Where Have All the IT Jobs Gone?

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My interest in this incredible brouhaha came about because of a great forums thread I read here at MC Press Online. The thread was based on an interesting article published online at WorldNetDaily. And while I wouldn't necessarily bet my bottom dollar on WorldNetDaily's objectivity, I was intrigued enough to start doing a little digging.

I'm not proud to say that my initial opinion of the whole mess was that this was simply an issue of sour grapes, that the protestors were primarily people who had lost out to better, faster, cheaper competition. These were people who hadn't tried to keep up and who were now complaining about something caused by their own lack of foresight. Images of the ant and the grasshopper kept popping into my head.

Today, I'm embarrassed by my original naivete, but I'm sure I wasn't alone in feeling the way I did. People like to point to most heavy manufacturing industries--from automobiles to televisions to steel to electronics--and say that IT job displacement is just one more event in an unstoppable geo-economic trend. However, I have come to believe that this particular trend is being artificially supported by legislation that unfairly benefits multinational companies and that this legislation is being promoted by consulting firms whose agendas may conflict with those of American workers.

The Issues

To start, I need to explain the issues. Remember, I am not a lawyer, and I don't even play one on television. My opinions have been crafted from my own findings on these topics, and I urge you to do your own research. But to give you a little head start, I'll tell you what I found.

Outsourcing and visas are completely different concepts. And while I'm not particularly thrilled with either one, the differences are crucial. And while these practices actually affect many industries, I'm going to focus solely on IT, as it is the industry I am most familiar with and the one whose fate you and I both share.

Outsourcing

First, outsourcing. Outsourcing occurs when a company farms work out to an offshore consulting firm. These days the primary firms are from India--companies like Tata and Wipro generate billions of dollars of revenue this way. Those billions represent money that is not being given to American workers and thus is not going into our economy. Is it any wonder there is so little economic growth in this country?

These are not small numbers, and they are destined to grow. China is poised to jump in where India leaves off, and if you thought competing against one entire country's IT population was bad, how about trying to compete with the most populous country on the planet? The projections are staggering. While 400,000 IT jobs are currently outsourced, estimates range as high as 3.3 million IT jobs to be outsourced in the coming years. Are we looking at the end of the American IT industry?

But outsourcing is not entirely to blame for this problem, and in many ways it is self-limiting. I'm not sure all of these IT jobs can actually be outsourced. There's only so much cheap labor to be had, and once that pie is divided up, one of two things happens: The labor pool price goes up, or the labor pool quality goes down. I'll address that in a moment. Also, it's pretty hard to actually run a project remotely. I had experience with it in the 90s at System Software Associates. Issues from time zones to language barriers caused repetition of labor. We wasted a lot of time training the offshore programmers on the basics of our business, and the product received wasn't of the same quality as we were capable of creating in-house, so it quickly became apparent that the long-term cost of outsourcing was actually higher than the cost of doing it ourselves.

Visas

Many of the outsourcing issues are eliminated with the visa programs. The H-1B and L-1 visas are the two that are causing the biggest problems. And while the grassroots movement to roll back the H-1B visa has actually begun to show results, the even more potentially damaging L-1 visa is still largely unrestrained.

First, why are visas worse than outsourcing? With outsourcing, the offshore company must at least have their own infrastructure in place: computers, workstations, networks, software, and all that entails. In addition, there are the issues of time zones and lack of face-to-face interaction that limit the level of work that can be done by outsourcing--in essence, only the grunt work can be outsourced. Visas are much worse because they essentially allow foreign workers to replace American workers. All the infrastructure is in place, and as far as training goes, some companies actually require American workers to train their replacements. But why do these programs even exist?

The H-1B is a fairly simple program that was created at a time in the 90s when consulting firms such as Gartner and Forrester proclaimed a shortage of American IT workers--a shortage that really never materialized and in fact was largely fictional. However, that didn't stop the consulting firms, and I'll explain why a little later.

