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Patrick Thibodeau

D.C.

The coming collapse of IT jobs and wages

45 comments

TAGS:globalization, H-1B, IBM, offshore outsourcing
IT TOPICS:Careers

When a homeowner cuts the price of a house dramatically, real estate analysts have a word for it: capitulation, a surrendering to market forces. Something similar is arriving for IT workers.

A bellwether is IBM. Its workforce in the U.S. declined 5% last year to 115,000, but its workforce in Brazil, China, Russia and India grew 15% to 113,000. The vast majority of these workers are in India.

IBM isn’t providing any details regarding its recent round of layoffs, which may be between 4,000 to 5,000 employees in its Global Business Services unit – one of its most profitable. But IBM’s offshore strategy is clear enough.

In 2006, IBM produced a chart illustrating the stark differences in wages between India and the U.S. and presented it to analysts in Bangalore.

Ron Hira, an assistant professor of public policy at the Rochester Institute of Technology and author of Outsourcing America, says this chart represents a departure point for IBM.

“I think this moment was so important because it was when Big Blue made the fateful decision to compete by substituting low cost workers in India and elsewhere for high-cost American workers,” said Hira. “Instead of choosing to compete by investing in better tools, technologies, and training for their American workforce, they chose to compete their American workers head to head with workers in other countries who can afford to be paid less. And they gave those workers in low-cost countries the same, or better, tools, technologies and training, as their American workforce,” he said.

Even though IBM is cutting jobs, it is creating jobs in the U.S. as well. But some of this expansion is in relatively low wage areas, such as Dubuque, Iowa (pop. 60,000). The average salary at this 1,300 employee services center will be in the mid-$40,000.

Wage cuts are also affecting IT workers. Hewlett-Packard recently announced salary reductions, and it’s likely that other companies have done so as well. Will workers make up that lost ground?

Has the moment of capitulation arrived for the tech labor market? Look long and hard at this chart and ask, instead, how it will be avoided.

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It's all wrong

Submitted by Anonymous on September 30, 2009 - 2:18 P.M.

This is the policy of the senior IT executive staff but it's just wrong, wrong, wrong... With offshore strategy you can think you are making huge bucks, but actually the Quality of the software is poor, the procedures are non-existent and the Customer Services are just horribles... at the end the cost is huge and everyone must pay: Customers, Workers and The Company!!!. It really pisses me off all these smart-asses who think they have found a formula to make more money. They are just monkeys!

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A global economy without a

Submitted by getaclue on March 31, 2009 - 5:41 P.M.

A global economy without a global minimum wage was always a non stater for workers.

Pity no one had the balls to stand up to the oligarchs. Now we are screwed, tatooed and not in the mood.

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Come Work the Trenches

Submitted by KG on March 31, 2009 - 4:30 P.M.

Maybe the author should come work in the IT trenches where the Contract professionals have to clean up the SLOPware, hastitly thrown together by off shore groups to gain some sort of Profit in the short term.

The whole tone of Offshore development is the undertones of GREED and PROFITS... Keep sending the projects overseas, I will be be the skilled one that has to make it work when it comes to actual delivery and missed deadlines, usually at a far greater expense to the corporate sponsor...

From colleagues on the other side of the pond, I have heard first hand Bangladore is starting to experience major JOB-Hopping.. Literally one colleague walked across the grass of a competitor, and once they discovered he was an IT worker, they doubled his salary.... But he's back in the USA know, tired of the communications hurdles that come with offshore development.

Heck one client I had a major cleanup effort referred to India as REGION 10, to be more politically correct....

Anyone else want to give the author a first hand experience in Region 10 for a while, instead of the reciting the management propoganda so many senior IT executives try to justify with $$$

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No Free Lunch

Submitted by Joe I.T. on May 5, 2009 - 4:36 A.M.

I am a former Telecom contractor who lost his job to India:

1. I wrote the procedures and the application.

2. I trained my replacements

3. I documented the procedures, everything I did to pass on to my replacements

4. My Programming/scripting application will be run easily now by 2 Indian analysts with less than half my background (at 1/3? my pay)

Over and over I have seen the pattern of American I.T. workers being the innovators, pathfinders, and the builders, so we can hand off our products to less qualified people to do our jobs after WE DID THE HARD WORK OF SETTING IT UP... So the companies save money!

