OFFSHORING TREND SEEN DEPRESSING U.S. WAGE RATES

DAVID MERREFIELD

SCOTTSDALE, Ariz. - Just as manufacturing jobs are disappearing from this country, many other job categories - including white-collar jobs - are fated to decline or move offshore.

That was the chief point raised by Geoffrey Colvin, senior editor-at-large and columnist, Fortune Magazine. He was a speaker at last month's Food Marketing Institute Midwinter Executive Conference here.

He said what has happened to manufacturing jobs is following a pattern set by jobs in the agriculture sector. That sector's peak employment occurred in 1907, and has declined ever since. Similarly, manufacturing jobs peaked in 1978 and have been declining ever since.

In the instance of agriculture, the decline was propelled by production methods so efficient that a tiny labor force is now more productive than the huge one of nearly 100 years ago. Manufacturing jobs, however, are declining not only because of efficiencies, but because of globalization.

In many manufacturing sectors, such as automobiles and computers, neither the product nor the company that makes it has any nationality. Instead, production or portions of production gravitate to where the labor market is least expensive, and which offers a workforce trained sufficiently to accomplish the work.

In many countries, notably those in Asia, the workforce is increasingly educated, which explains why manufacturing there has been shifting to products of increasing value. First, shoe manufacturing went offshore, then steel and now computer hardware and software.

"This won't stop at the manufacturing level," Colvin asserted. "Offshoring will increasingly work its way up through major corporate functions, such as marketing and executive functions. In fact, almost any information work that involves sitting at a desk in front of a computer and a telephone can be offshored.

"Highly populated and low-wage countries are graduating lots of well-educated people who can do this work," he said. "In the U.S., the number of those graduates is about flat." Also facilitating the move of jobs offshore is the fact that the cost of computing is in "free fall," and approaching zero. Similarly, capital moves across national frontiers freely.

He predicted that in upcoming years, millions of white-collar jobs will move offshore, with the likely effect of depressing wage rates in this country. Indeed, he said, that appears to be already happening: 2005 marked the first year ever when, absent recession or other economic factors, real wages in the nation declined. This may be happening now simply because of the potential of relocating jobs elsewhere.

The implications are that the standard of living in this country could decline in the future.

That fate might be staved off if educational levels in this country were to be improved markedly so that technological leadership could be maintained and high-value jobs created and filled.

On top of those challenges, companies in this country are choked by worker pension and health care costs. By comparison, companies based in many other parts of the world are free of these costs since such costs are either borne by governments, or the populace is left to fend for itself.

"Our pension and health care systems are unsustainable," Colvin said. "This has to be fixed."