Offshoring Silicon Valley

In The Big Squeeze: Tough Times for the American Worker, Steven Greenhouse, the veteran New York Times labor writer, provides a panoramic picture of American workers struggling with an economic order that demands more of them while offering them less -- less income, less security, less leisure time, less dignity -- in return. One of the sectors he reports on -- high-tech -- was supposed to be one part of the economy where American workers could still flourish. Over the past decade, however, that has proven not to be the case. --Harold Meyerson

The e-mail seemed innocent enough, but something about it worried Myra Bronstein. It instructed her and the 17 other quality-assurance engineers -- a fancy term for software testers -- to report to the company's boardroom the next morning. No way that can be good, she told herself.

At the time, Myra, then 47, was a senior quality-assurance engineer at WatchMark, a company that developed sophisticated software for cell phone companies. She and the other quality-assurance engineers were a dedicated lot. Sometimes they worked 11 or 12 days straight, sometimes up to 18 hours a day, as WatchMark rushed to meet deadlines to get new software to customers. WatchMark, based in Bellevue, a Seattle suburb, made software that helped wireless companies determine whether their cell towers were working properly and how many calls were being dropped.

Myra remembers one episode when, after being required to work 24 hours in a row testing software, she told her boss that she had to leave for a long-scheduled doctor's appointment. Her boss yelled at her, accusing her of lacking dedication.

"If they wanted to wreck our weekends or cancel our vacations," Myra says, "they'd basically say, 'This is a very important release. We need to build this customer's confidence. We have to show them it's good quality, and we need you to work, and basically if we lose this customer we could fold.' They'd say, 'As long as we're in business, you have a job, so it's in your best interest to work as hard as you can -- weekends, evenings, everything.'"

Myra is a petite woman, deliberate and not at all showy. She has a reserved smile, a pale, almond-shaped face, deep-set eyes, and thick, dark hair that just touches her shoulders. As Myra and other quality-assurance engineers gathered in the boardroom the morning after the e-mail arrived, the director of human resources began giving out large manila envelopes. Once everyone was there, Myra recalls, "The head of HR said, 'Unfortunately, we're having layoffs, and you're in the room because you're being impacted by the layoffs.'"

The 18 engineers were dumbstruck, but the head of human services pressed on. "Your replacements," she continued, "are flying in from India, and you're expected to train them if you are going to receive severance."

"People were trying not to cry," Myra says. "We felt sucker-punched. It totally knocked the wind out of me. I had bought into all their motivational tactics. I felt if I helped my company stay afloat, I would ensure my own employment. I believed them."

Uncomfortably, reluctantly, Myra and the others agreed to WatchMark's request to train their replacements beginning the following Monday. They would train their replacements for four to eight weeks and would then receive two months' severance pay. Not to agree would have meant working just a few more days and not receiving any severance.

The following Monday morning, the American engineers gathered inside a conference room, waiting to meet the 20 engineers who had been flown in from India. WatchMark's director of quality assurance began that meeting ever so clumsily by saying, "I'd like my new team to meet my old team."

Once each quality-assurance engineer was assigned an Indian to train -- Myra was assigned two -- WatchMark's vice president of technology began a pep talk, telling the laid-off engineers, "The future welfare of WatchMark depends on how well you train these people."

For the next two months, Myra strained to maintain her composure as she trained two Indians at once. "They didn't acknowledge what was going on, that we had to do something upsetting," she says. "It was the most difficult situation in the world."

Soon, Myra and the other Americans began calling themselves "The Castaways" and "Dead Man Working." She was told that the Indians would earn $5,000 a year; she had earned $80,000.

***

The rise of high-tech, some experts predicted, was to be the salvation for America's economic ills and beleaguered workers. And in the late 1990s, the high-tech boom did in fact do wonders for the economy, helping to reduce the jobless rate to its lowest level in decades to lift real wages at their fastest clip in recent memory. But the high-tech bubble burst in 2000, and now it seems that if high-tech is going to be a salvation for anyone, it will be for workers in Bangalore and Beijing.

