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
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
• 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
In other words, moving industries offshore, while often good for
the owners of companies, shrinks the U.S. slice of the total world
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
"What can you retrain a radiologist to do?"
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
Shift accounts for small amount of job
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
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
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.
the big picture
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.
Movement in and out of jobs doesn't
The labor department tracks the number of jobs "created" and
"destroyed" every month as companies start up and expand, or shrink and
But a lot of movement in and out of jobs takes place out of
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."
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.
Caution over spotty quality from
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
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
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 email@example.com