Employment: More American jobs may be headed offshore

HIGHLIGHT:
Nearly 400,000, or 31 percent, of local San Diego jobs have the potential to be moved overseas during the next two decades, according to the analysis, based on an index created by Princeton economist and former Federal Reserve Vice Chairman Alan Blinder.

MORAL:
Pick you major wisely!

More American jobs may be headed offshore

Study: 400,000 in county have overseas potential

By David Washburn
STAFF WRITER

June 10, 2007

The offshoring debate was over at Sky Mobilemedia before it began.

Within two years of its 2003 inception, the San Diego-based maker of cell phone operating systems employed a work force spanning the globe. Now, only 30 of the company's 120 employees live locally, with the rest divided among offices in India, Israel and Croatia.


“This is the reality of a startup company,” said Naser Partovi, chief executive of Sky Mobilemedia.

He estimates that he can hire three – even four – software engineers in Bangalore, India, for the cost of one in San Diego. “The cost structure is prohibitive if you have everyone here,” he said.

Partovi's reality may be shared by an increasing number of San Diego County companies and their workers, according to an analysis by The San Diego Union-Tribune of the potential offshoring of county jobs.

Nearly 400,000, or 31 percent, of local jobs have the potential to be moved overseas during the next two decades, according to the analysis, based on an index created by Princeton economist and former Federal Reserve Vice Chairman Alan Blinder.

How exportable is your job?

To find out the “offshoreability” of specific jobs in San Diego, go to uniontrib.com/more/offshore
Nationally, Blinder estimates that 37.7 million jobs, or 29 percent of the current U.S. work force, could be outsourced to other countries within the next 10 to 20 years.

Blinder's study, released in March, is the most recent – and perhaps most ambitious – attempt to quantify the effects of globalization on American workers. He analyzed more than 800 occupations and placed each on a scale from “highly offshoreable” to “highly unoffshoreable.”

Not surprisingly, he found that computer programmers and data-entry clerks were the most vulnerable. But other jobs deemed “highly offshoreable” crisscross the employment spectrum and include such occupations as editor, drafter, graphic designer and insurance underwriter.

Blinder said he is estimating the number of jobs that potentially could go offshore, not the number that actually will move overseas. Nonetheless, he sees big changes ahead.

“I believe there will a long and somewhat painful reallocation of labor analogous to what has happened over the last 50 years with Americans in factories,” Blinder said.

U.S. companies have been moving jobs abroad for a generation. It started in manufacturing, with factory work moving to Mexico, China and other low-wage countries where everything from designer clothes to television sets could be made for a fraction of the labor costs in the United States.

Next to head offshore were American jobs in customer service and data entry. Today, U.S. companies employ more than 900,000 offshore service workers, according to McKinsey & Co., a San Francisco economic think tank.

And offshoring is moving up the food chain, as computer systems analysts, microbiologists and financial analysts join factory workers, telemarketers and call-center operators in “offshoreable” professions.

Current trends notwithstanding, several economists say Blinder vastly overestimates the potential for offshoring. One went so far as to call his analysis “dead wrong.”

A McKinsey & Co. study in 2005 concluded that the United States stands to lose at most 11 percent, or 18.3 million, service jobs to other countries by 2010.

Blinder argues that steady advances in communications technology, along with growing wealth in the developing world, will gradually increase the flow of service-sector jobs overseas. This will be especially true for computer-based jobs that do not require a lot of face-to-face contact.

“This will not be a permanent mass unemployment,” Blinder said. “But there needs to be internal migration from impersonal service jobs to personal jobs.”

Marney Cox, an economist for the San Diego Association of Governments, largely agrees with Blinder's conclusions and said San Diego County companies and policymakers need to prepare for a changing employment landscape.

“San Diego is more 'offshoreable' than most places,” Cox said. “Our most important jobs – jobs that drive our economy – are exportable.”


NANCEE E. LEWIS / Union-Tribune
Naser Partovi, CEO of San Diego-based Sky Mobilemedia, says he can hire three or four software engineers in Bangalore, India, for the cost of one in San Diego.