Say that Again, Bill Gates about not having
I.T. talent here in America ???

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I haven't read your article

Submitted by Bob on March 31, 2009 - 1:17 P.M.

I haven't read your article yet, but I want to relate an offshoring Programming Experience. I was called to fix a Mortgage companies finance website in .Net.

The Indian company had set it up, and the guy wanted to have some changes, that the Indian company was not able to do.

The programming was so scattered, and I WAS NOT GOING TO TOUCH THE PROGRAM. There were secure parts of the code EVERYWHERE.

The reason I wouldn't touch it, was I KNEW THAT IT WOULD BE a 'piece of cake' for an amateur hacker to get at the data, and I wasn't going to be the 'FALL GUY'.

Moral, when you try to save money by getting it done cheaper, there often is a reason it's cheaper. The country that is doing the work, is paying slave wages, the living conditions of the people are extremely poor, the environment is very polluted explaining why workers from free countries sent there have to spend their off hours in their motel rooms to avoid the smog.

I am not saying that offshoring isn't a viable and good thing, but it is being done more for the 'GREED of the USA company'.

Let our stimulus work, DO NOT GIVE IBM any money if they send ANY JOBS TO OVERSEAS companes.

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IT tallent is as hard to find as good journalists

Submitted by Anonymous on March 31, 2009 - 10:54 A.M.

If you look closely into what is really going on, The exact same jobs are not going to India. This is a falacy.

My friend's job at Sprint's "layoff" was extended to at least the end of the year as soon as the other groups discovered he was to be laid-off. The media is not reporting the whole truth and they are running reputable news agencies like tabloid crap.

I guess you got my attention with "The coming collapse of IT jobs and wages"

Go back to your studio appartment and bring us some real news, please!

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What are the reasons for

Submitted by Anonymous on March 31, 2009 - 6:39 A.M.

What are the reasons for offshoring these jobs?
Think about it the cost of running a business overseas is cheaper then it is in the US.....why is that?
I can think of two reasons.
One the wage discrepancy, which we in America have no control over.
The other is the high corporate tax code which sends these companies to seek cheaper labor overseas, something we in this country can control via our elected officials.

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I work for a company that is

Submitted by Anonymous on March 31, 2009 - 10:42 A.M.

I work for a company that is offshoring thousands of jobs, and we hire three workers in India for every one American worker. There is no backlash in the US, no angry mobs to deal with, no incentive to keep the jobs here. So why not? It has nothing to do with taxes and everything to do with costs.

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wrong - it IS about the taxes

Submitted by Anonymous on October 30, 2009 - 11:37 A.M.

You're wrong - it IS about the taxes, as any work thats done outside the country and its expense is taxed at that local country's level. Wages are only a portion of the total cost. Yes, wages are a significant portion of the overall cost, but its not that black and white. Time to complete a working project as in - its done and works to specs - reworks, problems, etc. all add to the total wages cost of a project, which most companies never even look at. Its easy to say we can get this done cheaper elsewhere when you're just looking at wages alone, but its never that simple. Its this narrow view of labor costs thats causing so many companies to outsource overseas, and the overall massive reduction in quality.

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Its exchange rate Baby!

Submitted by Anonymous on March 31, 2009 - 10:37 A.M.

You forgot one, and the most important one in my opinion, the exchange rate. 1 USD = 50 INR. Trust me the wages in India are not low and the standard of living is pretty high - thanks to all the offshoring. That makes US wages compareable for the work being done and the cost of living. A person in India can almost have the same standard of living earning 50,000 INR monthly than what a person earning 5000 USD in USA. So the real rate is 1:10. And thats the problem my friend because the exchange rate is 1:50. So, to get a comparable employee in India, without compromising on standard of living and without exploiting him (as we wrongly think is the case with Indian labor), a company has to pay USD1000 what it would have paid USD5000 to the US employee. Do you see the point here? They are not being paid less - actually in my opinion a offshore employee gets paid more because for a similar wage we get a person who needs more hand holding by the US Manager due to cultural, time and language differences. We still go there - Why. Its the exchange rate baby!

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