Trade Group Defends Outsourcing

(CBS/AP)  Outsourcing white-collar jobs to low-wage countries such as India and China has thrown some Americans out of work, but a new report predicts that the trend will ultimately lower inflation, create jobs and boost productivity in the United States.

The Information Technology Association of America, in a survey set for release Tuesday, acknowledges that the migration of tech jobs to low-paid foreigners has eliminated 104,000 American jobs so far, nearly 3 percent of the positions in the U.S. tech industry.

Software engineers have been particularly hard hit. Researchers at Global Insight Inc., which prepared the report for the ITAA, predicted that demand for U.S. software engineers would shrink through 2008.

The ITAA describes itself as a trade group for IT industries ranging from computers, software and telecommunications to the Internet and professional services. Its board of directors includes representatives of major IT firms including AT&T, EDS, Northrop Grumman, and Amazon.com, and its members include Microsoft and Hewlett-Packard.

The trade association's report comes against the backdrop of the presidential campaign, in which job losses and the best way to create jobs have both been hot issues.

Democratic presidential candidate John Kerry introduced economic proposals Friday that he said would reduce the sting for outsourced workers. More than two dozen states are considering bans on outsourcing government contracts.

The ITAA argues that legislation of that sort would be "protectionist" and "unwise."

But Cynthia Kroll, senior regional economist at the University of California, Berkeley, said policymakers can't afford to ignore outsourcing.

"If R&D is coming out of India, will the next wave of growth bypass us entirely?" Kroll asked. "We need to pay attention to what India and China and these other countries are doing to get these new rounds of investment."

ITAA leaders say outsourcing has damaged the job market far less than the dot-com meltdown of early 2000, when Internet startups, telecom companies and other companies eliminated as many as 268,000 positions.

"The myth is that we've started this long decline into the midnight of the technology work force," ITAA president Harris Miller said. "This report shows that, assuming the recovery continues, the number of IT jobs will actually increase."

Indian programmers earn roughly one-sixth the $60,000 U.S. average, and Chinese engineers earn even less.

Outsourcing dramatically reduces labor costs, allowing companies to sell goods ranging from software to tax-preparation services at lower costs or higher profit margins. The report argues that greater profits theoretically allow companies to buy new equipment, build laboratories and conduct scientific experiments - even in expensive Silicon Valley and other U.S. tech hubs.

According to the report, savings from outsourcing allowed companies to create 90,000 new jobs in 2003, with more than one in 10 of them in Silicon Valley or elsewhere in California, researchers said. The report predicts that in 2008, outsourcing will create 317,000 jobs - 34,000 in California.

Companies spent $10 billion last year to outsource jobs ranging from medical transcription to nanotechnology research. The ITAA predicted the companies would spend $31 billion in 2008.