U.S. jobs. By 2000, only about 15% of U.S. jobs were estimated to be blue collar with only 5% in agriculture. Today, non-manual labor makes up almost 80% of the U.S. workforce. Manual labor sectors in developed countries cannot compete with manual labor in the Third World, where wages are mere fractions of developed countries’ wages. As consumers want cheaper prices on finished goods, firms must lower the costs of all their factors of production and related inputs. The rapid advancement in technology has made it possible to produce and distribute knowledge effectively and efficiently. Innovations in supply chain management, logistics, and operations management compliment improved design, driving up the total quality and related costs per unit in developed nations, so knowledge-based activities improve standard labor. However, the many rapidly growing emerging nations have invested heavily in educational and other infrastructures, also advancing into value creating knowledge-based economies. Now, manual labor, technical skills and service functions are being offered at a fraction of developing nations’ cost for these jobs, as illustrated in the U.S. with Table 1, because of national differences in standards of living and other costs of doing business. The fastest growing outsourced functions include basic customer service, account and technical support, bookkeeping and clerical financial functions, sales/telemarketing, and mailroom functions because these functions can be segmented out of a business’s core procedure. Basic understanding of factor endowments—a region’s specific mix of resources such as labor, raw materials, supporting or rival business, and even things like climate—underscores why some areas are simply logical for the production of a certain good, service, or idea. While India is seen as the epicenter for the IT field because of the population of mathematics and engineering specialists, and China as the epicenter for low cost manufacturing because of a large population of poor and formerly rural people seemingly preferring these low-skill jobs to risky agrarian lifestyles, other growing offshore sites follow: Poland, Hungary and Malaysia for IT; the Philippines, Vietnam, Turkey, Romania and Costa Rica for manufacturing and textiles; and countries with large populations of English-speakers like Kenya, India and former strong- British-rule colonies for high-communication services such as call centers or collaborative research.

RATIONALE FOR AND BENEFITS OF OUTSOURCING

Organizations are using outsourcing for many reasons. Generally they want to reduce costs and improve asset efficiency per monetary units spent, therefore increasing profits. It is estimated that the U.S. banking industry has saved between $6-8 billion each year by outsourcing to India (Pfannenstein and Tsai, 2004). Organizations also want to focus on their core competencies by contracting out the non-core functions of any business process and they want to create value for shareholders by cutting these costs (Pfannenstein and Tsai, 2004), as well as to sharpen their strategic focus on innovation in the few remaining core work functions (Grovestine, 2004). Expensive machines and technology can be rented or contracted instead of being purchased and depreciated by a firm. In industries with high product obsolescence—trendy items like textiles and electronics—contract manufacturers can produce quickly and cheaply because they often manufacture for several other companies as well and spread the fixed costs for machines, office help and other overhead with high volume. The outsourcing firm also shifts its high fixed costs to variable costs, reducing expensive administration costs in developing nations. There is improved risk management in that the contractor is only doing one function (production), so the learning curve moves quickly and best practices/standards are applied early. Other advantages include improved flexibility, 24/7 operating hours taking time zones into account, and reduced time to complete work (Pfannenstein and Tsai, 2004. For companies with cyclical demand and/or production, outsourcing allows for easier increases or decreases of their workforce, equipment, or infrastructure (Braun Consulting). Worker tolerance for poor 207 conditions, hours and pay is greater in less developed economies, and fewer rules are enforced to protect them. Bhagwati, et. al. (2004), have found that outsourcing may be creating services not previously available. A survey cited by Grimm (2004) stated that although 104,000 IT jobs have moved offshore— 3% of the domestic pool—90,000 new jobs were created with the money saved. Cost savings in outsourcing may even be passed onto consumers. For example, consumers have seen a 2% price drop in textiles, a saving of approximately $66 billion in 2003 alone, and two-thirds of the economic benefits from sending jobs overseas for consumers are lower prices (Evans, 2004). For organizations, the benefits include larger overseas markets and greater cost-savings, producing profits which may be reinvested back into the economy (Pfannenstein and Tsai, 2004). For every $100 worth of work sent abroad by U.S. companies, $130 to $145 will be reinvested in the U.S. economy (Braun Consulting, 2004).

