Brad DeLong's Semi-Daily Journal (2004)

They aren't really outsourcing, because they don't seem to be cutting jobs anywhere else to move them to India.

In fact, they're hiring software engineers in:

Positions available in Mountain View, CA / New York, NY / Santa Monica, CA / Zurich, Switzerland / Bangalore, India / Tokyo, Japan.

http://www.google.com/jobs/eng/sw.html

Low-cost clearly isn't their main concern in hiring in India, if they're still hiring in Zurich, Tokyo, and the US.

Jon H - Why would anyone hire a US engineer at five times the rate of an Indian one? Charity? Altruism? Racism?

I work for an S&P500 Company and we've got 4,000 IT types in a big office park on the East Coast. We're going to start by hiring in India in addition to the people we have. But the writing's on the wall. We can get smart Indians and Chinese for 1/10th the price or whatever, so they're just going to let IT atrophy via attrition.

It's not just the cost. The American school system isn't producing those with math/physics/computer engineering education and skills. We haven't hired an American for the most cutting edge areas in 2 years.

"Jon H - Why would anyone hire a US engineer at five times the rate of an Indian one? Charity? Altruism? Racism?"

Experience?

India's probably a good place to find fresh-minted MS and PhD academics, but maybe not such a good place to find people with experience really using their skills in in industry. (As opposed to people with a PhD in CS who are underemployed doing simple Visual Basic applications for US companies.)

"We haven't hired an American for the most cutting edge areas in 2 years."

Frankly, that's not saying much, considering the economy the last two years. How many people *overall* were they hiring?

So your company can't go to Harvard, Stanford, UCBerkeley, MIT, and Yale, and find employees? Or is it that other companies are willing to pay more, and your firm won't compete?

Could you define the intersection of IT and cutting edge?

Because IME they tend to be quite different beasts.

Let's see. There are dozens of cities with pools of software talent in the world. In most of them jobs are scarce. So Google locates their new dev center in the city with the hottest software job market in the world. In a country where (as Jon H alludes to) the vast majority of the best engineers immigrate to First World countries within 5 years of leaving IIT or whereever.

Hmmm. Maybe we were overestimating the genius of Google'e leaders.

Have you noticed Brad's tone? Not "outsourcing is good". Not "help poor Indians". Just "outsourcing continues". Someone saw the light at the end of the tunnel?

John: "We can get smart Indians and Chinese for 1/10th the price or whatever, so they're just going to let IT atrophy via attrition. It's not just the cost. The American school system isn't producing those with math/physics/computer engineering education and skills. We haven't hired an American for the most cutting edge areas in 2 years."

John - did it ever occur to you that these two things might be connected? Why would the best and brightest young people in America choose to enter these technical fields where they would have to compete against cheap foreigners at "1/10th" the price? Wouldn't it make much more sense for these intelligent young people to go into law, medicine - hell, even auto repair - something that can't be offshored? And what does this mean for our strategic position on the world stage when we are dependent on Communist enemies like China for IT skills?

hasn't it always been the case that this year's crop of graduates is not as good as last years?

"It's not just the cost. The American school system isn't producing those with math/physics/computer engineering education and skills. We haven't hired an American for the most cutting edge areas in 2 years."

Posted by John at May 11, 2004 06:52 PM

John, that is probably more a reflection on your company. what percentage of cutting edge IT research that is done in academia is still done in the top US universities? 90%? 75%?

Which, of course, recruit the cream of the crop from all over the world.

Google is known to hire only the best and brightest. If they're hiring in India, then we can forget that bullshit about how we our workforce should retrain and become more skilled to get higher end jobs, while lower skilled code-monkey jobs and the like go to foreign countries. Very few people have the talent to get a job at google, even with the best training. So how are we supposed to become more skilled than that?

There is a reason for any company doing business in India, and Google does, to hire people there: to adapt its offerings to local customer needs. India is a thousand million people market for Google, they may have needs, and quirks, in information seeking that are not apparent from the USA, or any other place.

