Labor Union Attempts to Measure Offshoring’s Impact on U.S. Jobs

The debate over offshore outsourcing remains full of sound and fury, but what it has always lacked is meaningful data. Who is offshoring jobs? What functions are going abroad? Is offshore outsourcing replacing U.S. jobs or supplementing them?

Stepping in to fill that void, the AFL-CIO and its affiliate of non-union supporters, Working America, recently introduced Job Tracker, an online database that the AFL-CIO says illustrates the impact of offshoring on American towns and cities.

“Corporations who have taken advantage of lax trade policies in America and abroad will no longer be able to hide behind the veils of bureaucracy,” Karen Nussbaum, executive director of Working America, said in a press release announcing the Job Tracker tool.

The database contains information on more than 400,000 corporations, according to the AFL-CIO. But, as with any tool, it’s only as useful as the data behind it.

Job Tracker’s Data Sources

The AFL-CIO says the database incorporates information “from dozens of public sources,” but the data most relevant to those interested in offshoring comes from two U.S. Department of Labor sources: Trade Adjustment Assistance (TAA) records and Worker Adjustment and Retraining Notification (WARN) Act notices.

The TAA program, established in 1974, provides aid to workers who lose their jobs or whose hours of work and wages are reduced as a result of increased imports. It rarely applies to service jobs like information technology. WARN, enacted in 1988, requires employers to provide employees with 60 days notice before closing a plant or conducting a mass layoff (defined as more than 500 people or one-third of staff at a single site). WARN notices were designed to track the mass manufacturing layoffs taking place in the 1980s.

The threshold for both programs, as the AFL-CIO and Working America note in their companion report, “Outsourced,” is so high that most offshoring-related layoffs would not be represented in the figures. Indeed, in 2003 the Government Accountability Office found that only a quarter of mass layoffs and plant closings were covered by the WARN Act.

“Many companies will avoid reporting under WARN through buyouts, transfers and early retirements, so that the job losses technically are not layoffs,” says Susan Houseman, senior economist at the W.E. Upjohn Institute for Employment Research. “It can be difficult to get TAA certification—proving the mass layoff was due to trade.”

The Weaknesses of Job Tracker and Its Data Sources

A few quick searches on Job Tracker of leading vendors in the U.S. IT services industry, reveals the difficulty of pinning down accurate numbers.

For example, a search of the Armonk, New York area, where IBM Global Services is headquartered, reveals that IBM as a whole “has been reported to be exporting jobs or to have laid off workers due to trade” (a TAA data point) and had laid off a total of 657 workers at six separate sites in 2009 (WARN data). However, according to a 2009 New York Times article, Big Blue had actually laid off upwards of 4,600 employees that year.

In 2009, Hewlett-Packard announced that it would lay off about 24,600 employees over three years following its acquisition of IT service provider Electronic Data Systems. While that sounds like a massive layoff, it fails to register as one due to WARN’s outdated definition.

Search on Job Tracker for information around Palo Alto, Calif. or EDS’s old stomping grounds in Plano, Tex., and you will find out that former HP employees had been given trade adjustment assistance because their jobs were exported, but there were zero mass layoffs.

“I ran the Job Tracker on my zip code [in Rochester, N.Y.] ,” says Ron Hira, associate professor of public policy at the Rochester Institute of Technology. “Xerox, a major local employer, has been offshoring like crazy, yet its activity doesn’t show up.”

The tool also fails to address offshore outsourcing to third parties. “Offshoring includes sending work to contractors both here and abroad, like Pfizer or Microsoft outsourcing its work to Infosys,” adds Hira.

In addition, the tool does not reflect job flow overseas that stems from a lack of hiring in the U.S., as opposed to from actual layoffs. “The tracker doesn’t pick up the jobs created abroad in lieu of creating jobs here,” Hira says. “Deloitte is tripling its headcount in India over the next three years. Work continues to grow and demand for the U.S. has rebounded, but the jobs are being created abroad.”

Nor does Job Tracker offer much context for the data it does provide. Mass layoffs occur for any number of reasons, such as advancements in automation and productivity, mergers and acquisitions, or sudden market shifts. A U.S. based multinational may shift more of its workforce overseas, in part, because it sees more revenue growth there. IBM Global Services, for example, noted in its third quarter results this year that revenue in some of its emerging markets had surged 29 percent even as its overall outsourcing contract signings were down.

“I wish that [Job Tracker] would list what percentage of the revenue of these companies comes from abroad. If a company gets 60 percent of its revenue from foreign markets, can’t it also have 60 percent of its employees abroad?” says Vivek Wadhwa, former technology entrepreneur and a visiting scholar at the University of California at Berkeley. “What these activists don’t realize is that America is dependent on global trade for a large proportion of its jobs, and by raising protectionist barriers, we risk jeopardizing these jobs.”

Offshoring’s Impact on American IT Jobs Especially Hard to Measure

When it comes to the offshoring of services, such as information technology, and its impact on U.S. IT jobs, good numbers are even more difficult to find. IT outsourcing analysts have attempted to quantify growth in offshoring in the past: Forrester made headlines when it predicted back in 2002 that 3.3 million U.S. IT jobs would be sent offshore by 2015, while a 2004 Gartner report said a quarter of all American IT functions would reside overseas in 2010. In recent years, the IT research firms have shied away from making such bold predictions.

Meanwhile, the federal government has failed to address the lack of relevant data and analysis. “Because of funding shortfalls, the BLS does not even collect data on business services prices for exports and imports, so there’s no way to properly deflate these values,” says Houseman, the senior economist at the W.E. Upjohn Institute for Employment Research. That means there’s no way to calculate if, for example, the U.S. offshores $100 million in IT services to India, what that really means in terms of IT services outflow. If Indian wages are half that of a U.S. counterpart, that means the U.S. is exporting the equivalent of $200 million in IT services; if Indian wages are a quarter of American salaries, that means the outflow is more like $400 million.

“We do not even have good longitudinal data on the occupational structure of employment in the U.S., let alone information to help us understand how that structure may be changing owing to offshoring,” says Houseman.

A 2006 report by the National Academy of Public Administration noted that, “Although the apparent growth of offshore outsourcing and offshoring of intermediate goods and services has spurred a heated debate over its effects on the U.S. economy and workers, our ability to assess these impacts is hampered by the limitations of government data… this gap has been viewed as a major impediment to measuring the real growth of offshore outsourcing and offshoring in services.”

Since that report was published four years ago, the federal government has done little to close the data gap.

“The only way to identify the actual impacts of offshoring is through empirical data. But while we have some on manufacturing, we have little or no empirical data on services offshoring,” says Hira. “How can we have a rational discussion on an issue this important if we don’t have objective data?”

U.S. companies that send IT services offshore reveal as little about their efforts as they can. That’s for good reason, says Wadhwa. “The numbers are hard to come by because groups like [the AFL-CIO] will misuse whatever information they publish.”

That said, more transparency could serve to elevate the debate on offshoring. “Our understanding of an issue depends critically on what we measure,” Houseman says.