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News Flash: Boston Globe Discovers Law of Supply and Demand

Today I saw a headline in the Boston Globe that I had to respond to:

India high-tech industry out of workers


How can a country of a billion inhabitants be out of workers? As the Information Technology in India matures, they are gradually taking on more and more challenging assignments, which require a more skilled workforce. And that is bad, why?

For now, industry is keeping up, but only barely. A powerful trade group, the National Association of Software Services Companies, or NASSCOM, estimates a potential shortfall of 500,000 technology professionals by 2010.

On the most basic level, it's a problem of success. The high-tech industry is expanding so fast that the population can't keep up with the demand for high-end workers.


Notice the steady state analysis of the problem: a shortfall of 500,000. Would it not seem reasonable that if they paid their workers more for the scarce resource it might become less scarce? Well, the reporter thought of that:
A shortage means something feared here: higher wages.

Much of India's success rests on the fact that its legions of software programmers work for far less than those in the West -- often for one-fourth the salary. If industry can't find enough workers to keep wages low, the companies that look to India for things like software development will turn to competitors, from Poland to the Philippines, and the entire industry could stumble.


You would think the author would notice the connection between the cost labor and its supply, but he appears to have completely missed it. If there is a shortage of something, you have to pay more to get what you need. When you do pay more, people who would otherwise choose careers in other fields will instead select the Information Technology industry. At the same time, if you pay more, there are some IT outsourcing assignments you can't get because your wage rates are too high. As a result of this wage increase, the need for workers will tend to decrease.

How can you possibly say with a straight face that there is a shortage of 500,000 workers, when that very shortage will change the dynamics of the industry so that in the end there will be no shortage at all?

I think there is a severe shortage of reporters who understand economics.


Comments (13)

I work in a major corporati... (Below threshold)
George:

I work in a major corporation that employs workers in India. I've never considered the product to be good quality and, perhaps related to this shortage problem, every time we go back to make updates or modifications to a software product, the people who did the original work are gone.

It's like using recent college graduates who won't stick around for more than nine months and you can only replace them with new college graduates. You get employees with little experience who are forever coming up to speed.

Maybe you can justify it with the low cost but I fear most the intangible losses. Intellectual property is walking out the door with that steady stream of exiting employees.

George, The best Indian fir... (Below threshold)

George, The best Indian firms are competing and winning for ever more complex projects every year, even if your experience was less than ideal. It is anecdotal. And if in fact the intellectual property is walking out the door, it is probably only to start new enterprises.

I celebrate the improvements to the Indian economy. If it continues, they will eventually eradicate poverty in that country in a few decades. I'd like to see the same thing across the world, so the currently poor countries will be rich enough to become our customers, and buy our products. The pie gets bigger!

"so the currently poor coun... (Below threshold)
bryanD:

"so the currently poor countries will be rich enough to become our customers, and buy our products"

What do we sell that the world buys anymore, besides a brand, and those brands are manufactured overseas anyway. And ironically to higher specifications, ie Ford Europe. (of course German Marlboros are "air", because they roll them THERE. And we're #1 in toilet paper quality but they don't care)

Rolled steel and rebar, agricultural commodities, oil service equipment, Caterpillar, Boeing, I guess some software, music and movies. What else?

If you want to see a measley selection a trade goods, go to buyusa.gov. Sprinkler nozzles anyone?

We do have an enormous numb... (Below threshold)

We do have an enormous number and quantity of products to sell around the world. We add value to commodities using our intellectual property and the world pays for those goods and services. Are you recommending that we not help other countries improve their economies so that they can't buy our stuff?

I agree wholeheartedly Char... (Below threshold)
2klbofun:

I agree wholeheartedly Charlie (and while I'm here, thanks for the podcasting). I work for a large multinational in the I.T. group. We also *outsource* a lot of things to India. We have found that they do good work, if there is a pretty well defined set of requirements around the job -- they excel at doing things with SAP and other "standard" systems. We have had issues when we try to outsource more nebulous projects that require a lot of back-and-forth between the end customer and the developer -- most of these problems are primarily due to geography, understanding of work processes and to a lesser degree, language (more accents rather than understanding of English).

We are seeing the same thing with the tech resources in India. We also outsource some IT to Mexico City, Kuala Lampur (Malaysia) and Warri (Nigeria) -- and we're seeing the same things in those areas also.

