Sam Offit
12/6/07
ECON 4999
Why the US hires High-Skilled Workers in India
Globalization is allowing high-skilled American jobs to be outsourced to
India. Due to India’s inferior economy, American Fortune 500 companies
continue to take advantage of India’s high skilled inexpensive labor. From
accounting and financial services to computer programming, India is doing highskilled American jobs at a lower price. This is the reason for India having the
second fastest growing economy in the world.
The idea of outsourcing jobs to India is only possible because of
globalization. New technology makes it possible for business owners in the
United States to hire workers in India. With modern-day Internet speeds, it is now
possible for businessmen from Los Angeles to have a live video chat with
workers in Bangalore India. With modern transportation technology, it is also
possible to travel from the United States to India quickly and relatively
inexpensive. These modern innovations make international business possible
and far more efficient compared to thirty years ago.
Trade liberalization also makes outsourcing to India a possibility. A new
political regime in India caused major economic reforms in 1991. The new
regime ended a licensing policy known as License Raj. This stopped the
government from having heavy control on the Economy along with ending
monopolies. In result, these economic reforms opened up the Indian economy for
foreign direct investment.
The above graph from unstats.un.org shows India’s foreign direct
investment (FDI) in US dollars. The line spikes upward in 1991 after a long
period of low FDI. A few dips in the graph may be explained from external
events. In 1998, India gained the power of nuclear weapons. This political act
may have been the reason for a major decrease in FDI. The dip in 2003 is less
clear. It may have been due to large Monsoons in the country. It may also be due
to a slowdown in global economic growth. It may possibly even be due to the
Rupee (currency in India) appreciating against the US dollar. Regardless of dips
in the graph, it is clear that economic reforms were a huge reason for a spike in
FDI after 1991.
Third party companies are another reason that business relations are
possible with India. Companies like Infosys, Wipro, and Cognizant act as an
intermediary for hiring labor in India. Business owners in the US can find Indian
workers through these third party companies and use the inexpensive work for
various business services. Even Fortune 500 companies use these third party
companies.
The table shows third party companies and the rank of IT exports from
India. According to the table, the top ten exporters all use offshore outsourcing as
a significant business line.
As mentioned before, India has a far inferior economy to the US. This
means that the US has higher wages, higher income, and a higher GDP than
India.
The above graph shows that India has a GDP around 4 trillion, while the
US GDP is just above 13 trillion. This is done with the purchasing power parity.
This difference in GDP is especially extreme when considering the population
difference between the US and India.
India has an enormous population compared to the US. According to the
CIA World Factbook, India has a population of 1.1 billion while the US has only
300 million citizens. This statistic also carries over to the labor force. India has
about 500 million workers while the US has only 151 million. Such a large labor
force along with a relatively low GDP helps us understand why labor in India is
inexpensive.
Although the labor force is so large in India; most of the labor force is not
high skilled labor. The labor force is broken down into three major sectors. These
sectors are agriculture, industry, and services. Most high-skilled labor will be in
the service sector. The service sector is 28% of the entire labor force. This
equates to 42.28 million service workers in India. Even though most high-skilled
jobs are located in the service sector, not all service jobs are high skilled.
A close look at this table from OECD world development indicators shows
that 66.4% of services in India are in the computer information and
communication service industry. This means that about 28 million workers in
India are in the computer industry. This industry is indeed a high-skilled job
industry.
The size of the high-skilled workforce in India stems from education.
India’s education system concentrates heavily on math, science, and technology.
This helps mold children in school into skilled workers for the future.
This table shows the time spent on each subject in school for 12-14 year
old students. Even at this young age, Indian children are spending the majority of
the time in school focusing on math, science, and technology. Each child spends
43% of his or her time in school learning these subjects. This is probably the
reason for such a large amount of computer workers in India.
A high-skilled worker in a relatively poor nation creates inexpensive high
skilled labor.
The above graph from an independent survey of 319 computer software
workers in Bangalore shows a median salary of 362,587 INR (rupees). This is
India’s highest paid city from the survey. Using the yahoo finance currency
converter at an exchange rate of 0.02540 INR to USD, 362,587 INR is about
9,209 USD.
Computer jobs are largely desired in the USA. According to the World
Information Technology and Services Alliance (WITSA), the US accounts for
49.2% of the worldwide software spending at $96.56 billion dollars. The US is
also the home country of some of the world’s largest computer companies
(Microsoft, IBM, etc.).
This table from the US Bureau of Labor Statistics shows computer wage
estimates for 2002. According to the table intense computer occupations earn a
wage from about $60,000 to $70,000 a year. This is a substantially higher salary
than the previously mentioned $9,200 salary of a worker in Bangalore. The huge
difference in salary is probably due to the vast difference in wealth between the
US and India. Another possible reason for the difference could be that many
Indian workers work on an hourly wage instead of a salary, while most US
computer workers earn a regular salary. The small sample size in the survey of
Indian salaries could also cause the enormous difference. Regardless, it is clear
that American computer salaries are higher than salaries in India.
This table shows that 423 million US dollars were spent in 2003 on highskilled services done by workers in India.
Millions of US dollars are being spent by companies within the US on
services that are being done by workers in India. This is the result of globalization
and inexpensive high skilled labor. New economic reforms have opened up
India’s economy. This has allowed US companies to take advantage of
inexpensive labor by hiring Indian workers.
Works Cited
Bureau of Labor Statistics. U.S Department of Labor. 7 Dec. 2007
<http://www.bls.gov/>.
"CIA- the World Factbook." CIA. Central Intelligence Agency. 7 Dec. 2007
<https://www.cia.gov/library/publications/the-world-factbook/>.
"India - - Encyclopedia." Britannica Online. Encyclopedia Britannica. 7 Dec. 2007
<http://www.britannica.com/nations/India>.
"LexisNexis Statistcal Home Page." LexisNexis. 7 Dec. 2007 <http://web.lexisnexis.com/statuniv>.
"OECD Stats Portal." OECD. Organization for Economic Co-Operation and
Development. 7 Dec. 2007 <http://www.oecd.org/statsportal/>.
United Nations Statistical Division. United Nations. 7 Dec. 2007
<http://unstats.un.org>.
WITSA. World Information Technology and Services Alliance. 7 Dec. 2007
<http://www.witsa.org/>.