Date: Wed, 17 Mar 2004 15:01:59 -0800 From: Norm Matloff To: Norm Matloff Subject: pulling the wool over the press' eyes To: H-1B/L-1/offshoring e-newsletter Unfortunately, the reporter here, a respected DC veteran, was severely misled by the industry advocates in this article. I will first discuss the highly misleading claim that the number of software development positions has been increasing. I will then discuss the highly misleading claims made about retraining. Catherine Mann claims that although the number of computer programmer positions declined during the period 1999-2002 (which Mann describes as the period of the tech crash, a key point), the number of software engineer positions increased during that period. This is highly misleading. Instead, what the data actually show is that software engineer positions increased during the tech boom but DECLINED after the crash. There was an increase in jobs during 1999 and the first half of 2000, but a modest but steady DECLINE AFTER THE CRASH of late 2000/early 2001--quite different from Mann's implication that the number of jobs were increasing throughout the period 1999-2002. (The 2003 numbers are not yet available.) So Mann's claim is highly misleading, downright fraudulent. Here are the details: The tech crash did not occur until the end of 2000 and the beginning of 2001. For instance, Intel, Cisco, Nortel, Dell, 3Com and Motorola all had their first big layoffs at the turn of the New Year, 2001. (See for instance Elizabeth Blakey, "Tech Sector Layoffs: Not What You Think," E-Commerce Times, March 15, 2001.) Congress enacted an increase in the H-1B work visa cap in October 2000, claiming a tech worker shortage in the high-tech boom, not knowing that the industry was poised to engage in major layoffs in the next couple of months. The OES data are collected during the fourth quarter of each year. Thus the 2000 data were collected mostly before the big layoffs began. Thus the numbers show that the number of software engineer positions increased during the tech boom but DECLINED after the crash (from www.bls.gov/oes, the same source Mann used): year software engrs., apps. software engrs., sys. comp. prgrs. ---- ---------------------- --------------------- ------------ 1999 287,600 209,030 528,600 2000 374,640 264,610 530,730 2001 361,690 261,520 501,550 2002 356,760 255,040 437,320 Moreover, what Mann didn't say is that most of the hires during that time were H-1B or L-1 visa holders, not Americans. The PERCENTAGE of new programmer jobs (including software engineers; see below) going to H-1Bs and L-1s has shown a sharp upward trend in recent years. The Commerce Dept. says 28% of the programmer jobs during 1996-1998 went to H-1Bs (Digital Economy 2000, Department of Commerce, June 5, 2000); the Federal Reserve Bank gave a 50% figure for 1999 (Miriam Wasserman, "EllisIsland.com", Regional Review, Quarter 4 2000/Quarter 1 2001); and my very rough calculations, based on piecing together different types of data, suggest a figure as high as 90% for 2001. And remember, those figures don't even include L-1s. Moreover, major American firms admitted laying off Americans while retaining H-1Bs, for instance Sun Microsystems. (Santiglia v. Sun Microsystems, U.S. Dept. of Labor, Office of Administrative Law Judges, Case No.: No. 2003-LCA-2, pages 9 and 206; San Francisco Chronicle, June 25, 2002.) Moreover, many major firms were laying off Americans and forcing them to train their H-1B/L-1 replacements. (See for example Margaret Quan, "Critics Warn New Visa Bill Doesn't Go Far Enough," Electronic Engineering Times; May 22, 2003 and WKMG-TV news broadcast, Where Did the Jobs Go?, http://www.local6.com/news/1984334/detail.html, February 17, 2003, updated February 19; Jim Gardner, "Bank Job: You're Fired, Now Go Train Your Replacement," San Francisco Business Times, November 22, 2002; Jennifer Bjorhus, "U.S. Workers Taking H-1B Issues to Court," San Jose Mercury News, September 26, 2002.) In any discussion of offshoring, it is vital to keep mind that even if an employer touts his keeping jobs in the U.S., it does NOT mean he is hiring Americans. By the way, programmers and software engineers do the same things. Some kinds of employers prefer the Programmer title and others prefer Software Engineer. Someone working as a Programmer for a bank might do the same kind of work as a Software Engineer for a software publisher. Next, what about the main theme of the article? Washington -- A novel idea to help high-tech workers at risk of losing their jobs to India and China may provide policy-makers with a practical way to attack the hot political problem. The idea is not "novel" at all. Instead, it is a matter of "round up the usual suspects," once again deflecting attention from the real problems--the H-1B and L-1 visa programs, and offshoring--by saying that everything can be solved by retraining. The sad truth is that NOTHING of this sort can be solved by retraining, because the key issue is that the employers want cheap foreign labor, not retrained Americans. The same tactic--"Oh, I know what we can do! Let's offer retraining!"