BARRIERS AND PROBLEMS WITH OUTSOURCING

One of the major problems associated with outsourcing is the lack of a thorough research and rationale for the need to outsource, and the problems it may create. The rush to seek an outsourcing partner may not permit viewing the full picture: hidden costs in proper documentation and product management issues— obsolescence, deterioration, spoilage, taxes, loss to damage or theft, longer delivery times, administrative costs and travel (Clott, 2004). The firm could be paying too much for the services rendered. Trying to renegotiate a contract can be difficult and perhaps impossible. In many less litigious nations, contract law in not as clear and enforceable as it is in the United States. The costs of transition (generally 3-12 months), training and managing at the new site, as well as high layoff costs at the current site also need to be included. Strong internal management support is critical to effective outsourcing. Possible over-outsourcing may lead to delivery problems and loss in the leverage and control with the outsourcing partner (Perkins, 2003). The organization may find that it has become too dependent on the sourcing partner for key products and services (Clott, 2004). There is also possibility that the outsourcing partner could subcontract the agreed upon work or share product secrets in doing work for industry competitors, potentially breaching the security of each company for which it works. The outsourcer could also find itself in even greater competition if the outsourcing partner decides to introduce their own similar, but now less expensive product or brand (Clott, 2004). The risks associated with the political, legal, and socio-cultural macro-environments in the host (outsourcing partner’s) country must also be considered. The hidden costs of doing business abroad could break a potentially profitable outsourcing partnership: illegal bribery standards and corruption, difficult interpretations of language and customs, unrest abroad and the fact that U.S. businesses are often seen as symbols of U.S. policy leaders, and there is conversely the possibility of backlash in the home country when special interest groups and unions lobby and pressure the government for stronger legislation to protect domestic industries. Finally, the long-term negative effect of outsourcing could include a decline in particular skill sets. The experience of how to do a particular function shifts to the company doing the outsourcing, leading to the “transfer of knowledge”. Many people believe that too many IT jobs are being outsourced from the US, and therefore, they pursue other careers or fields of study. This leads to fewer qualified IT specialists in the U.S., forcing an organization to outsource its IT functions because it could not find enough qualified people to fill the positions. This would feed into the cycle of outsourcing (Braun Consulting, 2004).

RESPONSES IN THE U.S. TO BLUNT THE NEGATIVES OF OUTSOURCING

The major complaint of outsourcing jobs from the United States is the loss of jobs, how this hurts families and communities, and how that hurts the economy. Realizing that globalization is inevitable, the U.S. government set about not to protect workers’ jobs in uncompetitive industries, but to retrain and reemploy 208 displaced workers in more competitive functions at their current pay rates, or better. While the U.S. Department of Labor (DOL) overseas several variations on programs to help workers affected directly by job outsourcing, or indirectly through growth in imports from nations that have trade agreements with the United States, the overall results have been less than ideal.

Basic Protective Legislations Labor outsourcing in low-skill and typically low-wage jobs became more popular with U.S. producers like textile manufacturers in the mid-1960s and 1970s. Legislators responded to corresponding social concerns about domestic jobs and worker protection by enacting the Trade Adjustment Assistance (TAA) programs in 1962, and they have been the government’s primary safety net for workers displaced by outsourcing activities since then. The Worker Adjustment and Retraining Notification (WARN) Act went into effect in February 1989. WARN simply gives notification rights to full-time, non-government employees where at least 100 full-time workers were displaced by a plant or department unit closing or displaced through a mass layoff—in some cases the firing of 50+ workers equaling 33% of the site’s total full-time employees. (Worker Adjustment and Retraining Notification Act, Public Law 100-379—29 U.S.C. 2101 et seq.). Employers are required to give notice 60 days before a shut-down so employees may seek retraining or other employment, generally arranged through each state’s individual Rapid Response Dislocated Worker Unit, but developed to provide on-site information about labor market statistics, job search and placement assistance, and training. Additional programs set up to assist displaced workers are America’s Job Bank (AJB) and the One-Stop Career Centers.