DSW

This is really great news. I can't wait to save money on my next google search.

In pre-Krugman trade theory, India's apparent comparative advantage in "data mining, data warehousing, business intelligence and knowledge management" is due either to (1) the possible fact that our productivity in those sectors relative to India's is worse than that of other sectors in the economy or (2) India is more abundant in factors like skilled labor that are intensively empoyed in these sectors. Either way, it translates into India having a greater supply of the goods "data mining, data warehousing, business intelligence and knowledge management" relative to other goods, so they can sell these goods at a lower relative price.

Delong should emphasize that this outsourcing is better than creating controls that cut off this outsourcing. Without controls, those factors employed previously in areas where we don't have comparative advantage (call them "export goods") can go into other sectors where we do (call them "import goods"). We will therefore produce more "export goods" and fewer "import goods." A lower relative price of "export goods" implies that the world price of "export goods" in terms of "import goods" is greater than under protection against outsourcing. Therefore, when measured in terms of import goods, the value on the world market of what we produce is greater compared to controlling outsourcing. When measured in terms of the export good, the value on the world market of what we produce is greater compared to protection by definition because we're producing more of the export good. Since the value of what we consume must equal the value of what we produce, this implies that, in principle, our country can consume more of both import and export goods compared to protection against outsourcing. More formally, our country's budget constraint is allowed to rotate outwards when we do not engage protection, and this allows our representative consumer to consume bundles of export and import goods that yield higher utility compared to controls on outsourcing. In other words, the social welfare of all of society has increased. Some individuals may lose welfare while others may gain, but the gains are greater than the losses, and we can make everyone better off if the government makes appropriate transfers from the winners to the losers.

Yes some of those U.S. factors, usually labor, who were in those industries that left the U.S. for India may be hurt either because they are stuck in import-competing industries unable to move to others or because they aren't employed intensively in industries where the U.S. has comparative advantage.

However, labor is most often hurt by technological change, and changes in consumer preferences. When someone loses their job due to foreign competition, it is no more a tragedy than if he lost it due to one of these other factors. Moreover it is very difficult to tell whether technology trade is the culprit when a worker's wage decreases or he loses his job -- it's not always as stark as someone's factory moving abroad. These are two reasons why all dislocations of labor, whether due to trade or technology, should be all dealt with together in one program of better social insurance and programs to compensate them for their hardship, which has helped society as a whole.

Corrections:

"where we don't have comparative advantage (call them "export goods") can go into other sectors where we do (call them "import goods"). . . ."

sh*t reverse the import and export goods there

"A lower relative price of "export goods" implies that the world price of "export goods" in terms of "import goods" is greater than under protection against outsourcing . .. "

that first one is import goods

Hmm, my logic as to how the change in relative prices implies an outward shift of the budget constraint seems to have some gaps. It's easy to see if you have a convex PPF but I can't put it into words. . . .

This all may be true, but we have the best and most extensive prison system in the world, world wide. The solution is obvious. Invade India and imprison their software engineers.

The empire is going down the tubes. Get used to it. The British have been there,done that.

Outsourcing happens.

Sorry for all the clutter. I've rewritten it with two sections wich say [blank], and if one could fill in that blank, it would make perfect sense:

In pre-Krugman trade theory, India's apparent comparative advantage in "data mining, data warehousing, business intelligence and knowledge management" is due either to (1) the possible fact that our productivity in those sectors relative to India's is worse than that of other sectors in the economy or (2) India is more abundant in factors like skilled labor that are intensively empoyed in these sectors. Either way, it translates into India having a greater supply of the goods "data mining, data warehousing, business intelligence and knowledge management" relative to other goods, so they can sell these goods at a lower relative price.

Outsourcing is better than creating controls that cut off this outsourcing. Without controls, those factors employed previously in areas where we don't have comparative advantage (call them "import goods") can go into other sectors where we do (call them "export goods"). We will therefore produce more "export goods" and fewer "import goods." A lower relative price of "import goods" implies that the world price of "export goods" in terms of "import goods" is greater than under protection against outsourcing.

