As approved by the IEEE-USA Board of Directors
March 2004

The offshoring of high wage jobs from the United States to lower cost overseas locations is currently contributing to unprecedented levels of unemployment among American electrical, electronics and computer engineers. Offshoring also poses a very serious, long term challenge to the nation's leadership in technology and innovation, its economic prosperity, and its military and homeland security.

Prudent steps must be taken to ensure that offshoring, if it does occur, is implemented in ways that will benefit the United States and all its citizens, including high tech workers. To this end, IEEE-USA recommends that:

• The Federal Government must collect and publish reliable statistics on the kinds and numbers of manufacturing and service jobs that are being moved offshore.
• Government procurement rules should favor work done in the United States and should restrict the offshoring of work in any instance where there is not a clear long-term economic benefit to the nation or where the work supports technologies that are critical to our national economic or military security.
• New U.S. workforce assistance programs should be created to help displaced high-tech workers regain productive employment and ensure that employed workers can acquire the knowledge and skills they need to remain competitive.
• The H-1B and L-1 visa programs should be reformed and new trade agreements should incorporate such reforms. These temporary admissions programs for skilled workers are often used to import lower cost labor and can result in displacement of U.S. professionals, exploitation of foreign workers and accelerated offshoring of engineering and other high tech jobs.
• A coordinated national strategy must be developed to sustain U.S. technological leadership and promote jobs creation in response to the concerted strategies being used by other countries to capture U.S. industries, jobs and markets.
• Federal investments and tax credits for research and development should be limited to work performed in the U.S. R&D that must, by its nature and content, be carried out offshore, is not covered by our recommendation.

This statement was developed by the IEEE-USA's Career and Workforce Policy Committee and represents the considered judgment of a group of U.S. IEEE members with expertise in the subject field. IEEE-USA is an organizational unit of The Institute of Electrical and Electronics Engineers, Inc., created in 1973 to advance the public good, while promoting the careers and public-policy interests of the more than 225,000 electrical electronics, computer and software engineers who are U.S. members of the IEEE. The IEEE is the world's largest technical professional society. For more information, go to http://www.ieeeusa.org.

BACKGROUND

Offshoring - the transfer of high wage U.S. jobs to lower cost overseas locations - is enabled by improved communications technologies and driven by the desire of corporations to establish a business presence in potentially lucrative foreign markets as well as to take advantage of the lower costs of production and skilled labor in those markets.

Forrester Research has projected that as many as 3.3 million white-collar jobs of all kinds and over $136 billion in wages will be moved from the United States to lower cost, offshore locations by 2015. Although the initial emphasis has been on routine service and technical support positions, the trend is expanding to include more complex engineering and design services. It is abundantly clear that many of the jobs being sent offshore were formerly held by U.S. engineers, computer scientists and other information technology professionals.

The offshoring trend is particularly unsettling for American high-tech workers. The economy lost 3 million manufacturing jobs in the past decade. American high-tech firms shed 560,000 jobs between 2001 and 2003, and expect to lose another 234,000 in 2004. The Commerce Department reports that the number of U.S. IT workers employed in all industries has declined by 8 percent since 2000. Although initially concentrated in the manufacturing sector and in low-skilled jobs, the Commerce Department says that "recent job losses have been widespread across most IT-goods and services producing industries, and across all IT skill levels." Some jobs are expected to return with a stronger economy, but the majority are probably gone for good. Offshore outsourcing will further compound that shrinkage.

The strong push for offshoring of high-tech jobs also comes at a bad time for U.S. electrical engineers, computer scientists, and information technology professionals. Unemployment among U.S. electrical engineers, computer scientists, and information technology professionals has been increasing over the past three years, and reached historically high levels in 2003. The unemployment picture is further clouded by uncertainty about the numbers of high-tech workers who are currently under-employed, or who have left engineering or information technology for jobs in other fields.

The Consequences of Offshoring

Whether the United States will benefit from the offshoring of jobs will ultimately depend on how the process is implemented. As in all competitions, there will be winners and losers. Potentially adverse consequences include: loss of employment opportunities and income by technical professionals; loss of payroll and income taxes by national, state and local governments; growing trade deficits in goods and services; transfers of investment capital and intellectual property to overseas locations; and increasing dependence on foreign sources for consumer products and defense critical weapons systems.

IEEE-USA is particularly concerned that offshoring of engineering, computer science and other high tech jobs could eventually weaken America's leadership in technology and innovation, a threat that has serious implications for our national security as well as our economic competitiveness.

Fewer job opportunities and the downward pressures on wages that will occur as more and more scientific and engineering jobs are shifted to lower-cost, overseas locations are also likely to discourage many of America's best and brightest young people from pursuing careers in science and engineering.

Offshore outsourcing can also result in intellectual property and sensitive personal data exports, including medical and credit information. And because U.S. laws that protect information and safeguard privacy do not have extraterritorial application, the U.S. government, corporations and citizens will become increasingly dependent on foreign laws to protect their interests. The risk posed to these interests by individuals and organizations who would take advantage of weak laws, loopholes and limited access to enforcement is not insignificant.

Public Policy Recommendations

Providing Good Data for Policy Analysis: The U.S. government does not presently collect statistical information about the offshoring of jobs or its impact on employment, technology and capital investment in the United States. The lack of objective data forces policy-makers to rely on speculative projections, and diverts attention from the real task of solving the problems that offshore out- sourcing creates.

Government Procurement: Federal, state and local governments are a significant consumer of high tech goods and services. Government spending increases aggregate demand and helps create jobs. If government contracts are directed overseas through offshore outsourcing, then the benefits of that spending for the U.S. economy may be significantly diminished because its multiplier effects will benefit the countries where the outsourced work is performed.

