How Globalization Is Changing Labor Markets

How Globalization Is Changing Labor Markets

The movement of manufacturing jobs from the United States, Britain, Germany, and other countries with high labor costs to places like China, Mexico, India, Malaysia, and the Philippines has been going on for two decades. What is often overlooked is that service jobs are increasingly being exported to low-labor-cost countries.
It was recently estimates that between 2003 and 2008, 500,000 jobs in the U.S. financial services industry alone will be moved outside the country. Banks, brokerage firms, insurance companies, and mutual funds will transfer functions such as data entry, transaction processing, and call centers to China, India, the Philippines, Canada, the Czech Republic, Brazil, Ireland, and Russia. Why? A call center employee would make $20,000 in the United States can be hired in India for about $2,500. Moreover, this movement is not limited to low-skill jobs. U.S. financial services firms are also transferring professional functions like financial analysis, regulatory reporting, accounting, and graphic design to lower-cost locations. Why pay a U.S.-based stock researcher $250,000 a year when you can get an equally proficient researcher to do the job for $20,000 in India? Executives at BearingPoint (formerly KPMG Consulting) say that the engineers they hire in Shanghai for $500 a month would cost them $4,000 a month in the United States.
Here are some current examples to give you a preview of what the future may hold: Massachusetts General Hospital is using radiologists in India to interpret CT scans. Boeing uses aeronautical specialists in Russia to design aircraft parts. Delta Airlines has 6,000 contract workers in India and the Philippines handling airline reservations and customer service. The architectural firm Flour has 700 employees in the Philippines drawing blueprints. Oracle has a staff of 4,000 in India doing software design, customer support, and accounting. And IBM is currently shifting 3,000 programming jobs from the United States to China, India, and Brazil.
Digitalization, the Internet, and global high-speed data networks are allowing organizations to shift knowledge work to low-wage countries. And this trend is likely to continue. Experts predict that at least 3.3 million white-collar jobs will move from the United States to low-cost countries by 2015.

Source: Based on P. Engardio, A. Bernstein, and M. Kripalani, “Is Your Job Next?” BusinessWeek, February 3, 2003, pp. 50–60: M. Schroeder, “More Financial Jobs Go Offshore,” Wall Street Journal, May 1, 2003, p. A2; and B. Davis, “Migration of Skilled Jobs Abroad Unsettles Global-Economy Fans,” Wall Street Journal, January 26, 2004, p. A1.