When measured in terms of import goods, the value on the world market of what we produce is greater compared to controlling outsourcing. Also when measured in terms of the export good, the value on the world market of what we produce is greater compared to protection.

Here's why:

The value of the U.S.'s production measured in import goods is:

(Px/Pm)X+M

For this to increase it must be true that:

d[(Px/Pm)X]>dM

This is true since [blank]

The value of the country's production measured in the export good is:

X+(Pm/Px)M

For this to increase it must be true that

dX>d[(Pm/Px)M]

This true since [blank]

Since the value of what we consume must equal the value of what we produce, this implies that, in principle, our country can consume more of both import and export goods compared to protection against outsourcing. More formally, our country's budget constraint is allowed to rotate outwards when we do not engage protection, and this allows our representative consumer to consume bundles of export and import goods that yield higher utility compared to controls on outsourcing. In other words, the social welfare of all of society has increased. Some individuals may lose welfare while others may gain, but the gains are greater than the losses, and we can make everyone better off if the government makes appropriate transfers from the winners to the losers.

Yes some of those U.S. factors, usually labor, who were in those industries that left the U.S. for India may be hurt either because they are stuck in import-competing industries unable to move to others or because they aren't employed intensively in industries where the U.S. has comparative advantage.

However, labor is most often hurt by technological change, and changes in consumer preferences. When someone loses their job due to foreign competition, it is no more a tragedy than if he lost it due to one of these other factors. Moreover it is very difficult to tell whether technology trade is the culprit when a worker's wage decreases or he loses his job -- it's not always as stark as someone's factory moving abroad. These are two reasons why all dislocations of labor, whether due to trade or technology, should be all dealt with together in one program of better social insurance and programs to compensate them for their hardship, which has helped society as a whole.

"John, that is probably more a reflection on your company. what percentage of cutting edge IT research that is done in academia is still done in the top US universities? 90%? 75%?

Which, of course, recruit the cream of the crop from all over the world."

Which they do less successfully now than they did before the PATRIOT ACT.
http://www.thecrimson.com/today/article502545.html

True, but it still probably means that the top 10 university programs in the USA would provide 10 of the 15 highest-quality nodes of fresh talent in the world. Anybody who can't find the talent that they need in the US is (a) looking for something very, very exotic, (b) not competant and recruitment, or (c) isn't being truthful.

One of my best math books is "Introducing Vedic Mathematics," an English language compendium of the way arithmetic is taught in Indian schools.

It has a number of finger tricks -- somewhat like Russian peasant multiplication -- as well as a huge variety of mental routines somewhat like subraction by adding the nines' complement, analagous to the twos' complement routine that hand calculators and digital computers use.

Not at all surprising that India should turn out a slew of good computer people. But what the hell, it's their number system that we're getting by on, ain't it?

>It's not just the cost. The American school >system isn't producing those with >math/physics/computer engineering education and >skills.

Exactly how many math classes would i need to
overcome a 10-1 price difference?

And that's crap anyway. In IT you aren't using
advanced math and CS skills. If you are, please
tell me what they are?

"Exactly how many math classes would i need to
overcome a 10-1 price difference?"

Posted by fred at May 12, 2004 10:50 AM

Oh, a Ph.D. from a top university, with a post-doc at another top university, and serious expertise in a currently hot and highly marketable niche.

Which should account for, what? 1% of 1% of the American population?

"So your company can't go to Harvard, Stanford, UCBerkeley, MIT, and Yale, and find employees? Or is it that other companies are willing to pay more, and your firm won't compete?"

Im a student at Cal and I can tell you from experience that the majority of undergrads comming out of here are not nearly qualified as many Indians are when they come out of undergrad. Their education is intense in junior high and high school--ours pales in comparison.