The relationship between federal investments in research and development and technological innovation is also critically important. The National Academy of Sciences report, Funding a Revolution: Government Support for Computing Research, provides dramatic evidence of the many benefits of federal support for R&D at individual companies and educational institutions, as well as for their employees and the communities in which they live.

The argument that global sourcing of government contracts can result in cost-savings that benefit U.S. taxpayers is also attractive politically when federal and state budget deficits are growing. In many cases, this argument is based on short-term assessments of costs and benefits, rather than on detailed analyses of longer-term financial impacts on employment, social services, and the domestic tax base.

When it can be demonstrated that long-term financial benefits are likely to result, the offshoring of government contracts may be warranted. When long-term benefits are not proven, when the contract involves technologies that are critical to U.S. economic or national security, or when restrictions would serve important social goals, then some limits on offshoring of government procurement contracts is probably warranted.

Assisting Displaced Workers: Congress should create new U.S. workforce assistance programs to help displaced high-tech workers become productive again. Government-sponsored jobs training and other displaced worker assistance programs, especially for skilled workers, have not been very effective.

But what should displaced workers be trained to do? What if the jobs for which they are trained can be performed just as effectively and much less expensively overseas? And who should underwrite the very substantial cost of such training? Although these are difficult questions two steps should be taken immediately:

• The Federal Trade Adjustment Assistance (TAA) program's eligibility guidelines should be expanded to cover all workers whose jobs are moved offshore. Originally adopted to aid manufacturing workers displaced as a result of trade agreements, the TAA extends unemployment compensation for up to two years and offers training, job search and health insurance assistance to U.S. workers who lose their jobs due to foreign competition.
• The Department of Labor's H-1B visa petition fee for training investments should be reauthorized and redirected to assist displaced, high-tech workers. H-1B/L-1 Visa Reform: The H-1B visa program was established to enable U.S. employers to meet temporary needs for professionals with skills that are in short supply in the United States. The L-1 visa program was designed to allow multi-national companies to transfer managers, executives and highly specialized knowledge workers from overseas locations to branch offices in the United States. Both programs are being used in ways that result in the displacement of U.S. professionals by foreign workers and facilitate the export of U.S. jobs and technological competitiveness to other countries.

Through these programs, enterprising foreign workers come to the United States, are trained by some of the best companies in the world and develop valuable experience and business contacts in their fields. Many return to their own countries to establish or work for new businesses that compete head to head with U.S. businesses. Former H-1B and L-1 employees have helped improve the global competitiveness of India's IT services industry, for example. And, as reported by the Center for Industrial Competitiveness at the University of Massachusetts, H-1B workers are also being hired to help foreign-owned companies negotiate and manage contracts within the United States.

National Competitiveness Strategy: The United States needs a coordinated national strategy to help companies operating in the United States maintain their technological leadership, improve their manufacturing capabilities, and promote job creation in response to the concerted competitiveness strategies being used by other countries to attract U.S. industries and jobs.

Key elements of such a strategy should include:

• A publicly sponsored dialogue on new and innovative ways to improve human capital in the U.S. engineering enterprise. The strength of the country's competitiveness comes from its workforce as well as from its companies. And because traditional competitiveness strategies generally target companies rather than their human capital, they are necessary to help maintain U.S. technological leadership, but not sufficient to solve new challenges resulting from offshoring.
• Increasing federal investments in research and development, with an emphasis on basic and applied research in the physical sciences and engineering geared toward generic and enabling technologies, productivity tools, and new and emerging technologies (such as nanotechnology) that can be developed into products that are manufactured and services that are provided in the United States
• Instituting a permanent tax credit for research and development performed in the United States to help provide a more stable incentive for industry planning and investment decisions
• Reforming the tax system to create incentives and remove barriers to savings, capital formation, and infrastructure investment in the United States
• Eliminating tax and other incentives that encourage U.S. based companies to move jobs overseas
• Improving education and training at all levels, from K-12 math and science education to life-long learning to help workers enhance their productivity and adapt to changing corporate needs
• Ensuring a level playing field in trade, improving access to foreign markets and enforcing export controls that protect intellectual property and technology deemed critical for economic and national security.

Related IEEE-USA Position Statements

Creating an Economic Environment for Technological Competitiveness
URL: http://www.ieeeusa.org/forum/POSITIONS/compete.html

Ensuring a Strong High-Tech Workforce for the 21st Century
URL: http://www.ieeeusa.org/forum/POSITIONS/21cworkforce.html

Pre-College Education in Mathematics, Science and Technology in the U.S.
URL: http://www.ieeeusa.org/forum/POSITIONS/precol.html

Tax Incentives for Continuing Education and Training
URL: http://www.ieeeusa.org/forum/POSITIONS/taxlearn.html

The H-1B Visa
URL: http://www.ieeeusa.org/forum/POSITIONS/h1b.html

The L-1 Visa for Intra-Company Transfers
URL: http://www.ieeeusa.org/forum/POSITIONS/L1visa.html

Selected Bibliography

Digital Economy 2003, U.S. Department of Commerce (Dec. 2003).
URL: http://www.esa.doc.gov/DigitalEconomy2003.cfm

Funding a Revolution: Government Support for Computing Research, 
National Research Council (1999).
URL: http://books.nap.edu/books/0309062780/html/index.html

Tech Employment Update, American Electronics Association (March 2003).
URL: http://www.aeanet.org/publications/idmk_endofyear2002.asp

The Role of H-1B Visas in the Globalization and Restructuring of IT Services,
Hal Salzman, Center for Industrial Competitiveness,
University of Massachusetts (Oct. 2003)
URL: http://www.uml.edu/centers/CIC/pdf/h-1b_it_industry.pdf