November 4, 2003    Volume 10, No. 20

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Engineers Fear Offshore Outsourcing Is Contributing To High Jobless Rates

An unprecedented high unemployment rate of 6.7 percent among electrical and electronics engineers and an even higher unemployment rate of 8 percent among engineering managers is creating a growing level of anxiety within the engineering community. Engineers fear that the situation will not improve in the near term given the loss of so many manufacturing plants, the growing trend to "offshore" engineering jobs and the continued infusion of foreign engineers into the country allowed under the H-1B and L-1 visa laws.

Unemployment rates for engineers are far higher than for managers and professionals (3.5 percent) and even higher than the general unemployment rate in the country of 6.1 percent. The unemployment rate for computer hardware engineers is now 6.9 percent.

The situation is far different from the 1980s when the country was going through a severe industrial recession and the general unemployment rate hit 9.7 percent in 1982. During the 1980s, the unemployment rate for electrical engineers never exceeded 2 percent. The highest unemployment rate for electrical engineers was reached in 1992 at 4.3 percent during the last tech recession when the defense industry was downsizing.

"We're in a very different, much more volatile era for employment for engineers," says Ron Hira professor of public policy at the Rochester Institute of Technology and chair of the Institute for Electrical and Electronics Engineers' R&D Policy Committee and member of its Career and Workforce Policy Committee. "We're like free agents. Since companies are shedding employees a lot easier, engineers have to start to think differently about how they perceive companies, their work and their careers."

Particularly worrisome is the accelerating trend of offshoring engineering jobs to lower wage countries that are connected by high-speed networks to U.S. customers. "We don't know how many jobs will go but what has changed is that the U.S. multinationals are hell-bent about moving jobs as fast as possible," Hira told Manufacturing & Technology News. "It used to be a niche market -- you had some Indian companies like TCS and Infosys and then some American companies like iGate and Cognizant doing this. Now it's EDS. They didn't start playing this game until last May and now they're hell-bent on moving stuff as fast as possible. There has been a major shift in philosophy."

Much of this worry is misplaced, says Harris Miller, president of the Information Technology Association of America (ITAA), who has become the leading industry spokesman to counter the gloom-and-doom predictions of a massive outflow of IT jobs from the United States. The predictions from Gartner Group, Giga and Forrester Research that say as many as 3.3 million jobs will be lost "have been hyperbolized in the media," he says. Of that total, about 500,000 are in the IT industries. "That's not to say that isn't a significant number, but the hyperbole with this issue tends to outweigh reality," Miller says. These consulting firms "are trying to make a lot of money by projecting these ridiculous percentages of work offshore. The Forresters and Gigas are trying to get consulting contracts by using these ridiculous reports that they have no basis for."

So does that mean Intel chairman Andrew Grove is guilty of using hyperbole when he notes that 500,000 IT jobs have already left the United States, Miller was asked at a recent hearing of the House Small Business Committee by Rep. Don Manzullo (R-Ill.). "It's because we had a major recession in the IT industry," Miller responded.

To which Manzullo said: "That's not what he's talking about."

Miller: "I understand. I'm not going to get into a fight with Mr. Grove. Intel is a member. But what I'm saying is the U.S. software and services industry according to all data from the Bureau of Labor Statistics..."

Manzullo: "BLS doesn't know the difference between hyperbole and a hyperbolic curve!"

Miller's arguments about "hyperbolic" projections of job losses didn't sit well with a Palm Inc. employee who trained her replacement in India and was fired three months ago. Speaking at the hearing, Natasha Humphries, a 1996 Stanford graduate and quality assurance engineer at Palm until August, said: "If you went to school for engineering or computer science, the global marketplace is a very serious obstacle to overcome now that we have companies more concerned about the bottom line than they are in preserving U.S. jobs."

