Mopping Up the Mess of Offshoring Job Loss

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    Yesterday, I blogged on a joint research project performed by McKinsey & Company and NASSCOM, India’s software trade association, regarding the growth of the India ITO and BPO industries.

    Today, I’m going to tell you about a different kind of McKinsey research, this done by the McKinsey Global Institute on “US Offshoring: Rethinking the Response.”

    Half of the report spells out why offshoring — which is projected to create 200,000 to 300,000 offshore service jobs per year for the next 30 years — isn’t going to harm the US economy.

    But that’s typical McKinsey fodder. What I found most interesting about the report is the other half, which examines what should be done in the US to ease the transition for displaced workers. The burden, the report explains, shouldn’t rest solely on the worker who has just lost his or her job in a new offshoring initiative.

    For example, the report says, “US companies could make up 70 percent of lost wages for full-time employees displaced by offshoring, as well as give them healthcare subsidies for up to two years, at a cost of just 4 to 5 percent of their cost savings from offshoring over the same period.” That’s four to five percent of the cost savings.

    Likewise, “policy makers might consider extending wage insurance to all displaced workers, whether the cause of their displacement is trade, automation, corporate restructuring or other factors.” In case you’re not in a position to know this, unemployment now runs for 26 weeks and typically pays about half of the earnings from previous jobs (in taxable income).

    The report quotes a proposal that wage insurance insure 30% to 70% of wage loss for two years, for all involuntarily displaced full-time workers with two years or more of tenure. The cost is estimated at $1.5 billion to $7 billion — a rather piddly amount, in terms of how the federal government spends our money.

    In fact, new ways of easing transitions don’t need to come strictly from the feds (though they should be playing a role) to become a reality. CSC struck a deal with the UK union Amicus to retrain 10,000 UK staff when it moves their work offshore.

    You can register to read the report — and listen to an MP3 audio version — here:

    http://www.mckinsey.com/mgi/publications/rethinking.asp

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