"Profits, Not Jobs, on the Rebound in Silicon Valley," read the headline of a New York Times story in the summer of 2005. Profits at Silicon Valley's seven largest companies had more than quintupled the three previous years, while employment in the valley had declined by nearly 20,000 during the same period. In contrast, during the high-tech boom from 1995 to 1997, Silicon Valley added more than 82,000 jobs. The Times story focused on Wyse Technology, a respected producer of computer terminals, whose sales and profits were soaring and whose job growth was taking place overseas. In 2005, Wyse added 100 workers in India and 35 in China, increasing its worldwide work force to 380, but Wyse's employment in California remained flat. Just 15 percent of Wyse's engineering talent remained in America.

Another Times story that summer was headlined, "Cutting Here, but Hiring Over There." The story began, "Even as it proceeds with layoffs of up to 13,000 workers in Europe and the United States, IBM plans to increase its payroll in India this year by more than 14,000 workers."

These news stories point to a growing disconnect between what's good for American corporations and what's good for American workers. These stories also demonstrate that high-tech will not be a salvation for many American job seekers in the future unless the United States develops some revolutionary new technologies that spawn large new industries.

When factory jobs were heading overseas in the 1980s, young Americans were told there would be plenty of high-paying high-tech jobs to replace the jobs that disappeared. Then in the early 1990s, many companies moved their computer-chip production overseas, and we were told the good software jobs would remain in America. Now many of those software jobs are moving overseas, fueled by some stark numbers. American software engineers start at $75,000 a year, while many in India start at $15,000.

One respected consulting firm, Forrester Research, estimates that 3.4 million white-collar jobs will be sent offshore between 2003 and 2015. Tax returns once prepared by accountants in New York or Los Angeles are now being prepared in the Philippines. Radiologists in India are reviewing X-rays e-mailed from the United States. Paralegals in India are helping budget-minded law firms in Chicago and Seattle prepare wills and contracts. Forrester Research estimates that from 2003 to 2015, the offshoring exodus will include 542,000 computer jobs, 259,000 management jobs, 191,000 architectural jobs, 79,000 legal jobs, and 1.6 million back-office jobs.

Offshoring may produce other perils as well. Joseph Stiglitz, a Nobel Prize–winning economist and professor at Columbia University, says, "What worries me is that [offshoring] could have an enormous effect on wages, and that could have a wrenching impact on society." Offshoring has already held down wages of software workers up and down the West Coast. At a Sprint call center in North Carolina, 180 customer-service representatives, scared that their jobs would be shipped abroad, accepted a pay freeze for 2004 and no definite increase in 2005.

Three Harvard economists -- George J. Borjas, Richard B. Freeman, and Lawrence F. Katz -- found that for every 1 percent that employment falls in a manufacturing industry because of imports or operations moving overseas, wages are depressed by five-tenths of 1 percent for the workers who remain. With Forrester Research predicting that 6 percent of service-sector jobs will be sent offshore by 2015, Katz estimates that wages for service-sector workers in vulnerable fields could be shaved by 2 percent to 3 percent as a result. "White-collar workers have a right to be scared," Katz says.

Paul Samuelson, the famed Massachusetts Institute of Technology economist, textbook writer, and Nobel Prize winner, has warned that if American companies shift too many high-tech jobs and too much high-tech expertise to India, China, and other developing nations, that could ultimately undercut American industry and reduce the nation's per capita income. Samuelson also warns of a downward effect on worker pay, saying, "If you don't believe that [offshoring] changes the average wages in America, then you believe in the tooth fairy."

Indeed, more and more economists are voicing fears that if American technology companies continue to send so much of their work and expertise overseas, that might someday enable India's and China's high-tech industries to outinvent, outthink, and outstrip America's high-tech industry in some key areas, leaving the United States at a costly disadvantage in a field of critical importance.