Miller, who was present at the hearing, said such individual stories are "unfortunate" and that people suffering from similar displacements "are thinking about themselves and their family, as they should be, but they're not looking at the bigger picture." The bigger picture is there is a $7.9-billion trade surplus in information technology services with the rest of the world, and that the IT sector is just emerging from a devastating reduction in demand -- a 5 percent decline in 2002 after a 10.5 percent decline in 2001. Humphries could get a job if she was willing to move out of Silicon Valley, says Miller. After the hearing, he told her that "if you move to Washington, I can guarantee you I can get you 10 job interviews next week, but if you stay in Silicon Valley, it might be a while."

IEEE's Hira isn't so sure about Miller's posturing, either. "The 3.3 million may well be hyperbole, but it may not," he says. "The reality is jobs are moving offshore."

Hira claims that Miller's trade association has a vested interest in offshoring. ITAA represents some of the largest American companies engaged in the practice, as well as foreign firms like TCS whose sole business is offshoring U.S. technical jobs. Miller is also chairman of the World Information Technology and Services Alliance (WITSA), a membership group consisting of IT associations from 53 countries. Members of his staff are on the WITSA payroll.

"All those companies that are going to benefit from offshore outsourcing are members of ITAA and WITSA," says Hira. "I always wonder when he's testifying who he is actually representing."

Miller doesn't buy it. "I'll tell you what my WITSA salary is: it's zero," he responded when asked by Manufacturing & Technology News. WITSA is enabling companies like Accenture, Microsoft and IBM to broaden their opportunities in growth markets overseas. Moreover, ITAA has 425 members, 95 percent of which are based in the United States. The trade group does have members based in India, Canada, Germany, Japan, and France, but all have U.S. operations. "I don't represent any individual company and I only exist and am strong as an association if the U.S. industry is strong," he says.

The situation today for engineers and technical personnel whose jobs are being lost is far different from what happened during the recessions in the early 1980s and 1990s, says Hira. At that time, manufacturing and semiconductor companies were getting clobbered. "They went to the government and said we need help," he states. "The difference today is companies are doing okay at the expense of their workers. There is no real voice for the workers. It's affecting the employees as opposed to the employers."

Miller says that "companies are inseparable from their workers -- at the end of the day what the companies have is people who create software or specialized products and services." Companies in the IT industry are fully committed to their U.S. workers, Harris argues. The evidence is the high level of employees' salaries and the amount of money the industry spends on training, which is almost 50 percent higher than the next closest industry.

The IEEE is also concerned about the H-1B and L-1 visas that allow U.S. companies to recruit foreign engineers at lower salaries. The program was started due to a shortage of technical people in the country during the dot-com boom, but with the unemployment rate of engineers so high, its existence is questionable, says Hira. "There have been so many egregious examples of companies bringing in and misusing those visas."

What perplexes the IEEE is the fact that so many U.S. companies and their trade associations are in favor of continuing the program. The companies that have been the biggest users of the H-1B are the Indian outsourcing firms like TCS, Infosys and Cognizant. "These companies got their start by basically utilizing that visa and figuring out how they could offshore as much as they could from it," says Hira. "I can't figure out why all these American companies are supporting it, because they are creating their own competition."

The program is working as planned, Miller counters. The number of visas granted has declined by 75 percent, to 25,000. "For an unemployed worker, it's still too many, but for what Congress intended, it is doing exactly what it was supposed to do."

Finally, IEEE isn't so sure about the constant refrain heard about the low numbers of engineers graduating from U.S. universities every year. A National Science Board draft report on the science and engineering workforce said there are not enough students studying engineering "and we have to beef up the numbers we're graduating now," says Hira. "IEEE weighed in on that and said you need to start looking at current workers and their situation and utilizing that human capital that is already out there and is not fully utilized when you have unemployment rates this high."

Retraining laid off engineers to become nurses is not in the nation's interest. "The Washington elite doesn't get it," says Hira. "They basically think the problem is we don't have enough engineers. It's not a question of having enough engineers. It's a question of utilizing the engineers currently out there."

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