Offshoring and immigration
July 12, 2005
Link: danieldrezner.com :: Daniel W. Drezner :: An immigrant's take on offshoring.
Of course, it's heart-wrenching to see American programmers - many of whom are of Indian origin - lose their jobs and have to worry about how they'll pay the mortgage. But they are ill served by politicians who promise to bring their jobs back by the facile tactic of banning them from leaving. This strategy will ensure only that our schools stay terrible; it'll be an entire country run like the dairy industry, feasible only because of price controls and subsidies.
One reason for offshoring is curbs on immigration. If you control the H1-B visa (control the number and add the condition that each H1B visa holders wage cannot be less than the prevailing market wages) then the capital will leave to the places where labor is cheaper. It is pretty simple!
In fact, the capital in the IT industry is much more mobile as it is mostly intellectual (patents, source code, and so on). When IBM decides to cut jobs in the US and move them to India, it doesn't need to relocate factories to India. All it needs to do is purchase new hardware in India and transfer the documents and source code to its India's office. And work can begin in India within a few days.
In such conditions it is futile to expect that you can control wages in US by controlling number of H1B visa granted or putting some stupid conditions that prevailing wages be not disturbed!
If the job market is tight in a particular field (here, IT) then the education will also be costly! This is what happened in the US. When you restrict immigration in the IT field you also make education costlier. It's pretty simple!
In contrast, if no job opportunities are available (presumable because of tight capital controls), there will be plenty of people ready to teach at a very low salaries. This combined with government financing of the education will mean many people will get quality education on the platter. In India colleges had no trouble hiring talented people for teaching posts! So, as soon as capital controls were lifted and telecommunication was liberalized, offshoring started.
Now India will face similar situation (but not on the same scale as US) as job market in IT tightens. Collegues will find it difficult to hire faculties in IT and next batch of students will have to pay higher fees and thus reducing their supply.
Posted by: Ashish Hanwadikar | July 19, 2005 at 01:29 PM
You make excellent points! While the restrictions on H1-B visas may have initially kicked off the outsourcing trend, the infrastructure that has now developed overseas, combined with competitive advantages, makes it unlikely that a sudden lifting of the restrictions of the work-visa program could stop the offshoring.
The real question though is why there is such a supply of talent available overseas compared to the business' home country.
Posted by: Ironman | July 19, 2005 at 12:56 PM