July 2003
By ROBERT PEGG
A recent report by a noted outplacement firm found that planned job cuts at U.S. employers increased 71 percentÑits highest level since last fall. This finding, coupled with rising unemployment rates and job losses reported by the federal government's Bureau of Labor Statistics, confirms that the national employment picture remained uncertain.
The report also stated that 40 percent of the job cuts were coming from the public sector, as state and local governments battle financial crises. In New York City, where the budget deficit is the worst since the fiscal crisis of the 1970s, the mayor has been forced to lay off thousands of city workers as part of his plan to balance the city's budget.
As disruptive and painful as this year's big job cuts have been, even more painful is that many of these jobs are gone for good, as U.S. employers in a large range of industries transplant more and more jobs overseas. Although that trend has been occurring in the manufacturing sector for some time, the trend has been gathering steam in a number of service industries, especially information technology, one of the nation's best paying industries.
According to the Gartner Group, an information and technology consulting company, more than 40 percent of U.S. companies will have completed some kind of outsourcing program by 2004. U.S. companies, hurt by the three-year bear market and a weak economy, are seeking inexpensive overseas labor in developing countries, where workers are becoming better trained, especially if they have spent some time working in the U.S.
A survey by Forrester Research, another information technology consulting company, found that 88 percent of the firms it surveyed claim to get better value offshore than from U.S. providers. Seventy-one percent said that offshore workers did better quality work. As a result, Forrester predicts that over the next 15 years, 3.3 million U.S. service industry jobs and $136 billion in wages will move offshore to countries such as India, Russia, China and the Philippines.
Although technology spending by U.S. businesses has been in the doldrums since the tech bubble burst in 2000, countries such as India, China, and Ireland are experiencing a boom in information technology services. Foreign industry groups boast that Filipino workers' salaries, for example, are just one-quarter to one-fifth of those in the U.S., with programmers earning $250 to $700 a month compared with $1,600 to $3,600 per month in the U.S.
Most economists believe that the offshore outsourcing trend is not yet substantial enough to have a big impact on the broader U.S. economy. Imports of business services account for less than one percent of the nation's gross domestic product. Nonetheless, many economists are starting to take note of this trend.
In general, private sector employers have lost 2.6 million jobs since March 2001, when the recession officially began. About 8.8 million people are counted as "officially" unemployed. However, there are 1.4 million unemployed individuals not counted in the government's official unemployment number because they have not actively looked for work in that month. Most of these individuals are discouraged and no longer believe that there are jobs available. Moreover, employment conditions may not improve that quickly. Although one in five employers hope to add to their payrolls in the near future, nine percent, on the other hand, plan to trim jobs, according to the latest survey by Manpower International.
The good news is that, while job losses continue to mount in the technology, manufacturing, and airlines industries, the health care and real estate sectors are doing very well. Health care jobs exist nationally for nurses, pharmacists, radiologists, and lab technicians and 80 percent of health care employers report that they have trouble attracting and retaining skilled workers. Real estate jobs also are available, thanks to the continued boom in residential housing. According to the Bureau of Labor Statistics, about 11,000 mortgage bankers have been hired since January 2003. In addition, there are currently 1.6 million real estate employees working, the highest level ever. Finally, we may be seeing the beginnings of a turnaround in the construction and technology sectors. If so, the nation's weak job market may improve faster in the second half of the year than we think.
About the author: Mr. Pegg is president of Kirkbride Asset Management, the New York City-based investment advisory firm which serves businesses, institutions and private individuals.