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Immigration and Offshoring: The Graying of America

by Gary Endelman

Gary Endelman More than any other single factor, increasing levels of immigration are necessary to ensure that the United States experiences the labor force growth to compensate for the graying of America. Absent this, the centrifugal forces behind the offshoring of good paying jobs can only accelerate. As the nation plans for the massive Baby Boom retirement that will soon hit, an appreciation of how immigration can keep white collar jobs in the United States is an essential ingredient of any coherent strategy. Nativists who want to cut back on immigration are unwittingly leaving American employers with no alternative but to satisfy their manpower needs overseas. In the global competition for talent that commands the energy and attention of all developed nations, only those who use immigration to compensate for a declining birth rate will maintain their competitive position and be able to exert sustained leadership.

Testifying before Congress on the aging of the American work force, Federal Reserve Chairman Alan Greenspan warned that the tsunami of baby boom retirements could trigger labor shortages that would undermine Social Security, destabilize Medicare, and weaken the economy. Without an increase in immigration or dramatically higher productivity growth, Greenspan warned that benefits for seniors would have to slashed, or payroll taxes hiked. Higher payroll taxes, however, discourage hiring and would only serve to aggravate the impending labor shortage. For this reason, far from stealing US jobs, as the nativists would have an unsuspecting public believe, immigration actually acts as a brake on off-shoring.

Experts estimate that America will need 5%, or 15.6 million, more workers by 2015 to maintain the current ratio of workers to the total population. Despite current fears about job losses as a consequence of off-shoring, the US economy will need more, not fewer, workers to maintain current levels of revenue.

The US Census Bureau estimates that there will be 82 million elderly by 2050 as compared to 34.6 million today. This trend will be most evident between 2011 and 2030 when those baby boomers born from the late 1940's to the early 1960's hit retirement age. Right now, one in three workers is over age 55 and the Monthly Labor Review forecasts the number of workers between the ages of 55 and 64 to soar by almost 50% between 2000 and 2025.

In a recent examination of the impact of global outsourcing on the US economy, the research firm Evaluserve looked at statistics from the US Congressional Budget Office and the Bureau of Labor Statistics. Anticipating an annual GDP growth of 3.20%, the report forecasts a domestic labor shortage of 5.6 million by 2010 due to an aging population and slow population growth. Evaluserve predicted that this could cost the US economy up to two trillion dollars. At a recent forum sponsored by the Center for Strategic and International Studies, American Enterprise Institute Senior Fellow Ben Wattenberg predicted that, by 2010, the US could have a labor shortage of 7-8%.

Nor is this solely an American phenomenon. In a recent study by Robert Stowe England for the Center of Strategic and International Studies (CSIS) entitled "The Fiscal Challenge of An Aging Industrial World," we learn that the coming gross imbalance between active workers and retirees has the potential to disrupt the economies of all industrialized nations by throwing them into massive deficits occasioned by vastly higher levels of health care expenditures with fewer and fewer people to pay the bills. Between 2010 and 2030, the UK anticipates an 82% surge in the elderly population while the working age population grows by only 5%. Who is going to pay the bills?

It is certainly true that technology can diminish the need for more workers, but only up to a point. When the gap between productivity and consumer purchasing power grows too large, as it did in the late 1920's, there are not enough dollars to soak up the goods and services in circulation. Depression inevitably follows as the pattern of economic life is shattered irrevocably. Moreover, increased productivity without increased employment does nothing to sustain the levels of payroll tax revenue on which much federal discretionary spending is based. Machines do not pay taxes, workers do. If this discretionary spending drops, so will the federal commitment to technology research and innovation on which our entire economic competitiveness depends.

An alternative way to compensate for chronic labor shortage resulting from the graying of America is off-shoring. While there has been much ink spilled in recent months over this phenomenon, very little attention has been paid to what jobs are leaving and which ones will stay behind. "What will continue to go overseas are the repetitive activities, the things that will ultimately be automated anyway," says Nancy Markle, president of the Society for Information Management and former Arthur Andersen CIO." High-level IT jobs that are core to a company's strategy are not leaving. Sun Microsystems, for example, expects to outsource 50% of non-core activities by 2010 according to CIO H. William Howard. Will Sun send everything off-shore? Hardly. "The things that are core," Howard explains, "that are tightly tied to business process and the local business community, won't." Cingular CIO Thaddeus Arroyo views off-shoring as a targeted strategy that he uses to make a difference only when the right situation presents itself. While Cingular sends 10% of its IT work offshore, this is mostly low-level maintenance; Arroyo retains a US staff to keep" new and more complex development close...Offshore outsourcing simply allows us to remain productive so we can deliver innovation here."

Even the most ardent advocates of off-shoring cannot insulate themselves from the need for home-grown talent to do the key jobs that can only be done in America, at least so long as the companies themselves remain here. If they leave, all bets are off. In their December 11th article on "Re-locating the Back Office," the Economist cited the comments of Craig Barrett, the chief executive of Intel that employs a good number of Indian engineers on H-1B temporary worker visas, who observed that a shortage of well-trained engineers would encourage American firms to shift more, not less, work to India as a result of the reduction in the H-1B visa allotment from 195,000 to 65,000 per fiscal year. Immigrant bashers bring closer the day when core American IT jobs have to leave because there will be no one to do them.

At the end of the day, there is no substitute for high levels of immigration to forestall the detonation of our demographic time bomb. It is sweet irony that the most severe critics of immigration often allege that foreign workers accelerate the exodus of American jobs by coming here to facilitate the transition of sending work overseas. Truth be told, nativists only make off-shoring that much more inevitable. When American employers lack the human talent to do the core jobs that they want to keep close at hand, and cannot bring in the best and the brightest from other lands, they will have no choice but to either relocate their entire operations or send these jobs to India. It would be hard to devise a strategy more pleasing to the Indian software industry than to clamp down on immigration to the United States.

The aging of the American work force represents a major challenge to our continued dominance as a world power. As fewer workers have to support more retirees, our policymakers are presented with the Hobson's choice of raising payroll taxes or cutting benefits. Neither is acceptable. Increasing high levels of immigration is the only alternative. When you consider that payroll taxes today are 34% of all federal revenues, not only do immigrant workers underwrite our social compact, but they also provide the human talent necessary to keep core jobs at home. Immigrant bashing, if successful, will accelerate the flight of these jobs to low wage markets overseas by leaving desperate employers with no alternative. Keep it up guys and you may end up getting what you wish. I sure hope not.

About The Author

Gary Endelman practices immigration law at BP America Inc. The opinions expressed in this column are purely personal and do not represent the views or beliefs of BP America Inc. in any way.

The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.