Outsourcing

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Businesses are running out of (good) jobs to outsource, but we can still outsource the crappy ones eh!

By 2016 almost 1.1 million IT jobs will have been sent offshore by 4,700 companies with annual revenue over $1 billion headquartered in the U.S. and Europe. In the U.S. advanced industry labour areas have plunged 61% in 33 years from 1980 to 2013 (top of chart mashup).

Canada's labour cost (2nd chart in the mashup) is running +/- 20% higher than Mexico's and the top source countries for importing labour into Canada are the Philippines, followed by Mexico, the United States, India and Jamaica. Notice the plunge in Canadian labour costs in 2012 as foreign workers become more appealing as hires.

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Let's look at some bullet points and their sources:

The U.S. advanced industry platform has thinned out substantially and inordinately, so that less than half as many large metro areas have the density of advanced industry activity that they had in 1980. That means that on balance many fewer U.S. metropolitan areas now have the dense supplier bases and deep pools of technically relevant workers necessary to support new advanced industry growth.

That’s a problem. In an era when clustered capabilities matter as much as labor or energy costs, the United States has a lot of work to do to rebuild its network of regional industrial ecosystems. 

Reshoring: Why It’s Not Easy
by Mark Muro and Siddharth Kulkarni, October 3, 2014

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By 2016, corporations in the U.S. and Europe are expected to move an additional 750,000 business services jobs to low-cost geographies. This would bring the total of offshored jobs in finance, procurement, HR, and IT to 2.3 million – or one third of all jobs in these areas. 

While nearly three-quarters of a million jobs is significant, the speed at which these jobs leave the U.S. will begin to level off in 2014 and slow considerably after 2016. According to the Hackett Group, “of the 5.1 million business services jobs remaining onshore at U.S. and 
European companies in 2012, only 1.8 million could be moved offshore – and 750,000 of those will be gone by 2016.”

Offshoring? Reshoring? Nearshoring? How will global mobility change in the next 10 years? Report by Graebel, September, 2012

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The snapshot view (bottom panel on the chart mashup above) on December 1st 2012 shows that there were 338,221 Temporary Foreign Workers in Canada, up 235% from 101,078 on December 1st, 2002. But the calendar view shows that the number of temporary foreign workers grew from 181,794 in 2002 to 491,547 in 2012 (170% increase); although a double count could occur if a short-term worker returns home and then comes back for another temporary position, but it does reflect the growing number of temporary workers who are in Canada for more than a year. 

Inter-company staff exchanges or workers brought in under trade deals like the North American Free Trade Agreement are exempt from the LMO process (Labour Market Opinion), ie: The company opinion is: "We have to hire this foreign worker because we don't have a local worker to fill the vacancy".

The federal government also shortened approval times in some cases from five months to five days.

The jump in low-skill entrants to Canada comes at the same time that preliminary estimates show a decline in the total number of temporary foreign workers admitted from January to March 2014. That decline, though, is the result of a significant drop in the number of highly skilled temporary foreign workers granted entry. The low-skill group, meanwhile, grew across all categories, for live-in-caregivers, seasonal agricultural workers, and the low-skill pilot program that includes restaurant and hotel workers among others. 

Canadian Employment Minister Jason Kenney offered an extensive defence of the vast majority of the program, arguing that legitimate exchanges of labour in a global economy should not be curtailed because of a "small number of problems".

Everything you need to know about Temporary Foreign Workers
by Bill Curry, The Globe and Mail, June 24, 2014.

Numbers of low-skilled temporary foreign workers rose despite...
by Joe Friesen, The Globe and Mail, October 27, 2014.

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Hypothesis 1.
Robots will bring manufacturing back to the rich countries as machines are replacing workers and the cost of labour will not matter much.

In the Great Recession of 2008 we see a drop in offshoring activity in the US and Europe. But the activity quickly rebounded, increasing faster than before the crisis.

Hypothesis 2.
Intelligent machines will replace smart people rather than increase the demand for skills (capital bias rather than skill bias technical change) and as a result the relative price for skills (the skill premium) will decline.

The trend in the U.S. skill premium since 1999 has been almost flat suggesting that capital-bias technology has been driving this trend.

As the demand for skills declines, the wage gap between skilled and unskilled workers will decline as well.

Since the 1980s, the share of income going to labour has declined in all rich countries. It is now at about 58% of GDP. It used to be 70%.

It may well be that the ‘war for talent’ and the scarcity of human capital is an issue of the past.

Globalisation and the Rise of the Robots
by Dalia Marin, November 15, 2014