Trade Adjustment Assistance Programs Trade Adjustment Assistance (TAA) programs were developed and are managed by the United States Department of Labor to “help trade-affected workers who have lost their jobs as a result of increased imports or shifts in production out of the United States…” (U.S. Dept. of Labor, 2005) These programs attempt to counteract drastic job loss due to U.S. involvement in regional economic trade blocs and free trade areas since the 1970s. It is estimated that over 3.5 million (see Table 2) displaced workers have been certified since the TAA programs went into effect. On average, each certification petition accounts for 133 displaced workers. Studying 30 years of these TAA certification flows indicates US economic and international business activity as it has historically affected the low-skilled American labor force. A record number of 690,000 workers were approved for benefits in 1980, and this figure dropped to between 98,000 and 235,000 each year from 2000 to 2004. Many low-skill, low-wage jobs were lost in the US recessionary period of the mid-1970s-1985. Supply-side economics arguably led to both greater disparity in income distribution and falling real wages for blue collar earners. There is a NAFTA-TAA for those workers displaced because of the North American Free Trade Agreement, the Alternative Trade Adjustment Assistance (ATAA) program to generally benefit workers over 50 years old who may be better aided by financial assistance than retraining initiatives and also industry specific programs such as the Department of Agriculture’s TAA program for Farmers and Fishermen. Total NAFTA-TAA (1994-2003) specifics are worth noting given the amount of bad press NAFTA received. One finds that for the nine years covered under the NAFTA-TAA program, just over 525,000 workers were certified as being displaced due to the agreement. In the same time period, approximately 1,286,000 people were granted trade adjustment assistance that could not be attributed to NAFTA. This illustrates the job market’s surprisingly tepid reaction to the strong perceived Mexican threat. Many of the textiles, electronics assembly or other production jobs going to Mexico had already left the U.S., for China in all likelihood. Again, the 690,000 workers certified in 1980 alone is significantly higher than the figure for all NAFTA-TAA certification years combined—roughly 525,000. These figures lead the authors to hypothesize that international trade agreements such as the North American Free Trade Area did not create the famously predicted sucking sound (Perot, 1994) of U.S. jobs going to Mexico, but that these policy decisions merely reflect a manufacturing reality that had already existed.

209 How TAAs Help Displaced Workers Individual states oversee Rapid Response assistance by providing information on layoff services available, oftentimes on site at the affected plant or nearest worksite; by helping affected workers to apply for benefits certification; and by answering every trade adjustment assistance petition filed. Once certifications have been granted to a group of workers, states next try to offer reemployment services to dislocated workers on an individual basis through job development, job search programs, and job referrals. State-run One-Stop Career Centers offer employment counseling, resume writing, interview skills workshops and career assessments. Retraining and specific skills training can be undertaken at this step as needed and also is determinant upon state and local resources. Emphasis for the service providing entities is on 1) re-employment 2) at, above, or near the displaced persons’ former wage levels and also upon 3) retention of the workers in these new jobs. Performance statistics for TAA and NAFTA-TAA programs for years 2001-2004 are shown in Table 3. While states carry out their Trade Adjusted Assistance activities separately along the three dynamics, national goals for 2001-2005 are for assisting 70-90% of the total number of certified workers, and of this general goal, real assistance outcomes are always reported as smaller percentages than that, and lasting placements percentages are the lowest figures for all years reported by the DOL. Financial allowances may be available to displaced US workers under the various versions of Trade Adjustment Assistance programs. Job search allowances cover travel and subsistence costs of up to 1,250 USD per certified worker who must search for employment outside his or her normal commuting area. Relocation allowances help certified workers forced to move in order to secure employment; 90% of reasonable moving expenses for the certified worker and his/her family may be provided, and a lump sum equaling no more than 1,250 USD assists in the smaller, but still costly aspects of relocation. Only 1% of all TAA and NAFTA-TAA workers have received job search and relocation allowances, and 9% of program participants received a transportation allowance. The added bureaucracy of receiving financial allowances may be to blame. If initial re-employment and financial incentives do not work, training is then supplied to displaced workers for jobs either of equal or superior skill level to the trade-displaced job. Such training can be on-the-job, classroom based, or customized to develop skills-sets fitting a specific industry or employer’s needs, including entrepreneurial and soft-skills training, but generally training must be completed in 104 weeks. An additional 26 weeks of training will be covered for TAA certified workers requiring basic or remedial education, including the study of English as a second language. Receiving training through certification is generally only possible if its completion leads to expectation of future employment (Dept. of Labor). Eighty-three percent of TAA and NAFTA-TAA displaced workers received some training and 63% if the participants completed their retraining initiatives. The average number of weeks each participant spent in training was 53.91 weeks (Table 4). The Alternative Trade Adjustment Assistance (ATAA) program specifically allows older displaced workers—50+ years—with non-transferable skills like project or relationship specific fluencies, electing not to take part in training programs, to receive a wage subsidy of up to 10,000USD over two years. 21% of workers received a waiver from training, but the available research on this criterion does not expressly state this figure corresponds to ATAA participants entirely (Table 4). Income Support in the form of Trade Readjustment Allowances (TRAs) allow displaced, certified workers to receive up to 104 weeks of income support to complement their maximum amount of non- remedial training. Of this total amount, 52 weeks of income support is generally guaranteed to anyone requiring training, another 52 weeks allows the worker to complete training as needed, and an additional 26 weeks of support is available for any additional remedial training. 80% of participants received financial-based trade readjustment allowances and 2% received subsistence allowances. Lastly, workers displaced because of global trade who receive any type of TAA income support are also eligible to receive tax credits for 65% of the monthly health insurance premiums they pay. No data was available on this at the time of writing.

