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Reverse Offshoring? Or Yet More Evidence of Corporate America's Squeeze on Workers?

The global economy is shifting and developing countries are catching up.

It's a tempting narrative for a lazy trend piece: Indian companies, buoyed by a booming economy and facing demands for higher wages at home, are now “offshoring” their work to the U.S., where they can take advantage of our high unemployment rate to grab American labor on the cheap.

“As Indian companies grow in the U.S., outsourcing comes home,” read a recent headline in the Washington Post . “Is this a taste of the future? Outsourcing goes full circle as Indian firms look to the U.S. for cheap labour,” was how the Daily Mail , a British tabloid, put it. It's not a new narrative – “Bangalore wages spur reverse offshoring,” claimed a headline in the Financial Times back in 2007.

Only the first headline is accurate, as outsourcing and offshoring are two different things. The Post story is about Indian firms with clients in the U.S. hiring more American workers to service them rather than shipping Indians to the U.S. That's different from what most people think of when they hear "offshoring," with U.S. firms sending jobs abroad to service their customers here at home or produce goods for the U.S. market.

To some degree, the trend is related to our high levels of unemployment – there are lots of excess workers in this country -- but there's also a policy component; the feds are cracking down on the use of H1-B visas, which were intended to attract high-tech talent to our shores, but are widely abused by corporate America. The Post notes that a 2008 government study found that one in five such applications were plagued by “fraud and technical violations,” and adds that the number of H1-B visas issued this year has declined by 43 percent since the same period last year.

But there is a larger story here. The global economy is shifting and developing countries are catching up. The wage differential isn't as great as it once was – after all, our working-class wages have stagnated for years. The first wave of offshoring – with U.S. firms shedding huge amounts of relatively high-paying manufacturing jobs, many of them union gigs – may be slowing, but a second wave appears to be gaining speed, with U.S. multinationals expanding their operations overseas because that's where a growing number of customers are to be found.

Consider this much-disseminated graphic for a moment:

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At first blush, it appears to confirm Ross Perot's “giant sucking sound” of American manufacturers moving abroad. But it's important to look past the headline numbers and see what kinds of jobs U.S. multinationals are creating here at home and abroad.

Researchers at the Federal Reserve Bank of Atlanta did just that. They found that while American multinationals lost over 1.9 million manufacturing jobs here at home, they created only 243,000 new jobs overseas. 

It's true that the decline in American manufacturing jobs is a long-term trend:

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(click for larger version)

But what began with big companies opening up factories overseas to produce goods to sell here at home is now largely a result of dramatic increases in productivity in the manufacturing sector – the amount of goods that can be created by one worker – over the past decade.

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(click for larger version)

So, what kinds of jobs are these U.S. multinationals creating abroad these days? About 70 percent of them are in retail sales, management and administration, accommodations and food services, real estate, health care and “miscellaneous services.” So, rather than just shipping jobs overseas to fulfill affluent Americans' demand at home (while pocketing the difference in labor costs as profits), these firms are shifting services and retail operations overseas.

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