March 14, 2006

National Data, By Edwin S. Rubenstein

Fuzzy Data, Flawed Economics, Underlie H-1b, Outsourcing Enthusiasm

We've heard it all before: arguments for increasing the number of H-1b visas granted to foreign engineers and scientists. Assurances that, at the end of the day, offshoring is good for the economy.

How valid are the pro-H-1b, pro-outsourcing, briefs?

Assertion:  In both numbers and quality, the U.S. lags in engineering personnel. "Last year [2004] more than 600,000 engineers graduated from institutions of higher education in China. In India, the figure was 350,000. In America, it was about 70,000." [Broad Federal Effort Urgently Needed to Create New, High-Quality Jobs for All Americans in the 21st Century, National Academy of Sciences press release, October 12, 2005)

Fact: These widely circulated figures rely on data from the education ministries of the various foreign countries. But much of what qualifies as engineering programs in Asia would not make the cut in the U.S. "As a result, any bachelor's or short-cycle [2-3 year] degree with ‘engineering’ in its title is included in these numbers, regardless of the degree's field or the academic rigor associated with it. This means that the reported number of engineers produced by China in 2004 may very well include the equivalent of motor mechanics and industrial technicians." [Framing the Engineering Outsourcing Debate, Duke University School of Engineering report, December 12 2005 (PDF)]

China has roughly four times the population of the U.S., and India is about three times as large. If you adjust the official engineering degree numbers—overstatements and all—for population size, this is what you get:

Obviously, our lead would be still larger if comparable "engineering degree" definitions were used.

Assertion: H-1bs are preferable to outsourcing. "In my view, the H-1B visa category, if properly administered and monitored, can be an antidote to concerns about overseas outsourcing. Use of H-1B visas encourages work in the United States and thus can help keep and grow jobs in the United States." [Congressional testimony of Mr. Stephen Yale-Loehr, Immigration Lawyers Association, September 16, 2003]

Fact: Far from being an alternative, H-1bs facilitate outsourcing. Indeed, a just-released study lists immigration—together with cheap global telecommunications, advances in information technology, and the free market economy—as a major enabler of the outsourcing phenomenon:

"…In concentrated high-tech regions of the United States, most notably in Silicon Valley, communities of Indian high-tech entrepreneurs emerged and bonded with other Indians in the high-tech community, and similarly for the Chinese. In many cases, these technical entrepreneurs were the ones who started offshoring companies or who were the go-betweens to ease the difficulties of doing business across so many miles and such different cultures. U.S immigration policy, especially the H1-B and L-1 visa programs, have enabled Indians and other foreigners to gain valuable experience and contacts in the United States before returning to their home countries. [Globalization and Offshoring of Software, Association for Computing Machinery]

Assertion: Outsourcing is good for profits, thereby enabling U.S. corporations to create more jobs here than they shift abroad. Alleged evidence: "Despite all the publicity in the United States about jobs being lost to India and China, the size of the IT employment market in the United States today is higher than it was at the height of the dot.com boom." [Study says U.S. tech hiring grows, CNNMoney, February 23, 2006]

Fact: From the University of California-Davis’ redoubtable Norman Matloff: "The highlight of the study….is that computer-related jobs are more numerous today (actually in 2004) than in 1999, the height of the dot-com era.  That is highly misleading….because they are including job categories which are not suitable for computer science graduates, e.g. computer support jobs [sales, accounting, etc.]  (Worse, they include such a category for 2004 that didn't even exist in BLS data in earlier years.)" [Matloff’s H-1B/L-1/offshoring e-newsletter, February 24, 2006.]

Another sleight of hand stomped on by Matloff: "They chose 1999 as their base, even though the numbers peaked during 2000-2001, with figures about 30% higher than 1999." [H-1B/L-1/offshoring e-newsletter, February 24, 2006.]

Assertion: Globalization rules! Even if jobs are lost to outsourcing, the resulting price reductions and profit increases will increase demand and investment stateside. Eventually U.S. incomes will recover and expand.

Fact: The globalization happy-talk may not be relevant to a high-wage economy like the U.S.

Economics Nobel laureate Paul Samuelson has noted that classical economics long assumed that, while some groups are hurt by free trade, "…the gains of the American winners are big enough to more than compensate the losers".

But, writing in 2004, Samuelson questioned whether the classical result holds when the trading parties are as different as the U.S. and China. According to Samuelson, a low-wage country that is rapidly improving its technology, like China or India, has the potential to reduce American wages in outsourced fields like call-center services and computer programming. [Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization, Journal of Economic Perspectives, Summer 2004]

"Being able to purchase groceries 20 percent cheaper at Wal-Mart does not necessarily make up for the wage losses," Samuelson said in an interview. [A Dissenter on Outsourcing States His Case, ECT New Business Desk, September 7, 2004).