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Outsourcing could create 'wage compression' for IT workers

An ITAA study says outsourcing is good for the economy -- but not necessarily for IT workers

March 31, 2004 12:00 PM ET

Computerworld - WASHINGTON -- In building a case for public policy that supports the offshoring of U.S. jobs, economists rely heavily on a history that says free trade has moved the country ahead economically.
But that doesn't mean an IT worker who loses his job because of offshore outsourcing will ultimately land a better one.
"Some workers may have to take a job that pays less than their [current job]," and some IT workers will face "wage compression" as a result of overseas wage competition, said Nariman Behravesh, chief economist at Waltham, Mass.-based Global Insight Inc.
Behravesh, whose firm was hired to study the impact of offshoring on the IT industry for the Information Technology Association of America (ITAA), said more jobs overall will be created in the U.S. than lost offshore because of productivity gains and lower prices on goods and services with cost savings that are reinvested in new products and technologies. In the 1990s, for example, some 3 million manufacturing jobs in the U.S. were lost, even as 25 million new jobs were generated in the U.S., he said.
Although offshoring resulted in a loss of about 104,000 IT jobs last year, productivity gains related to the move toward offshore outsourcing created 193,000 jobs in other sectors, a net gain of 90,000 jobs, according to the report, which was released yesterday.
However, figures in the study indicate that more jobs in the software and services sector will be created offshore during the next five years than in the U.S. Specifically, the report says the economy will create 516,000 jobs in that sector during the next five years, 272,000 of which will go offshore and 244,000 of which will remain in the U.S.
Lawrence Klein, one of the report's authors and a 1980 Nobel laureate in economics, said that when the U.S. stopped making TV sets, "people thought that was a disaster." But those workers moved on to other things, he said. "The American way has always been to move to higher value-added," meaning better-paying work, he added.
Some argue, however, that the current offshore trend is different, so the U.S. could be trading some of its best-paying jobs for lower-paying ones.
"This trend to offshore productive jobs in the U.S. economy is making us less productive and not stimulating the economy," said Lee Price, research director at the Washington-based Economic Policy Institute.
For instance, when overseas manufacturing led to the loss of textile jobs, there was a shift to more productive, higher-paying jobs, said Price. "The opposite is happening [with] computer software offshoring," he said. IT workers who

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