Outsourcing leads to white knuckles for white collars

Outsourcing leads to white knuckles for white collars
By Alwyn Scott: Seattle Times business reporter
Shifting Fortunes: A Seattle Times special project
February 06, 2005

Janice Staheli earns more than $20 an hour. She works from home. And her employer, UW Medical Center, offers health insurance, vacation, a pension, even incentive pay.
There's only one hitch. As a medical transcriptionist who turns doctors' dictation into patient records, her work is highly mobile. So it's hardly surprising that Staheli, 58, and dozens of her colleagues fear losing their jobs to cheaper workers around the country and overseas.
Factory jobs have moved overseas for decades. The process is so well documented it even has a wonky name — deindustrialization. Economists say this transfer cuts costs and enlarges the economic pie for everyone. In this virtuous circle, new workers elsewhere earn money, get better educations and join the global economy, eventually buying U.S. products.
Theories questioned The downside to globalization for U.S. economy
But as such "offshoring" spreads across the white-collar world of hospital workers, engineers, architects, lawyers — even economists — those old theories are being questioned anew in ways that are sometimes tough to answer.
• How valid is the comforting cliché that globalization must be good for the U.S. economy because a rising tide lifts all boats?
• How many jobs are really being outsourced overseas?
• Does focusing on the simple tally of jobs lost and gained obscure important elements of the bigger economic picture?
Paul Samuelson, the 89-year-old winner of the Nobel Memorial Prize in Economic Sciences and architect of much of modern trade theory, recently raised eyebrows by arguing that the U.S. can lose in trade, especially where offshoring is involved. In Samuelson's analysis, the U.S. loses when research and inventions it developed move overseas, taking jobs with them. While this is no excuse for protectionist measures that stifle trade, it is something trade advocates must address.
The growth of such foreign-based manufacturers as Toyota and Honda "certainly adds to world output and certainly adds to real income in Japan," he said in an interview. "But it reduces our [U.S.] share of real output."
In other words, moving industries offshore, while often good for the owners of companies, shrinks the U.S. slice of the total world economy.
Moreover, Samuelson says that a shift in U.S. tax and social policies in the past 20 years has worsened the effect by steering less of the economy's trade gains to the people losing jobs than was the case under New Deal policies of the 1930s and '40s.
"I don't think that the gains of the gainers pour off in the market system to assuage the losses of the losers," Samuelson said.
Others have a more droll critique of this "rising tide" theory. "Globalization creates a more buoyant economy and floats all yachts," said Marcus Courtney, president of Washtech, a national labor association of high-tech workers based in Seattle. "It's about floating the richest and most powerful boats."
For Janice Staheli and her colleagues, this high-level policy debate boils down to two fears: First, they may lose their jobs to English-speaking workers in India or the Philippines. Already much of their work has been transferred to cheaper U.S. workers at transcription agencies around the country.
But even if Staheli keeps her job, she faces the prospect that her wages will fall, just as factory wages dropped in past years under competition from cheaper workers overseas.
As valuable service jobs like Staheli's move offshore, "that's going to put downward pressure on wages of people with college degrees and advanced degrees," said Robert Scott, an economist with the nonpartisan Economic Policy Institute based in Washington, D.C. It's the same thing that has happened to factory workers since the 1970s, he says.
"What can you retrain a radiologist to do?"

Offshoring impact
Shift accounts for small amount of job losses

So far, the extent of offshoring appears limited. In May, the U.S. Labor Department estimated that about 4,633 jobs went offshore in the first quarter of 2004, about 2.5 percent of the total jobs lost due to layoffs that quarter, but a tiny fraction of the nation's 140 million workers.
The department couldn't get data for later quarters. When the labor department called to ask where the jobs went, "We had too many employers who said, "I don't know,'" said Lewis Siegel, manager of the mass layoff statistics program.
Studies by unions, manufacturers and research groups, also lacking authoritative data, suggest offshoring accounts for a relatively thin slice of the nation's job-loss pie. Of the 2.7 million U.S. factory jobs that disappeared since 2000, about 1 million were lost because of trade, and fewer than 250,000 were lost to offshoring, the National Association of Manufacturers estimated.
Among service-sector jobs, about 500,000 jobs have moved overseas in the last two years, roughly 1 percent of the total services workforce, according to a study by Forrester Research, a technology research firm based in Cambridge, Mass.
Forrester expects the total will grow to about 6 percent over the next decade, with a cumulative loss of about $152 billion in wages over the entire period. "At a macroeconomic level, it's not very big at all," said Adam Brown, a Forrester researcher.
But others say those counts miss jobs gained by "insourcing" when foreign companies hire workers in the U.S. Matthew Slaughter, a professor at the Tuck School of Business at Dartmouth, says insourcing employs more than 5.4 million U.S. workers and that on average, the jobs paid about $56,000 a year. But those figures, too, are small relative to the U.S. economy. The figures also overlook the fact that offshoring is a long-term process that is unlikely to disappear. China's rise as an economic power, for example, since 1989 has cost the U.S. factories and offices that supported them 1.5 million jobs, according to a recent study by Scott of the Economic Policy Institute. The study was released at a congressional-commission hearing in Seattle looking into China's impact on the Northwest economy.
Scott found that many white-collar jobs lost in Oregon and Washington went to advanced economies like Sweden, Canada and the U.K., not India and China.
"It's not just rich versus poor, it's rich versus rich competing for that slice of the high-tech pie, and we are losing that race," he said.
Yet there doesn't seem to be a clear alternative to a globalized world. "If you tried to be protectionist," Samuelson said, "it's almost a sure prescription for arteriosclerosis of the enterprise system."
But the U.S. can make different domestic choices. China and India invest heavily in education systems, aiming to build white-collar industries. "If we wish to retain those industries, we have to develop much more strategic polices" toward national spending, investment and fostering new industries, Scott said.

