Sunday, February 01, 2004
Job takeaway is good for you
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

Some call it outsourcing, others offshoring, while for many it is a case of a redundancy cheque and loss of livelihood. But it is happening. Barely a week goes by without an announcement that call-centre or other support jobs are being transferred abroad, usually to India.

In recent weeks Abbey and Norwich Union, among others, have made such announcements, prompting protests from the unions. Once unions complained when traditional industrial jobs were lost and members were forced to work in soulless call centres, which they saw as the modern equivalent of the dark satanic mills. Now call centres have become our employment birthright, and the loss of them is a national disaster.

Tomorrow Mike O’Brien, the trade minister, will host a DTI seminar with business and the unions to thrash out the issue of offshoring. It is part of the government’s consultation on the issue in December. Ministers believe the panic over offshoring is overdone, but the unions need some persuading of that.

They regard it as a victory when any firm decides not to relocate jobs. Roger Lyons of Amicus, president of the TUC, cites Legal & General, Alliance & Leicester and the Co-op as organisations that have decided against taking the slow boat to India.

Union fears chime with a common public perception that goes like this: it was one thing when we were losing manufacturing jobs to overseas competitors, quite another when service-sector jobs are going in their thousands. If we can’t hang on to them, what hope is there?

The interesting thing about this debate, this fear, is that it is coming at a time when the job market is extraordinarily healthy, unlike in earlier times when the haemorrhage of factory jobs coincided with very high unemployment. Employment stands at 28.15m, a record, and unemployment, at least on the claimant count, is just 3% of the workforce, and thus meets the usual definition (2%-3%) of “full” employment.

Yes, some of this is due to Gordon Brown’s expansion of public-sector jobs — up by 153,000 over the past year. But private service-sector employment is also rising, with jobs in financial and business services up by 99,000 in the past 12 months.

But the worry is understandable. In an information age, jobs are more mobile than ever before. Unemployment may not be a problem now but it could be a few years down the road, by which time it will be too late to do anything about all the jobs that have migrated to areas with lower labour costs. Where will the process end and, more to the point, where will the new job opportunities arise to replace those that have migrated to Calcutta or Delhi? There are three clear advantages to Britain in offshoring, which is why studies show that economic gains to the country exporting jobs are greater than those to the recipient nation.

The first, underlined in a report last week, was that offshoring would help to head off labour shortages in Britain. Admittedly, the study was carried out for an organisation that will benefit from outsourcing — India’s National Association of Software and Service Companies. The report, by Evalueserve, said that the 275,000 jobs that would be moved offshore between now and 2010 would help to offset a demand-supply gap for workers of about 700,000. Most of the rest of that gap, incidentally, will be closed by immigration into Britain.

The second benefit comes from the fact that consumers, through lower prices, and investors, through higher profits, gain economically when British firms shift some of their operations offshore. Consumers’ real incomes are boosted, increasing their spending power, which in turn generates jobs. For every call-centre job lost, other jobs are gained — in retailing and elsewhere. I will return to this point.

A third benefit comes from the fact that offshoring should raise productivity. Just like the shift of basic manufacturing jobs overseas, the transfer of routine service-sector functions should allow workers here to be moved into higher-productivity, higher-value roles.

Studies by the Centre for Economics and Business Research undertaken for Logica-CMG suggest that offshoring/outsourcing could, via this route, boost productivity growth in Britain (output per head) from just under 2% a year to nearly 2.5%. It would go a long way to meeting Gordon Brown’s objective of closing the productivity gap.

So is it all hunky-dory? No. One problem is that many of the workers displaced by offshoring do not have the skills, or ability to develop them, to move into higher-value jobs. It is a tough world for the former industrial worker who retrained as a call-centre operator only to see this, like his previous job, disappear overseas.

Not only that, but the recipient countries are not standing still. Gerard Lyons, head of research at Standard Chartered, points out that attrition rates are high at about 13%-14% in Indian call centres, not least because of an ambition by skilled, often highly qualified, workers to move into better jobs.

“India is likely to move up the value curve, into areas such as newspaper sub-editing, law, accountancy, design, engineering, tax consultancy and financial services,” he said.

We should not get too depressed by that. It merely emphasises the need to stay at least one step ahead of the competition, either from India or the advanced industrial countries. But what about that perennial question: where will the new jobs in Britain come from?

The best answer to that came last week from Alan Greenspan, chairman of the US Federal Reserve Board, speaking by videolink at the chancellor’s big enterprise conference on Monday. In America the debate about whether the recovery is jobless or not (the answer is that it is not as job-rich as it should be) is a big election issue.

“Jobs in the United States have been perceived as migrating abroad over the years, to low-wage Japan in the 1950s and 1960s, to low-wage Mexico in the 1990s, and most recently to low-wage China,” he said.

“We can usually identify somewhat in advance which tasks are most vulnerable to being displaced by foreign or domestic competition. But in economies at the forefront of technology, most new jobs are the consequence of innovation, which by its nature is not easily predictable. We can thus be confident new jobs will displace old ones as they always have, but not without a high degree of pain for those caught in the job-losing segment of America’s massive job-turnover process.”

The new jobs, in other words, may come in areas we may not yet have thought of. Exporting jobs may seem like a disaster. It is, however, good for us.

PS: The budget, set for March 17, will give the chancellor an opportunity to face down his critics. It is unlikely, however, that he will get off as lightly as Tony Blair did from Lord Hutton. But the Treasury, like Downing Street, is in upbeat mood, believing the strong growth now coming through will, with restrained public spending, close a black hole heading for 40 billion this year.

Two of the Treasury’s external referees disagree. The Institute for Fiscal Studies (IFS), in its green budget, said Brown needed tax hikes of 13 billion to meet his “golden” rule (only borrow to fund investment) with confidence. For the National Institute of Economic and Social Research “the letter of the golden rule is close to being broken”.

The IFS makes another worrying point. Progress on public-service delivery, it said, had been “modest and mixed” and “it is too early to judge whether recent rises in public-sector wages and employment have helped or hindered public-sector efficiency”. If the IFS is right, we are heading for higher taxes without the public-service improvements to show for it. That, in the long run, will be politically more important than the Hutton verdict.

From The Sunday Times, February 1 2004

Comments

In summary

1. We shouldn't worry about losing high value IT jobs because new ones will be created at Tescos

2. So long as we have 'full employment' we won't worry as to the relative quality of the jobs

3. Those new jobs haven't yet been created in the US (the main offshoring country) for some reason, but they probably will be some time soon.

4. Various reports by people with a vested interest e.g. big business, large change management consultancies and offshoring representation groups will be quoted as if they were fact

5. Because manufacturing jobs were replaced by higher value jobs in an age when communication was much more limited, we can assume that history always repeats itself.

6. Indians with high degrees and low wage demands won't be given these new jobs by corporations who are looking at the financial bottom line since these corporations will have found a hitherto undiscovered compassion for their fellow man.

Posted by: John Lilburne at February 24, 2004 10:15 PM