210 Future Government Considerations: Redesigning Education In the U.S., strategic attempts at countering the negative effects of international business on jobs are seen in the current administration’s attempt to retool the domestic education systems at primary, secondary, technical and university training levels. While this topic is also beyond the scope of this research, it is worth mention that government policy leaders are pushing mathematics, science and engineering agendas for grade schools and advanced math and applied science curricula at universities. Also, the 2005 Bush administration is placing high value on strategic skills and services jobs for specifically detailed growth industries through increased funding and support of occupational or technical schools at both high school and collegiate levels. Specific “hot industries” have been identified as U.S. and global growth markets, and strategic funding has been earmarked specifically for education within these programs.

The Academic and Policy Perspectives Labor economist Jared Bernstein, senior economist at the Living Standards Program at the Economic Policy Institute and former Clinton administration economist with the Labor Department, co-authored The State of Working America 2004-05, as published by Cornell University Press, and he was interviewed on NPR’s “Fresh Air” on January 4, 2005, regarding the study. While Berstein acknowledges that the most recent U.S. recovery—from the domestic tech-bubble burst, the terrorist attacks of 11 September 2001, and general loss of optimism with regard to the world economy because of corruption, anti- globalization movements, and events like 1997’s Asian financial crisis—started in November of 2001, that unemployment figures from that time have not changed significantly1. While he denounces the term “jobless recovery” currently used by many policy theorists, he believes that job growth in this recovery is too slow to absorb all of the new entrants to the labor market in addition to those people who lost their jobs during the recession. In his estimates, 150,000-200,000 new jobs are needed per month to maintain a healthy U.S. economy in its current form. The current Bush administration had estimated that 300,000 jobs would be created per month as a result of ambitious Keynesian tax cuts, but the Congressional Budget Office now reports that this strategy was unsuccessful at creating new jobs at that level for more than just a few months. (Bernstein, 2005) In addition, a congressional cap was put on TAA payments and in 2004 the entire year’s budget for helping displaced workers was gone by April. Various academics, economists and international business owners, then, often find themselves in sharp debate with union leaders, politicians, and displaced workers about the significance of U.S. job loss due to international business. David Ricardo’s 1817 Theory of Comparative Advantage shows that a nation that most efficiency produces all goods should allow some of the specialized work to be done by other nations so that its resources—all the factors of production including labor, land, and capital, which cannot be easily gained or lost so we think of them loosely as fixed resources—can best be used in industries where the nation has greatest comparative advantage. This outsourcing of production in various goods or services allows for more production on a global scale, driving down prices, which creates more demand, and promotes competition. The Ricardo rationale for specialization and efficient resource use through international trade has been argued regularly for almost 200 years and empirical studies show that indeed global business and standards of living have benefited in aggregate because of international business. What was not considered by David Ricardo, however (as he could not have envisioned the capabilities of modern technology, especially with regard to ease in transport and the sophistication of communications), was what might happen to a particular developed country’s economy if many of its resources no longer were working to add the most value to a particular production of goods or service or ideas, but that these resources would simply be displaced from their low-skill and high-skill functions. Ricardo does not address how much of a drain this might create for the country, nor does his work reflect the ethical and social responsibilities of government to protect citizens’ well-being when there are no reasonable ways for them to support their families and communities. Many modern academics hypothesize that the outsourcing drain is not substantial because evolution of business creates more