Missing the big picture
Movement in and out of jobs doesn't get tracked

Another issue in the debate over globalization is that by focusing on offshoring, economists and politicians are missing the other important changes going on in the labor market.
The labor department tracks the number of jobs "created" and "destroyed" every month as companies start up and expand, or shrink and shut down.
But a lot of movement in and out of jobs takes place out of sight.
Think of the job market as a bathtub, filling and draining all the time, said Greg Weeks, director of labor market and economic analysis at the Washington state Employment Security Department.
"All we're watching is the changing level," he said. "When we say the economy gained 10,000 jobs, we tend to think people went from unemployed to employed."
But lots of those new jobs were filled by people who already are employed, just moving up. And people who have lost jobs often can't compete for the jobs being created.
As traditional factory and service jobs go away, older people have a hard time landing good-paying new jobs. They are more likely to end up working at Wal-Mart.
"If you're a 55-year-old forklift operator and lose your job in this economy, you're toast," said Bill Center, president of the Washington Council on International Trade. "The new jobs are not the same as the old jobs. If you lost one of the old jobs, there's no reason to believe you necessarily qualify for one of the new ones."

Slowing trend?
Caution over spotty quality from outsourced workers

Of course, snafus associated with long-distance work could slow its growth, making Forrester's forecast look too high. Already companies report having trouble navigating the time zones and language barriers as work moves around the globe, or across town. And nearly 60 percent say they have no plans to outsource.
The UW Medical Center currently outsources about half of its transcription work to the local office of MedQuist, and has been doing so for more than 10 years.
But Diane Clark, supervisor of transcription services, said the department has no current plans to outsource more work. "Generally speaking, the quality is less from the outsourced work."
Close contact and knowledge of local geography, doctors' voices and dictation styles and other details help transcriptionists make accurate records. They leave blanks rather than guess.
Staheli and others swap stories about garbled dictation that make their jobs hard — and nearly impossible for outsiders. One tape sounded like the doctor said blood had gone to the "poocha-sabla center." Staheli and colleagues eventually figured out the doctor meant "Puget Sound Blood Center."
"It's very hard for me to imagine someone in Ireland or India having a handle on all that," said Peggy Donaldson, who has been a transcriptionist for UW Medical Center since 1996. With patient care involved, "it just is extremely, exceedingly important to get this right."
Others say that when you consider the quality and the costs of paying more administrators and profits to an outside firm, outsourcing can wind up costing more. Recently, 58 percent of U.S. companies said they don't plan to outsource information technology anytime soon, according to Forrester's study.

Fearing the future
Transcription work for 3 cents a line?
Even though they're still employed, Staheli and her colleagues already are dealing with outsourcing. During contract talks last summer, UWMC proposed contract language allowing future outsourcing of the 65 remaining staff transcriptionist jobs.
"We fought it like crazy and they withdrew it," Staheli said. But it raised "huge red flags. There's always talk about transcription being done in the Philippines for 3 cents a line" — about one-third of what transcriptionists here can earn.
For Dawn Stinson, outsourcing is very real. The 56-year-old transcriptionist used to work at Northwest Hospital in Seattle. But the hospital dismissed the 10-member department about five years ago, sending the work to Transcend Services, an outsourcing company based in Atlanta that relies on domestic workers and voice-recognition computers.
Stinson followed her Northwest Hospital manager to UW Medical Center. But she knows the work could be done anywhere. "There's a big fear among most of us in this profession because we know in the long run this is going away."
Ironically, Stinson's insecurity comes despite a shortage of transcriptionists. The difficulty of hiring keeps wages high, making outsourcing more attractive for employers.
That's produced an opening for Transcend and its bigger rival MedQuist, the nation's largest transcription outsourcing company, based in Mount Laurel, N.J.
These companies, which have offices around the country, often can cut costs by half, transcriptionists said. The companies didn't return calls seeking comment.
Donaldson, 59, works for UW Medical Center from her Lake Forest Park home. She said she was spared from a partial outsourcing at her previous job at Virginia Mason hospital.
"I've been lucky," Donaldson said. "But I've had the threat."

Alwyn Scott: 206-464-3329 or ascott@seattletimes.com