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
zimmerman_s@yahoo.com
and
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
Anthony.Koh@Utoledo.Edu
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
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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 strongBritish-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
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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
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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.
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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 nonremedial 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.
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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
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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
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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 inhouse, 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.
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Table 1
Hourly Wages for Selected
Occupations in the U.S. and India,
2002/2003
Table 4
TAA and NAFTA-TAA Participant Characteristics
Gender:
Male
Female
45%
55%
Age:
Under 30
30-45
45-55
Over 55
Not Identified
10%
41%
32%
16%
1%
Education:
Less Than a High School Graduate
High School Graduate or Equivalent
Some Post High School (not a college grad.)
College Graduate
Not Identified
19%
52%
18%
4%
7%
Race:
White
Asian
Black or African American
American Indian or Alaskan Native
Native Hawaiian or Other Pacific Islander
Not Identified
Hispanic or Latino
64%
3%
17%
1%
0%
15%
12%
Benefits and Services Received:
Received Any Training
Occupational Training
On-the-Job Training
Remedial Training
Average Weeks of Training
Completed Training
Transportation Allowance
Subsistence Allowance
Trade Readjustment Allowance
Waiver from Training
Job Search allowance
Relocation Allowance
83%
82%
3%
15%
53.91
63%
9%
2%
80%
21%
1%
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
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
61
400
426
703
1,029
993
469
241
426
359
456
628
1,069
418
2,053
759
716
1,252
819
869
1,191
1,113
723
886
1,618
845
1,029
1,647
1,885
1,733
35,032
147,635
117,702
158,868
125,201
688,923
50,126
17,503
43,734
17,700
26,599
43,994
108,663
53,129
134,813
73,848
59,400
58,149
79,478
67,991
86,405
118,663
91,493
99,252
155,026
98,007
139,587
235,072
197,264
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
Wage Replacement
Reemployment Rate
Retention Rate
Goal
80%
70%
89%
Performance Outcomes for FY 2004
Measure
Wage Replacement
Reemployment Rate
Retention Rate
Goal
90%
70%
88%
Outcome
74%
63%
89%
Performance Outcomes for FY 2003
Measure
Wage Replacement
Reemployment Rate
Retention Rate
Goal
90%
78%
90%
Outcome
73%
62%
86%
Performance Outcomes for FY 2002
Measure
Wage Replacement
Reemployment Rate
Retention Rate
Goal
90%
78%
88%
Outcome
80%
66%
89%
Performance Outcomes for FY 2001
Measure
Wage Replacement
Reemployment Rate
Retention Rate
Goal
82%
73%
80%
Outcome
87%
63%
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
217