White-Collar Outsourcing: Myth Vs. Reality

Despite much concern, especially during the 2004 U.S. presidential campaign, the U.S. software sector has so far not relocated to India. Unemployment rates for computer programmers have historically been significantly below the overall unemployment level in the United States.

However, following the collapse of the Internet bubble and the end of the Year 2000 mania, unemployment increased by mid-2002 to above the level for the total U.S. economy. However, by 2005 unemployment rates for US software workers were back down to the 2-3 percent range normally associated with full employment and they have remained at this low range until the latest available data for the first quarter of 2008.

It has in recent years positively thrived in global competition, any adverse effects from offshore outsourcing notwithstanding.

Moreover, rapidly rising wages for high-skilled Indian workers suggest that the scope for further large-scale offshore outsourcing of U.S. software work solely for the purposes of cutting back on wages may be narrowing. Recent anecdotal data suggest that salaries for top Bangalore-based software engineers have risen from 20-75% of U.S. levels in just two years from 2005 to 2007.

At the same time, most wage surveys for broader categories of experienced workers still indicate that Indian wages are at about half of U.S. levels. Evidently, while there are thousands of highly skilled and competent Indians in the country’s software sector, they are just not as cheap as they used to be, relative to U.S. workers.

It is encouraging that literally thousands of high-skilled software positions are currently available in the United States. A recent search at the online career center of Microsoft of U.S.-based job openings directly related to software yielded 15 vacant positions for software architect, 716 vacant positions for software development engineer, and 515 vacant positions for software development engineer in testing/software test engineer.

A similar search on the same day at the online career center at IBM for all positions in software engineering requiring a bachelor’s, master’s, or doctoral degree yielded 1,469 regular full-time U.S. vacancies. Yet another similar online search, also on the same day, at Oracle, another large U.S. software company, yielded more than 500 U.S.-based vacant positions in product development posted during the preceding three-month period.

In other words, in less than ten minutes of searching on websites of just three large U.S. software companies, this author found almost 3,000 vacancies for high-skilled software workers located all over the United States.

With thousands of U.S.-based high-skilled software positions available and a rapidly declining wage differential with Bangalore-based software engineers, the present and future labor market for U.S. software workers in the global economy seems secure. Clearly, some high-skilled U.S. software workers will lose their jobs, and for some it will likely be due to offshore outsourcing. However, with thousands of high-skilled software positions available in the United States, an unemployment rate of 2-3%, and rising total software employment, this group patently has employment security.

Rather than guaranteeing workers their current jobs for life, a dynamic economy should provide them with the chance to always be able to find new jobs.

In terms of relative base-wage growth between 1999 and 2006, U.S. software workers belong to the top quintile of the U.S. workforce when compared with the wage growth in other major occupational categories. U.S. workers in only three major occupational categories — management, healthcare practitioners, and business and financial occupations (in other words, bosses, doctors and bankers), representing 14% of the total U.S. wage and salaried workforce — saw higher median wage increases than did U.S. software workers over this period.

In the aggregate, not too bad for an occupation that over the 1999-2006 period experienced very large relative inflows of foreign high-skilled workers. The bottom line: Any detrimental effect on software workers’ wages from the inflow of foreign high-skilled workers is far from obvious.

Considering that many less-skilled U.S. workers, for instance, in the manufacturing sector, face genuine hardships—the loss of both job and employment security — as a result of rapid technological innovation and increased global competition — it seems improbable that high-skilled U.S. software workers would have any credible claim for scarce congressional attention or support.

Editor’s Note: This is Part II of a two-part series from Jacob Kirkegaard’s book, “The Accelerating Decline in America’s High-Skilled Workforce: Implications for Immigration Policy.” Printed by the permission of the author and publisher.