For now, let's review the situation. Based on this hypothetical worker shortage, Congress created the H-1B program, allowing up to 65,000 foreign workers to be brought in every year to this country to fill jobs--and this is crucial--for which American workers could not be found. This is the crux of the issue: The consulting groups said we were out of workers, so Congress enacted legislation to address that issue, not just in the IT industry, but in many high-skilled, high-paying jobs. And there may have even been a period at the end of the 90s when some workers were needed, but never in the numbers projected.

But then the dot-com bubble burst, and the Y2K conversion was completed, so you'd expect that program to end, right? Wrong. Instead, in October of 2000, Congress voted to increase the H-1B allotment--to triple it to 195,000 per year. Even though we were already starting to see layoffs, and the NASDAQ had just lost over 50% of its value, Congress passed these bills overwhelmingly: The vote was 96-1 in the Senate and passed by voice vote in the House. American IT workers were beginning to be laid off in record numbers, yet the industry pundits were encouraging lawmakers to let in hundreds of thousands of cheap replacement workers.

The L-1 visa is even more troubling. There are currently 325,000 workers on American soil with L-1 visas, which basically allow multinational firms to transfer foreign workers to fill American positions, without any real caps or quotas. So as the H-1B problem is finally addressed, look for employers to start using the L-1 as a replacement.

Isn't It Just Cheap Labor?

Cheap labor is like anything else that's cheap: You get what you pay for. But the companies using these services don't see it...yet. I did a lot of searching, and although I found many announcements of large-scale consulting projects being started, I haven't been able to find any case studies where outsourcing saved the money it promised to. I'd love to see some discussion in the forum on this particular issue. Anybody who has information about successful or unsuccessful outsourcing ventures, please feel free to share your experiences! And if you'd rather do so anonymously, please feel free to drop me an email, and I'll post your anecdotes without using your name.

As to the dilution of the labor pool, we're already beginning to see that, as recent posts from www.midrange.com can attest. Here's an example:

> Hi All
>
> I have an RPG application communicates with a Java application. I
> think for each request from RPG application, a new instance of java
> application is created. But the requirement is only one instance of
> java application should serve multiple request (concurrent requests)
> coming from RPG application...
>
> Please suggest a way to implement the same.
>
> Thanks in advance.
>
> [name withheld]
> E-Biz EAI Practice
> Wipro Technologies

This person is more than likely working on a "Global IT Services" project, since by Wipro's own financial statements, over 75% of their revenue is from this sector. It's even possible that Wipro outbid one or more American firms for this work. And now, here is the developer, asking on an American-based mailing list for instructions on how to implement this project. And this is hardly unique:

> Respected Sir,
>
> I am facing a problem. My task is to Copy a file from a Web
> Server to an AS400 Server. I think it can be done using DDMF concept.
> Suppose I have a file Test.xls in the Web Server whose IP address
> is: 192.168.240.250 and port is 8080. I need to copy to the native
> AS400 server.
>
> I have created a DDMF file as follows:
>
> CRTDDMF FILE(ANITEST) RMTFILE(*NONSTD 'test.xls')
> RMTLOCNAME('192.168.240.250' *IP) PORT(8080)
>
> Is it OK? Could you suggest all the steps for this purpose. My As400
> machine is V5R2.
>
> [name withheld]
> RS Software (India) Ltd.

Here we have someone with enough knowledge of the iSeries to be dangerous. Somebody told them about DDM, and they want to use this to get a file from another (presumably non-iSeries) machine. They don't understand what DDM is, and they don't know the native capabilities of the box, from FTP to sockets communication. They're asking for step-by-step instructions on a job that they may have won from an American competitor. And no, that's not a farfetched scenario; this company, RS Software, claims AS/400-RPG/400 experience and touts itself as getting over 90% of its income from "exported services."