1 5.6% unemployment in November 2001 vs. 5.4-5.5% rate in January 2005 211 demand for certain functions or jobs than before, or low commodities pricing allows for new business to compete within established industries. In short, free-trade theorists argue that business must be allowed to evolve to meet demand and that government intervention promotes inefficient business models, thereby stifling innovation. Indeed, Robert McGee, in a paper presented in April of 2005 at the International Academy of Business Disciplines in Pittsburgh, writes that “numerous studies over the past few decades, both in the United States and elsewhere, have found that this kind of purchasing pattern [outsourcing] is beneficial to the overall domestic [US] economy. The ratio of jobs created to jobs lost varies with each study but is often about 2 to 1 or 3 to 1, meaning that for every job lost in the industry that is shrinking, 2 or 3 jobs are created in other domestic industries.” The authors note that McGee did not cite, nor explain, this figure. Bernstein’s research, however, shows that unemployment ratio figures remain similar from the beginning of the US recovery in November 2001 to January 2005. Perhaps the next step in research on this debate would be the collection and analysis of all employment figures to finally reconcile the effects of outsourcing.

Responses by Business Enterprises United States business is generally taking one of three approaches to remaining viable in a global market requiring innovation and cost-cutting while also considering the welfare of domestic workers. These three approaches revolve around the industry of information technology services—the industry most affected by outsourcing after manufacturing and assembly—and the role of labor unions in business today. Firstly, companies such as San Francisco-based McKesson Corporation are trying to remain competitive by redesigning processes to consolidate job functions and worker resources, but instead of moving its IT functions offshore, McKesson has cut its number of branches from eleven to two, and has located its chief branch in Iowa to take advantage of lower labor costs, cheaper land, and local government incentives to bringing business to Iowa, while also enjoying the high quality of workers who were open to living in Iowa. Being an “Americas company,” and realizing the difficulty of international business, if only from a management perspective, locating in “Middle America” seemed like a gamble compared to business trends, but the most viable option. The move was established in 2000-2001, and for the four years since, CIO Cheryl Smith says McKesson’s IT has been able to meet 100% of new business requests without charging the company an additional penny (Thibodeau, March 2005). McKesson spends roughly $350 million per year on IT alone, and is one of the largest in the United States (Thibodeau, March 2005). Other companies may see McKesson’s success with IT in rural America and follow this trend. In addition, companies such as Rural Sourcing Inc. have landed major accounts to provide services to Cardinal Health, toymaker Mattel, and an unnamed major telecom company from places like Jonesboro, Arkansas and Greenville, North Carolina. Ciber Inc. has recently opened Oklahoma City and Tampa branches to complement its offshore activities (McDougall, 2005). Secondly, major industries like airlines and automotive manufacturing firms are trying to lessen the role of unions by filing or threatening bankruptcy to achieve union concessions in negotiations, and offering incentives to workers to not unionize. Delphi is one such company that declared bankruptcy citing union wage and benefit rates as a chief reason that it could not compete in the global automotive supply chain. Some Delphi line employees have been reportedly earning as much as $65 an hour in combined wages and benefits and the management proposal has been put forth to unions that to possibly stay in business, workers would have to accept hourly wage rates of roughly $10-14 per hour. Some see this as a long-term plan by ex-parent company General Motors to systematically hurt labor. David Dennsion, salaried Facilities Coordinator at GM’s Toledo-based Powertrain plant during October 2005 explains that non-unionized automobile manufacturers like Toyota are so unhappy about the prospect of negotiating with strong unions that they build plants in areas that are historically non-union, like Kentucky, and they give employees $50 vouchers for groceries or other items monthly to keep employees happy and the unions out. Typically, non-union companies like Toyota and Wal-mart have achieved successes in the U.S. market where unionized firms in their industries have not. Indeed, Jared Bernstein 212 reports that union membership is at roughly 9% now in the private sector, versus the 30-40% membership rates unions enjoyed in their heyday of the mid-1900s. Thirdly, global companies are continuing to do business as usual, and on a grand scale. Dutch bank ABN Amro announced on 1 September 2005 that it was embarking on the world’s largest IT offshore outsourcing deal, giving more than $2billion in contracts to IBM, Accenture, Tata Consultancy Services, Patni Computer Systems, and Infosys Technologies while eliminating roughly 3200 of its in- house, full-time positions. It expects to save roughly $258 million each year once the plan is completed in 2007 (McDougall, September 2005). General Motors is allegedly considering similar moves to an IT consortium model once its contract with EDS expires in 2006; EDS, IBM, Accenture, and Wipro Technologies are expected to be supplying services. (McDougall, September 2005) Even Delta and Northwest are in Chapter 11 talks to possibly restructure jointly, eliminating unnecessary resources and saving money in operations. IBM seems to be doing well in this new global business paradigm, and has offices all over the world to take advantage of various, broad-ranging factor endowments. Proactively recognizing the future need for particular highly-skilled IT mainframe functions, IBM has created programs across the world—Poland, Australia and China—to train and develop a future workforce. In the present, they are outsourcing high-skill IT functions to places like India to remain competitive. Because it is becoming less and less politically viable to outsource high-skill, high-wage jobs abroad, at an annual event in Las Vegas during the spring of 2004, IBM Chairman Samuel Palmisano unveiled grand plans for the IBM Human Capital Alliance fund, a $25 million retraining fund for displaced IBM workers in the United States.