--was used by the industry lobbyists in 1998 and 2000, when they pushed Congress to expand the H-1B program. The 1998 legislation instituted a user fee for employers hiring H-1Bs. The idea was that this money would go to retraining American workers to do the jobs being filled by H-1Bs, thus making the H-1B expansion "necessary" only for the short term. (It never was necessary in the first place.) I pointed out at the time that the retraining funds would not reduce the usage of H-1Bs one whit, and sure enough, this is what happened. The industry admitted that this was the case, and moreover admitted that they had never expected retraining to reduce H-1B usage in the first place. (See for example "Failing Grades: H-1B Fees Fail to Lessen Reliance on Imported IT Skills," eWeek, September 18, 2000.) The fact is that what the employers wanted then, and want today, is cheap labor. Retrained Americans are not as cheap as H-1Bs and L-1s, let alone offshore labor. That's why the retraining issue was always a smokescreen, from the very beginning. The sole purpose was to distract attention from the fact that the real issue was cheap labor. The fact that the H-1Bs and L-1s are cheap is well-documented. For a quick demonstration of that, go to the INS data (plug "Characteristics of Specialty Occupation Workers (H-1B)" into Google) and compare the median computer-related H-1B salaries with the OES median for Americans overall quoted in this article. For a much more detailed analysis, taking into account job types, etc., see my law journal paper, at http://heather.cs.ucdavis.edu/MichJLawReform.pdf Moreover, even the 1997 report by the major industry lobbying group, the ITAA, which was used by Congress as the main basis for the 1998 H-1B expansion legislation, explicitly recognized that retrained people are too expensive. The ITAA report pointed out that if a worker is retrained--even if at the worker's own expense--the worker now becomes a flight risk from the employer's point of view, as her newly-acquired skills mean she can make more money elsewhere. Thus the current employer must either pony up the higher salary to retain the worker--or hire an H-1B or L-1. Guess which option is the more attractive one? Here is a very telling excerpt from that ITAA report: However, extensive training creates other issues. ``You take a $45,000 asset, spend some time and money training him, and suddenly he's turned into an $80,000 asset,'' says Mary Kay Cosmetics CIO Trey Bradley. That can lead to another problem. New graduates trained in cutting edge technologies become highly marketable individuals and, therefore, are attractive to other employers. Indeed, even Mann cites this "problem"; see www.iie.com/publications/papers/mann0304.pdf So, the industry wants cheap labor, NOT retraining. And now, having found that the retraining issue works so well as a ruse, the industry wants to use that ruse again, to distract Congress' attention from the offshoring problem. And even better, this time they can get tax breaks for it. As the industry lobbyists always point out, big firms like Intel spend millions of dollars each year on retraining. Of course, as an Intel vice president admitted to me on background, most of that training is for secretaries and technicians, not for engineers, but the point is that they are spending this money anyway--and now they'll get a tax break for it. Such a deal! And what a deal for the politicians too! Again, remember the lead of the article: Washington -- A novel idea to help high-tech workers at risk of losing their jobs to India and China may provide policy-makers with a practical way to attack the hot political ----------------------------------------- problem. ------- This would let the politicians off the hook. The American public always falls for the retraining ruse, and the politicians are absolutely unwilling to betray their generous corporate patrons, including the foreign offshoring firms. That includes the putatively-pro-labor Democratic Party just as much as (if not more than) the Republicans. Sen. Hillary Clinton has been highly active in promoting the Indian software giant, Tata Consultancy Services, and one article in the Indian press was even titled "Kerry, Our Ally Against [the Offshoring] Backlash." See my previous postings on these points: http://heather.cs.ucdavis.edu/Hillary3.txt http://heather.cs.ucdavis.edu/Hillary4.txt In reading the enclosed article further, we see the obligatory: Top officials and business leaders widely agree the only viable long-term answer to the offshoring phenomenon is to improve the education and training of U.S. workers and focus on the next generation of high-tech goods and services so that they can compete effectively with cheaper overseas labor. As I said above, the "business leaders" use the education issue as a ruse, and the "top [government] officials" have to toe the line set by their industrial patrons, so they use the same ruse. I must add that even organized labor is also partly to blame. They love training as a general notion, and they were very quick to promote that retraining fund portion of the 1998 legislation. There are hopeful signs that they won't be so cavalier about the issue this time. As mentioned, "Pushing the education button" has been a tried-and-true method for deflecting attention away from the real issue of cheap labor. The industry lobbyists push that button again, as seen in the article: ...and efforts to improve the quality of secondary education and encourage more young Americans to study mathematics and science are a long-term project at best. As I said yesterday, the U.S. has more engineers per capita than any other nation in the world except Israel. (Michael Hiltzik, Israel's High Tech Shifts Into High Gear, Los Angeles Times, August 13, 2000.) Rather than recognizing these engineers, the industry is laying them off, by the hundreds of thousands--but saying we need MORE of them! And there ARE things that can be done about offshoring. As I've said, so far the problem of bringing foreign labor to the U.S. (under the H-1B and L-1 programs) has been much more of a problem than offshoring, but aside from the nonoffshoring employers that bring in H-1Bs and L-1s, there is also a connection between offshoring and H-1B/L-1: As the offshoring firms admit, the H-1B and L-1 programs are crucial to their offshoring operations. Typically a firm like Tata will have about 30% of its workers in an offshoring project onsite at the U.S. client. See