Let's do a little math on off-shoring, the practice of moving jobs currently located in the US to cheaper locations. One investment bank refuses to use the word "off-shoring;" they prefer the euphemism "wage arbitrage!"
In 2006, the investment bank in question had announced it was moving 2,000 operations jobs off-shore over the next 5 years, primarily to India. This represents almost all their domestic operations positions. In India, the average comparable worker is younger, better educated and works harder. I have a lot of respect for these people. Generally, I have found them equal or better than the people they replace in terms of raw ability.
However; did I mention the jobs being moved were located in New York City, a high-cost environment for this company to work in? The average position being "arbitraged" paid $200,000 in total compensation; the replacement positions in India averaged just $20,000. The savings to the investment bank; $360 million per year when the transition was complete.
To sum up: In five years, 2,000 high-paying jobs lost, 2,000 families disrupted, $160 million lost from the federal treasury, $40 million lost taxes for the state and city, and 2,000 residences in the tri-state area abandoned, putting downward pressure on prices and property taxes. Furthermore, the damage eventually resulted in increased unemployment, crime and relocation costs. Then factor in the other jobs lost as the firms that supported the domestic operations have to follow their customers to India. Plus, add in the lost local jobs that were supported by the consumer spending of these families.
Hundreds of millions, if not billions, in annual tax revenues were lost so that the bank can make an additional $360 million, on which, by the way, it will pay no taxes due to the increased profits being invested in a series of trading partnerships. This additional savings was then leverage 30:1 to allow additional purchases of mortgage-backed securities.
Who will make up the tax shortfall? Only the few remaining employed. Don't expect a "Thank you" card from the Managing Directors.
Financial services are one of the few businesses left where the US has a competitive advantage due to its free, open and broad capital markets. Eventually, these benefits will accrue to a select few, while the majority of the work is done offshore. Sound familiar?
By the way, the investment bank discussed in the blog is no longer in existence. Coincidence? Many of the risk management jobs were also moved to India!
Will the last operations professional in New York City area please shut down the mainframes and servers? They won't be needed here anymore either.