CONCLUSION

It is interesting to note that wage and compensation rates to workers have increased in the United States roughly 2.8% since November of 2001 through early 2004, and profit rates going back to global businesses and their shareholders have increased by 62% (Blanton, July 2005). Jared Bernstein sees this relationship also; traditional business models in the United States spent 70% of their revenues on wages and compensation packages, while 30% of those moneys went back into the business to pay other expenses. Now he claims that this ratio has become nearly inverted, where the workers receive roughly 30% of total revenues and the business entity itself gets 70%. Where there no suggested page limits on articles, stories abound about the failings of both IBM’s retraining initiatives (delayed displacement only) as well as the government’s (tax money to unwise training for many workers and retraining budgets allocated to other government initiatives). Research, development and innovation are all important for survival of the American firm, but if the innovations are systems of displacing certain domestic labor segments indefinitely, the macroeconomic reverberations of this trend would be staggering to highly outsourcing nations like the United States. One would assume that according to Ricardo’s theories, this extra profit would go back to consumers in the form of lower prices, so that wage and benefits packages would not have to rise in order to maintain a comfortable cost of living and a healthy economy. As this is not generally happening, however, as evidenced by the high profit rates still being maintained by corporations and shareholders, and reemployment or retraining is not fully effective for workers displaced because of trade, one must assume that a wedge is simply being driven further between the haves and the have-nots in the U.S. society. Free markets, then, may come at a cost to the welfare of workers whose jobs have been outsourced and to the resulting adverse impacts on the domestic social system. With the understanding that protectionism does not work as a viable economic system, the only possible solution for developed countries suffering from loss of sector specific jobs may lie not in marginally effective retraining programs, but in the redesign of education as a whole.

213 REFERENCES

Bhagwati, Jagdish, ARvind Panagariya, and T.N. Srinivasan, 2004, “The Muddles Over Outsourcing,” June 30. Blanton, Kimberly, 2005, “An honest, disturbing look at outsourcing,” The Boston Globe, July 10. Braun Consulting, 2004, “Offshore Outsourcing: Impact on the American Worker,” www.braunconsulting.com, Vol. 7, No. 5, Summer. Evans, Michael K., 2004, “Outsourcing Could Hurt, Help the U.S.,” Industry Week, April, p; 80. Greco, JoAnn, 1997, “Outsourcing: The New Partnership, Journal of Business Strategy, July/August, 48. Grimm, Matthew, 2004, “Profits vs. Jobs,” American Demographics, June, 42-43. Grovestine, Andrew, 2004, “The Case for Outsourcing,” Benefits Canada, March, 53-56. Kirkpatrick, David, 2003, “The Net Makes it Easier-Including Exporting U.S. Jobs,” Fortune, May 26, 2003, Vol. 147, Issue 10. McDougall, Paul, 2005, “Division of Labor,” Information Week, September 5. Perkins, Bart, 2003, “The Forgotten Side of Outsourcing,” Computerworld, Spetember 8, 42-45. Pfannenstgein, Laura L. and Ray J. Tsai, 2004, “Offshore Outsourcing: Current and Future Effects on American IT Industry,” Information Systems Management, Fall, 72-79. Thibodeau, Patrick, 2005, “Premier 100 Q&A: McKesson’s Cheryl Smith on outsourcing,” Computerworld, March 7. Wolf, Craig, 2005, “Offshoring Hits Home,” Pougkeepsie Journal, March 29. Zuckerman, Mortimer B., 1994, “America’s Silent Revolution,” U.S. News and World Report, July 18, Vol. 177, Issue 3, p. 90