Another issues, we hear alot of gripes in the media about outsourcing; why dont people understand that if someone out there is better it shouldnt matter where they are born, they should have a shot at the job; why the construction of immutable borders?

sonb writes: "Im a student at Cal and I can tell you from experience that the majority of undergrads comming out of here are not nearly qualified as many Indians are when they come out of undergrad. Their education is intense in junior high and high school--ours pales in comparison."

What majors are you talking about? All majors? Or just engineering/cs majors?

Lets stipulate that a Cal Tech BS is one year behind the very best Indian BS (although I'd like to see proof). Go with a Cal Tech MS. Or a Cal Tech Ph.D. Or a Cal Tech guy with 2-3 years in a Ph.D. program who's decided to chuck it and get a life.

Or the same people, but from MIT, or Berkeley, or Stanford....

"It's not just the cost. The American school system isn't producing those with math/physics/computer engineering education and skills."
I've been hearing this argument for years, and yet I fail to see the causal connection here. Suppose we do DO lack the technical talent, but then how come even those people that we do have are massively unemployed? Because there's a shortage of them? And on what basis is it stated that we lack technical talent to begin with? I've never seen this thesis supported specifically and factually; baseless propaganda is all I can remember. Why would a kid invest years of his life in a difficult training and accumulate sizeable debts when the payoff of this in terms of future opportunity seems so abysmal?

"We haven't hired an American for the most cutting edge areas in 2 years."
This is a) adectodal evidence; can't be very influential. and b) even if true, what does it show or prove? Have you tried?

"Why would anyone hire a US engineer at five times the rate of an Indian one? Charity? Altruism? Racism?"
In the netiquette, we've got to start treating "ad racism" arguments like accusations of "fascism" are treated, that is, the discussion stops. Anyway, I'd say that one should hire american engineer for the same reason one is told to buy $17-CDs instead of $1 knockoffs off the street, expensive drugs, instead of picking something in Canada, pay Microsoft $400 per package whereas a dosen of those on the same disk can be had for $3 in Hong Kong. Also: in order to actually motivate people to enter technical professions -- thus perhaps alleviating the severe shortage that is bemoaned so much (though w/o any factual support). Also: in order to continue to have a corps of competent people and have science and industry progress -- that can't be done if no one can make a reasonably secure living by working in those precise fields. This is not a case of thechnolgical change, mind you! The technology is very much alive and well. Also, because a crappy studio in NYC will set you back by some $1500/mo, which is not the case in India -- but the americans do have to live somewhere, even if they happen to be engineers. This is not "just the cost"? Like hell it isn't. From the social standpoint, yeah, it is not just the labor cost; but from a corporate vantage point, who cares about such subtleties?

Jon H - "They aren't really outsourcing, because they don't seem to be cutting jobs anywhere else to move them to India."

This is the darnedest piece of bad logic I've seen for a while. If they hire in India they don't hire here. If that's not outsourcing, then I don't know what is. By your logic, if I compare prices on two pairs of shoes, and buy the cheaper one, it's not 'cause I'd like to pay less, because I haven't first bought and then trashed the more expensive pair first. Neat.

I have pc in my home itself ,I am having experience in data entry operator about 3 years
I wants to work online data entry job
can you offer me a job
regards
thiruvambalam@sancharnet.in

Bobby,

It seems the answer to your blanks lies in the pkarchive. In Krugman's article "Was it all Ohlin?", an IRS production function explains the outward shift in a country's production possibility frontier. As best as I can explain it, economic openess allows for industries with IRS the ability to move along their production function to a more efficient level. In terms of the amount produced, IRS means that an increase of A times the inputs will result in more output than by merely multiplying the original output by that same factor (or, more formally,
F(Ax) > A*F(X)). If there it autarky, the industry with IRS will be unable to gather the extra resources it needs in order to make production more efficient as those resources will be tied up in other industries that do not have IRS or will simply be unavailable due to geography or chance. Hopefully this helps.

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