http://heather.cs.ucdavis.edu/Archive/Tata.txt and Hal Salzman and Radha Roy Biswas, The Indian IT Industry and Workforce: Perspectives from the U.S., Center for Industrial Competitiveness, University of Massachusetts, Lowell, April 25, 2000. Thus, reform of H-1B/L-1 would go a long way to reduce offshoring. You can read Mann's full report at www.iie.com/publications/papers/pb03-11.pdf Lots of tables, etc., but she fails to address the FUNDAMENTAL QUESTION: She says that offshoring will result in an increase in demand for IT services by U.S. firms--yet doesn't say why that increase would not be done by foreign workers (either offshore or by imported H-1Bs and L-1s in the U.S.) just like the work being currently offshored. Note especially my point about work being done *here* by H-1Bs and L-1s. Norm http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2004/03/17/BUG5A5M3AR1.DTL&type=business Carolyn Lochhead, Chronicle Washington Bureau Wednesday, March 17, 2004 San Francisco Chronicle Washington -- A novel idea to help high-tech workers at risk of losing their jobs to India and China may provide policy-makers with a practical way to attack the hot political problem. Top officials and business leaders widely agree the only viable long-term answer to the offshoring phenomenon is to improve the education and training of U.S. workers and focus on the next generation of high-tech goods and services so that they can compete effectively with cheaper overseas labor. But government job retraining programs have a poor record of success, and efforts to improve the quality of secondary education and encourage more young Americans to study mathematics and science are a long-term project at best. Economist Catherine L. Mann at the Institute for International Economics has come up with what many see as a more practical and immediate remedy: a tax credit for business investment in so-called human capital, modeled on the popular investment tax credit and research-and-development tax credit used to encourage firms to invest in capital goods and research. Mann, who outlined her idea before a large audience of Washington policy experts last week, argues that company training programs are often very effective. "Having retraining and skill upgrading done in the firm is known to be a far more productive strategy for both the firm and the worker, but firms don't necessarily have an incentive to do it," Mann said. "A tax credit that is ultimately for the benefit of the worker is one strategy. We use them all the time for companies to do research and development and buy equipment. Shouldn't we also consider using them to ensure that workers keep their skills matched to jobs that are available in this country?" Several high-tech trade groups are looking at the proposal, along with several members of both the House and the Senate, to see if the idea has any political viability. Mann contends that the trend toward offshoring -- hiring workers overseas to do increasingly sophisticated work that historically was done domestically -- has substantial benefits for the economy as a whole. That is because buying cheaper software and services abroad lowers their cost and increases their availability to more businesses, diffusing information technology more widely through the economy. Lower costs for information technology account for more than half the increase in productivity growth in recent years in the United States, Mann said, adding substantially to overall economic growth. Mann said that counter to conventional wisdom, the end result is actually an increase in the number of information technology jobs in the United States as more and more businesses adopt new technologies. Lower prices also allow U.S. technology firms to lower their costs and gain a competitive advantage in exporting higher-level information technology products. Most of the new information technology jobs -- about two-thirds -- are in businesses such as securities and banking and health care, outside the high-tech sector. During the tech crash, from 1999 through 2002, the last year for which data is available, the total number of white-collar information technology jobs fell by 144,630, Mann found. However, the bulk of these jobs were at the bottom end of the information technology skill level, with 143,250 jobs losses in data entry, paying an average of $23,190 a year. Computer operators lost 25,860 jobs, paying an average yearly wage of $31,640. Higher-level computer programmers also lost substantial numbers of jobs: according to Mann's calculations, a total of 71,280, paying an average of $63, 690. But the number of jobs in computer software engineering, with an average wage of $74,615, actually rose by 115,170. Mann predicted, as do many economists, that routine information technology work will increasingly go overseas. Those workers who lose their jobs as a result are in essence bearing the cost for society's greater benefit, Mann argued. Training tax credits would be aimed at so-called mid-level incumbents such as computer programmers, and entry-level workers in science and technology. So far, Congress and presumed Democratic presidential nominee John Kerry have focused on such measures as prohibiting government agencies from offshoring work, and requiring call center operators to tell callers where they are located. Trade statistics show, however, that foreigners actually send in far more work to the United States than the United States sends abroad. This includes legal work, computer programming, banking, engineering, telecommunications and management consulting, contributing to a substantial U. S. trade surplus in services, in contrast to a substantial deficit in trade in goods. E-mail Carolyn Lochhead at clochhead@sfchronicle.com. Page C - 1 ©2004 San Francisco Chronicle