US banker allays fears over outsourcing

Wednesday, 31 March 2004, 08:00 Hrs
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WASHINGTON: A member of the US Federal Reserve Board of Governors has allayed fears that outsourcing would lead to wholesale hijacking of US tech jobs to India and other countries.

Ben Bernanke, a member of the policy making body of the US central bank, said pessimistic predictions about US tech jobs heading to India and other countries are unlikely to materialise because outsourcing will be uneconomical for many types of jobs, particularly high-value ones.

Speaking on the subject Tuesday night at the Duke University in North Carolina, Bernanke said the pace of outsourcing will become slower than implied by such predictions.

He said outsourcing had proved profitable primarily for clearly defined jobs involving routine activities and most high-value service jobs require workers to have physical proximity to each other, personal contacts or shared cultural experience.

At issue is the relocation by US companies of service jobs such as customer support or software development to developing countries, primarily India, where local employees perform these jobs for a fraction of the US cost.

The loss of manufacturing jobs in recent years and the more recent outsourcing of white-collar jobs have become a recurring election-year political issue.

In March, the Senate passed a measure that would restrict outsourcing of many jobs paid for by the US government.

Some US states have moved to prohibit the outsourcing of state government work to India and other countries.

Bernanke said outsourcing was not likely to restrain employment recovery in any significant way and that a theory that blames outsourcing for the recent weakness in the US labour market lacked merit.

He said in a press release "astonishing" rates of productivity growth, not outsourcing, had allowed US industries to do more with fewer employees. But, because such rates were probably unsustainable as economic growth continues at its current pace, job creation would soon follow.

Bernanke presented in his speech historic data to support the view that, although international trade both destroys and creates jobs, its impact on a country's long-term employment potential was marginal.

He cited statistical evidence indicating that only slightly more than two percent of gross job losses in the US market in the past 10 years were the result of import competition.

And "to the extent that trade patterns are contributing at all to the current weakness in employment, the more relevant concern is that foreign economies are not growing as fast as our own and hence are not generating as much demand for our exports as we would like", he said.

Factors other than trade, such as population growth, education and training, determine the level and composition of employment, he noted.

Bernanke said attempts to restrict trade may temporarily slow job losses in affected industries but that the costs of such actions for the overall economy were many times greater than the benefits.

The better policy approach, Bernanke said, was to make sure that jobs became available for those who had been displaced and help workers affected by changes in the marketplace acquire knowledge and skills necessary to fill those positions.

Source: IANS
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