The Union-Tribune analysis showed that 7.5 percent – or 95,795 – of the jobs in San Diego County are “highly offshoreable.” This compares with 6.3 percent of all U.S. jobs that Blinder puts in that category.

Among the highly threatened local workers are biochemists and biophysicists. These are bread-and-butter jobs in the county's biotech sector, which employs more than 36,000 people and is the third-largest concentration of biotech jobs in the nation.

There are no reliable estimates for the number of local jobs that have moved offshore from San Diego County in recent years, but there is some anecdotal evidence.

Over the past two years, locally based Accelrys, which develops drug-discovery software, has cut 100 employees from its San Diego operation and shifted more work to a facility in Bangalore.

Last year, San Diego's Immusol laid off about a dozen of its 50 employees – most of them scientists working in drug discovery – while continuing to contract out work to companies in Shanghai and Beijing.

“The most vulnerable job is chemists,” said Zhu Shen, vice president of business development at Immusol. “We are seeing great value from Russian, Chinese and Indian companies at a great price, and the quality of work is comparable to here.”

Yet, Cox said, local politicians are choosing to spend public money on ballparks, cruise ship terminals and convention centers, which create relatively low-paying jobs, rather than funding infrastructure and services for high-tech industries.

“What about biotech, environmental tech and software engineering?” Cox asked. “Where is the public investment in these industries? A few things in front of us today show we are not serious about these industries.”

Funding for alternative sources of energy and better local airport service are the kinds of public expenditures that policymakers need to be focusing on, he said.

Rare is the economist who would disagree with the notion that forward-looking public policy is the key to long-term economic health. But several prominent labor economists have taken issue with Blinder's study.

To begin with, Blinder makes broad assumptions that other economists say are unrealistic. For example, when determining how readily a job could be done offshore, he deems every worker in that job as equally movable.

“Let's say there are 4 million accountants. He says all 4 million are offshoreable,” said Lori Kletzer, a professor of economics at University of California Santa Cruz.

“That is a bit of a stretch – every accountant is not going to disappear from the U.S. work force.”

Blinder also fails to consider that as the Chinese and Indian economies continue to grow, they will need goods and services provided by U.S. workers, said Jagdish Bhagwati, a Columbia University economics professor.

“He is just dead wrong,” said Bhagwati, who also is a senior fellow in international economics at the Council on Foreign Relations in New York. “I would be astonished if something like he is predicting actually happened.”

Bhagwati and others say Blinder incorrectly assumes that any tradable job in the U.S. work force is vulnerable to offshoring. But in many cases, it will be workers in developing countries who will be more vulnerable as technology advances.

Companies in China and India will have the opportunity to employ the services of a highly skilled U.S. architect or accountant rather than settle for a lower-skilled practitioner in their own country, Bhagwati said.

“It is we who stand to gain in many cases, not them,” he said.

Diana Farrell, who wrote the McKinsey & Co. study, said her research jibes more with Bhagwati's position.

While acknowledging that her study has a shorter time frame – five years versus Blinder's 10 or 20 years – she said the less-tangible things, such as management attitudes and worries about intellectual-property protection, will keep companies from moving jobs overseas even if they could do so.

“We estimate that no more than several hundred thousand U.S. jobs per year will be lost to offshoring, affecting less than 2 percent of all service jobs,” Farrell said. “That is far fewer than the normal rate of job turnover in the economy.”

Regardless of which estimate proves to be more accurate, it's likely to be of little consequence to the workers at Sky Mobilemedia. Min Kim, a senior software engineer, said job insecurity has been a part of his life throughout his 15 years in high tech.

“Many companies don't care about the engineer; they care about profit,” the 38-year-old said. “You have to continually reinvent yourself or you will fall back.”

Blinder said that if every U.S. worker has Kim's attitude, the work force will not only survive but thrive as the global economy evolves.

“U.S. workers will win by staying ahead of the curve,” he said. “Creativity and innovation are crucial.”

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