« The Arabists | Gene Expression Front Page | THE HANDICAP PRINCIPLE »
August 06, 2003

More on outsourcing jobs....

Another article, this one from Newsweek.

Posted by razib at 05:50 PM

I think an interesting question here is 'how deep is the pool of talent in India'? If (as the guy in the article says) the IT job market there is already in a frenzy with the amount of outsourcing currently going on, will there be enough skilled workers to fill several million more such jobs? I have worked with both an IIT grad and some less talented people from India and my perception is that the real skill level does drop off fairly steeply. The IIT grads are as good as MIT or Stanford grads, but in the non-IIT folks I already saw some of the hobbled thinking that comes from rote learning.
Anyway, the market will take care of this. I imagine a 10% drop in USA IT salaries and a 20-30% rise in Indian IT salaries will take place within a few years. Or else this really is an irrational stampede - but I doubt it.
I haven't mentioned outsourcing to other countries simply because they lack the killer combo of English language, a large pool of trained IT personnel, and relatively low wages.

Related question: how does the dollar maintain its value as we continue to run massive trade deficits? One thing we would expect to see in a situation like this is a slow devaluation of the US currency that would eventually balance the scales - but the dollar seems to levitate. Is this a side effect of it gradually becoming a world currency (so that outflows are absorbed simply as a way of increasing the world's money supply)? Are other countries like China saving so many dollars for a rainy day that they prop up its value?

Posted by: bbartlog at August 6, 2003 06:51 PM

Yes, the whole story does seem like an expected market driven 'diffusion' of jobs into an area of abundant human capitol.

But I wonder one thing. Would the dynamic play out in exactly the same way if the US had (somehow) had a high birthrate for the last 50-100 years?

I'm just wondering if the present US economy "scales"? If so, it would exist in a larger but proportional form, otherwise, maybe the extra people would have pre-depressed the IT wages, such that there wouldn't be much of a potential pressure release with respect to India, etc.

Posted by: temporary_account at August 7, 2003 05:00 AM

bbartlog -

Yep, you've got it right. The U.S. trade deficit is not caused by the U.S.'s inability to sell stuff abroad (people buy plenty od U.S. goods), but by the desire of foreigners to hold U.S. dollar assets. All over the world, populations are saving more than can be profitibly invested in their own countries. This leads to a perpetual shortage of financial assets in their home currency. This could be taken care of by government's running deficits adequete to provide for the shortfall, but since current economic orthodoxy frowns on this, they instead "export their savings" by converting it into dollar financial assets. Since both the provate and public sectors on the U.S. are happy to run deficits, this has worked so far. (Of course, the brief dip into surplus in the late 90's did cause all sorts of problems in the countries persueing this strategy, but we're back on track now...)

Posted by: jimbo at August 8, 2003 09:09 AM