This is the kind of quality that American corporations are buying to replace you and me. Frankly, even if someone with the skills evidenced above charges as little as $10 per hour, most professionals I know would still provide a better price/performance ratio at standard American IT rates.

And the folks promoting this aren't doing it to fill positions that can't be filled by American workers. How many of these visa holders are coming from "visa mills," whose sole purpose is to get foreign workers into the United States? If you don't think this is happening, simply visit one of these sites:

H1Base
VisaPro
American Immigration Network

"Everybody's Doing It"

It's not just offshore companies using these tactics. I tracked down a typical consulting company's financial statements. Consider, for example, Covansys, ostensibly an American firm based in Michigan. Here are comments taken directly from the company's second quarter financial statement:

  • Increased offshore billing headcount by over 200 employees and India related billings to 18.2% of total revenues, up over 1.6 percentage points versus the first quarter
  • Reduced overall cost by more than $23 million annualized through the reduction of over 200 employees during the second quarter

Note how this works: They laid off 200 employees, while at the same time increased their offshore headcount by...200 employees! They in fact replaced 200 American workers with Indian labor. The amount they saved is pretty extraordinary, by the way. Evidently, each of these 200 employees cost them some $115,000 per year more a year than their offshore counterparts. Well, if a company can get away with displacing an American worker with a cheap foreign replacement and save $115,000 in doing so, then it's not surprising that jobs are flying out of the country.

Why Are They Doing This?

There are two sets of arguments as to why this sort of tactic is a good thing. The first comes from foreign companies who explain it as "global economics" and the fact that America just has to compete with these lower-priced workers. And that's simply not true. There is no reason that American jobs should be shopped to the lowest bidder. It's one thing to purchase cheap commodities from overseas, but even then we regularly protect certain industries with tariffs so that American companies can compete. But this situation is different, especially with the visas. With either an H-1B or L-1 visa, a company brings a foreign worker with a lower standard of living into America to displace an American worker from an American job on American infrastructure--infrastructure that was in many cases put in place by the American worker being replaced. And as we've seen, sometimes American workers even have to train their replacements. It's become clear that if companies are allowed to do this, they will elect to use the cheaper labor in order to increase their profits at the expense of American jobs.

But that's not the argument the so-called industry experts--the consulting firms--use to promote this policy. They know better than to suggest that American workers should be paid the same as programmers from Bangalore. Instead, until just recently, they insisted that we need more IT workers. As recently as last year, companies like Gartner were still trumpeting that there was a shortage of technology workers. Even in the face of unqualified disagreement from real companies and angry comments from the industry, the ITAA, supposedly an unbiased voice of IT, emphatically insisted that we, the American IT employees, cannot fulfill the needs of the IT industry. The president of the ITAA, Harris Miller, even went so far as to counsel Congress to "stay the course," whatever that means. But how unbiased is ITAA? Well, ITAA publishes reports with Gartner, so that should give you an idea.

Do I think the consulting firms might have ulterior motives? Well, having been forced to back off from their untenable stance that there are no American workers, the consulting firms have changed their tack and are instead insisting that while there might not be a shortage right now, there will be one soon. Why? Because so many American IT workers are being laid off and finding work in other sectors and thus losing their technical skills. You get this? Because American corporations are replacing American workers with cheap outsourced labor, they're reducing the number of American workers who have the required skills, so they need to import more cheap labor.

Besides the suspicion that comes from the unjustifiable (and self-fulfilling) nature of their claims, there are also some real problems with conflict of interest. Let's take Forrester Research, for example. They are counseling that companies need to outsource. Why? Perhaps this explains it: Forrester owns Giga Information Group, which makes its money by consulting on outsourcing. And so, when Forrester says something, it is speaking for Giga. Here is Giga's position, from an article last year:

"Giga recommends that internal resources should be between 10 and 20 per cent of the project in order to optimize efficiency, quality, and cost. Offshore vendors such as Wipro, Tata and Infosys tend to want to move more work offshore but may experience problems with the onsite coordination of the project, it points out."

