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BPO Journal

Saturday, January 07, 2006

The Rodney Dangerfield economy..or not

I called it the Goldilocks economy but suggested that the "not so good" part was that the "not so bad" was not being heard. The Wall Street Journal chose to call the U.S. expansion the "Rodney Dangerfield economy" because ... well, it "gets no respect." In a recent article, the Journal revisited the most derided and ridiculed growth cycle of the American economy, which it insists is one of the most impressive.

Take outsourcing, for example. Forget the 2004 debate on "jobless recovery". The reality is this.

The great American jobs machine has averaged a net increase of nearly 200,000 new jobs a month this year. Some 4.5 million more Americans are working today than in May of 2003, before the Bush investment tax cuts. The employment expansion in financial services, software design, medical technology and many other growth industries dwarfs the smaller job losses in the domestic auto industry.

Even many of the widely publicized lost jobs at Delphi and General Motors are silently offset by the tens of thousands of Americans employed at new domestic plants built by multi-national companies like Honda and Toyota of North America. This job growth has been accompanied from 2001 to 2005 with the best rate of labor productivity over any four-year period since the Labor Department started tracking this statistic. This productivity revolution augurs well for higher wages in 2006.

I agree. And so do most people. Heck, even in Germany, companies across the country are quietly striking ultra-flexible deals with workers over wages and working conditions. When Linde, the German engineering group decided to build a factory in eastern Europe last year to take advantage of that region's lower wage costs, local officials of Germany's IG Metall trade union offered to match the intended 15 per cent or so in cost savings through a combination of longer hours, more shifts and less pay for workers who build fork-lift trucks at Linde's existing German plants. Underscoring that outsourcing is no longer a dirty word. It has significant economic benefits, improves competitiveness of firms, and more important, is a part of the competitive landscape that dictates adaptation and response strategies. Well, it also emphasizes how accommodating German workers are willing to be.

So, I think it's time for a shift in focus of the debate. From whether we should outsource to how best to outsource. And I am not referring to the transition strategy's emphasis on management of the outsourcing relationship or shift in ownership of the outsourced process to the provider. I am pointing to the need to complement these efficiency issues with addressing the challenge of taking care of those who are "outsourced". The significant benefits of outsourcing suggest that the organizations and the government can and must expend more resources to assist those who've been displaced. A McKinsey Report on U.S. Offshoring states that although the U.S. has the highest job churn rate among developed countries, spending only 0.5 percent of GDP on policies to assist displaced workers, it ranks low in the range of what other developed nations allocate to this area.

Firms too could do more. Based on a policy brief by the Institute for International Economics, MGI calculated that U.S. companies could give displaced full-time employees 70 percent of lost wages and healthcare subsidies for upto 2 years at a cost of approximately 4 to 5 percent of their cost savings from offshoring over the same period. Apart from different forms of wage insurance to ease the transition, firms can prepare their employees for significant changes and shifts in their work lives, and help them invest in upgrading skills and a long-term plan of learning and adapting.

This must be the agenda for years forward. Social scientists point out that in addition to reflective learning through a focus on the past, transformational experiences occur through emergent learning while sensing the future. Organizations have a responsibility to help their employees sense their future.

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