***

After two months of training her replacement, Myra was unemployed. That was the last thing she would have anticipated when, full of lofty expectations, she quit her job as a health inspector in Kansas City to pursue a degree in electrical engineering. She hungered for a job that promised more excitement, more money, and more mobility. "At the time, computer science fit all those criteria," she says.

After obtaining her engineering degree, she landed a job with AT&T in Naperville, Illinois, testing its electronic switching systems. Four years after Myra began, AT&T started downsizing in Naperville, so she transferred to AT&T's operation in Middletown, New Jersey. For her first four years there, she wrote user manuals about telephone systems, and then she transferred into software testing. There, Myra was surprised by how many young engineers from India were brought in on H-1B visas. After four years, she was the only Caucasian left in the 20-person testing unit. "The writing was on the wall," Myra said.

Worried that she would be replaced, Myra quit and moved to Seattle, a city for which she long had a romantic hankering. There she took the testing job with WatchMark, and three years later came the abrupt layoffs. Myra remained unemployed for three months before settling for a job at what she called "a testing sweatshop." It paid $20 an hour, half the rate she earned at WatchMark (which has since changed its name to Vallent and been acquired by IBM). Myra's new testing company was across the street from a sewage treatment plant, and in the summer, the workers complained that they were choking from the smell, the heat, and the lack of ventilation. In winters, there was so little heat that many workers wore their coats all day.

"One day it was raining a lot, and I was sitting there at my PC, testing software for bugs, and it started dripping from the ceiling, right into my PC. Before I had time to react, it exploded. Smoke was coming out of it. That was some bug all right."

She soon quit.

Seeing so many jobs being offshored to India, Myra grew convinced that it would be hard to find a high-tech job that paid nearly as much as her WatchMark job. She searched in vain for several more months, supporting herself by drawing down her 401(k) and selling off her beloved, painstakingly assembled collection of antique Guilloche cosmetic compacts--fine French-made enamel compacts, some of which had silver handles. Feeling forsaken by the high-tech world, Myra moved back to Kansas City, in large part to take care of her ailing 86-year-old mother.

"I'm giving up on the technology field, because it's so difficult to survive now that employers can use so much cheap, skilled labor overseas," she says.

Myra is now contemplating a radical career change. She is thinking of becoming a pharmacist, which would entail six years of school. But she has no idea how she would afford the tuition. The Trade Adjustment Assistance Act pays tuition for factory workers who lose their jobs to globalization, but Myra was a software worker, not a factory worker.

"I would never have gone into the technology field in the first place if I had a crystal ball and knew the bottom was going to drop out," Myra said. "People who are staying in this field have to go back to school and continually learn more complicated high-tech things. I thought I could be very competent and learn what I needed to know about my own job and serve the company well. But now they want much more from you for much less."

***

In today's brave new world of offshoring, no one seems sure where to run for safety. Getting a college degree, especially a degree in computer engineering, used to be the ticket to job security. But as Harvard's Richard Freeman has pointed out, the world has changed mightily because hundreds of millions of workers in India and China, not to mention in Russia, Hungary, and other Soviet Bloc countries, have joined the global work force and are eager to take over work long done by Americans--including highly educated Americans. This has made it hard to advise American college students about what careers to prepare for.

In a candid moment, Craig Barrett, chairman of Intel, a company that does research and manufacturing in many different nations, voiced concern that globalization will portend a dimmer future for young Americans: "Intel will be okay no matter what," Barrett said. "We can adjust our R&D and manufacturing wherever it is most economically advantageous to do so. But in addition to being chairman of Intel, I am also a grandfather, and I wonder what my grandchildren are going to do."

This article is adapted from Steven Greenhouse's new book, The Big Squeeze: Tough Times for the American Worker, published this spring by Alfred A. Knopf. Reprinted here with permission.

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