214 Table 1 Table 4 Hourly Wages for Selected TAA and NAFTA-TAA Participant Characteristics Occupations in the U.S. and India, 2002/2003 Gender: Male 45% Female 55%

Age: Under 30 10% 30-45 41% 45-55 32% Over 55 16% Not Identified 1%

Education: Less Than a High School Graduate 19% High School Graduate or Equivalent 52% Some Post High School (not a college grad.) 18% College Graduate 4% Not Identified 7%

Race: White 64% Asian 3% Black or African American 17% American Indian or Alaskan Native 1% Native Hawaiian or Other Pacific Islander 0% Not Identified 15% Hispanic or Latino 12%

Benefits and Services Received: Received Any Training 83% Occupational Training 82% On-the-Job Training 3% Remedial Training 15% Average Weeks of Training 53.91 Completed Training 63% Transportation Allowance 9% Subsistence Allowance 2% Trade Readjustment Allowance 80% Waiver from Training 21% Job Search allowance 1% Relocation Allowance 1%

Source: U.S. Department of Labor’s Employment & Training Administration website, Trade Act Participant Report (TAPR), April 6, 2004; printed October 3, 2005. http://www.doleta.gov/tradeact/participant.cfm

215 Table 2 Trade Adjustment Assistance Estimated Number of Workers Covered by Certification

Fiscal Year Number of Certifications Issued Est. No. Workers Covered by Certifications

1975 61 35,032 1976 400 147,635 1977 426 117,702 1978 703 158,868 1979 1,029 125,201 1980 993 688,923 1981 469 50,126 1982 241 17,503 1983 426 43,734 1984 359 17,700 1985 456 26,599 1986 628 43,994 1987 1,069 108,663 1988 418 53,129 1989 2,053 134,813 1990 759 73,848 1991 716 59,400 1992 1,252 58,149 1993 819 79,478 1994 869 67,991 1995 1,191 86,405 1996 1,113 118,663 1997 723 91,493 1998 886 99,252 1999 1,618 155,026 2000 845 98,007 2001 1,029 139,587 2002 1,647 235,072 2003 1,885 197,264 2004 1,733 147,956

Total 26,816 3,572,697

NOTE: The estimated number of workers covered by a certification is not an exact figure. It is an estimate developed at the time the certification is issued. A certification covers all members of the affected worker group laid off during the approximately 3-year period covered by the certification. Over the course of time, additional workers may be laid off, workers who were laid off may be recalled, or planned layoffs may not occur.

Source: U.S. Department of Labor’s Employment & Training Administration website, Division of Trade Adjustment Assistance, November 5, 2004; printed October 3, 2005. http://www.doleta.gov/tradeact/taa_certs.cfm

216 Table 3 TAA and NAFTA-TAA Performance Goals and Outcomes Performance Goals for FY 2005 Measure Goal Wage Replacement 80% Reemployment Rate 70% Retention Rate 89% Performance Outcomes for FY 2004 Measure Goal Outcome Wage Replacement 90% 74% Reemployment Rate 70% 63% Retention Rate 88% 89% Performance Outcomes for FY 2003 Measure Goal Outcome Wage Replacement 90% 73% Reemployment Rate 78% 62% Retention Rate 90% 86% Performance Outcomes for FY 2002 Measure Goal Outcome Wage Replacement 90% 80% Reemployment Rate 78% 66% Retention Rate 88% 89% Performance Outcomes for FY 2001 Measure Goal Outcome Wage Replacement 82% 87% Reemployment Rate 73% 63% Retention Rate 80% 89% Source: U.S. Department of Labor’s Employment & Training Administration website, no date given for posting; printed October 3, 2005. http://www.doleta.gov/tradeact/performance.cfm