Giga wants you to have as little as one-tenth of your IT work done by American workers and the rest outsourced. And the outsourcers want even more. If you read the article, you'll see that the only work for Americans is the interface to legacy systems and that Giga recommends moving all new development offshore. They'll of course be happy to help you do that, too, for a hefty consulting fee. And this is one of the firms that are counseling American corporate executives.

What Can We Do?

A grassroots movement is already starting. Since the consulting firms seem to have the ear of the corporate executives and neither one seems to care about the American worker, then it's time for American workers to go to the one place where they still have a little pull: Congress. It's amazing what happens when enough people start writing and faxing their elected representatives.

The cap on H-1B visas just dropped back to its original level, and while that's still too high, it's a step in the right direction. Bills have been introduced in Congress to both reduce the L-1 visa (Rosa DeLauro's bill HR2702) and eliminate the H-1B (Tom Tancredo's bill HR2688). And whether or not these go through, it's up to you to continue to let your senators and representatives know that we consider visas not simply an idle threat, but instead a clear and present danger to our livelihood. Maybe write a letter to your Congressman. I did, and I finished it with the following line:

"Support HR2702 and HR2688 as if your job depended on it. Ours does."

I also sent faxes via one of the many anti-visa Web sites, and I actually got a response from one of my senators. He quoted Senate bill S.1452, the USA Jobs Protection Act of 2003, which at least requires that employers not lay off any American workers in the six months before or after hiring an H-1B visa holder. But even better would be elimination of both the H-1B and L-1 visas.

This is not an instance of requiring governmental intrusion. Instead, it's a matter of getting the government out of the situation. It's only through Congressional interference that this practice began and continues. And if you make sure your Congressional representatives know that you're serious about this--that you are willing to make keeping your job a requirement for them to keep theirs--then you might be surprised at what can be accomplished. Some of the sites to review:

Federation for American Immigration Reform
FreedomCast
NumbersUSA
ZaZona

Something to Think About

I'm not just crying wolf here. Tata Infotech made over $2 billion last year in services. Wipro will likely make over $1 billion dollars this year, with over 75% of that coming from "Global IT Services." That's just two of the big firms; there are hundreds more. And while it's difficult to estimate how much of this is outsourcing versus visa work and how much is directly impacting American jobs, it's safe to say a lot of money that could be helping our economy is flowing out the visa spigot, while American workers continue to languish.

And how safe is outsourcing? Do you really want your mission-critical data in the hands of people who may have no loyalty to this country and who may not be subject to its laws? Here's a quote from a frightening article:

"... A woman in Pakistan doing cut-rate clerical work for UCSF Medical Center threatened to post patients' confidential files on the Internet unless she was paid more money. To show she was serious, the woman sent UCSF an e-mail earlier this month with actual patients' records attached. ..."

Can we really afford to "stay the course," as ITAA president Miller suggests? Do you think the management consulting firms care about American business? Do you think they really care who is making money, as long as they get their share? Remember that Forrester owns Giga, so you know where their interests lie. And if you watched CNBC on November 15, you'd have seen Ratan N. Tata, the chairman of the Tata Group, as he was crowned the Ernst & Young Entrepreneur of the Year 2003.

These are the people counseling our CEOs, folks. And unless you really want to train your replacements and then watch as your standard of living and that of your children is "leveled" with theirs, it might be time to start speaking up.

Joe Pluta is the founder and chief architect of Pluta Brothers Design, Inc. He has been working in the field since the late 1970s and has made a career of extending the IBM midrange, starting back in the days of the IBM System/3. Joe has extensive experience in Web application design and specifically IBM’s WebSphere, especially as the base for PSC/400, the only product that can move your legacy systems to the Web using simple green-screen commands. Joe is also the author of E-Deployment: The Fastest Path to the Web and Eclipse: Step by Step. You can reach him at This email address is being protected from spambots. You need JavaScript enabled to view it..
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