I've never been too worried about my I.T. job being outsourced since I think I can keep my skillset more specialized and ahead of the "average" skillset abroad.

I agree that the pie is getting bigger -- we Americans need to understand that and make sure we can still deliver pieces of the pie that others want to consume.

"We do have an enormous num... (Below threshold)
bryanD:

"We do have an enormous number and quantity of products to sell around the world"

I won't press for specifics. You can check the "Made in.." labels at home. And many "made in USA" products like soaps and detergents are Dutch controlled through holding companies. So the fractional labelling laws hide how dire the situation really is. Having money still, our junk is mistaken for evidense of prosperity. No money, no junk, and no way to make any more.

"We add value to commodities using our intellectual property and the world pays for those goods and services"

I guess if the world pays for our services, good (franchise fees). As for intellectual property: western Europe just ordered Microsoft to cough up its code or else. As for Japan, they may pay lip service, but even before the digital age, bootlegged music and movies were playing in every bar on BC Street. They would vacuum whole catalogs.

As for the rest of the world: Intellectual property doesn't exist. (practically speaking)

The crackz programs online illustrate the intellectual rights problem in microcosm. If you care to risk a computer virus or two, you'll find last year's best programs and your own validation codes.

In other words, intellectual property rights are unenforcible and untenable economically.

"How can you possibly say w... (Below threshold)
Murphy:

"How can you possibly say with a straight face that there is a shortage of 500,000 workers"

That is easy to answer and with one word.

Greed.

"I think there is a severe ... (Below threshold)
Fred Z:

"I think there is a severe shortage of reporters who understand economics."

Yes, but there is no demand for them at all, so their value remains at zero, where it should be.

When I want to know about Britney's pubes I'll pay attention to a reporter. When I want to know something about economics... I'll pay attention to Britney's pubes. Oh baby.

bryanD[elusional]<... (Below threshold)
marc:

bryanD[elusional]

As for Japan, they may pay lip service, but even before the digital age, bootlegged music and movies were playing in every bar on BC Street. They would vacuum whole catalogs.

Ah... no! I lived in Japan from '93 to 2001. Between '93 and '96 pirated software was plentiful even in the hottest electronic spot in the country, Akihabara.

Since then it has been near non-existent due to new laws and more effort on the part of the police to round up the pirates.

What little remains is sold out of the back of vans and car trunks.

So again your clueless.

marc, As late as '... (Below threshold)
bryanD:

marc,

As late as '96? I hadn't been to Japan since '82 and I still new I'd be accurate. Or pretty accurate. 1996 ain't ancient history.

And "out of the backs of vans and car trunks" sounds like a distribution network to me. I guess I'm completely right, after all.

Thanks for playing!

bryanD[elusional]<... (Below threshold)
marc:

bryanD[elusional]

And "out of the backs of vans and car trunks" sounds like a distribution network to me. I guess I'm completely right, after all.

not even close no matter how you want to spin the phrase out of the trunks...etc.

A small group (that changes because of multiple arrests) selling pirated material is eons away from the time the Yakuza ran the operation and all the major stores had stolen music, tapes and movies.

And "after all" you haven't a clue.

And BTW '96 is "ancient history" compared to your original assertion the practice was still a major problem today.

If you subscribe to Consume... (Below threshold)
Mac Lorry:

If you subscribe to Consumer Reports you likely have seen the April annual auto issue. CR surveys it's own members with a rather lengthy form to discover long term reliability and owner satisfaction. What's striking is that European manufactures have the lowest long term quality, with the U.S. coming in between Europe and Japan/South Korea. It's a shock to many to discover that GM and Ford routinely deliver higher quality automobiles than BMW, Mercedes-Benz, and Volkswagen.

What's interesting is that many of the highest quality Japanese and South Korean models are manufactured in Canada and the U.S. It's not the workers who determine the quality of the product, but rather it's the management. The worker focused management of European companies produces the lowest quality goods, but is best for workers. The short term bottom line focused management of American companies produces mid-level quality goods, but is worst for workers. The product focused management of Japan and South Korea produces the highest level quality goods and is good for workers too.

Now if you read Car and Driver you get a somewhat different view as C&D is only concerned with the quality of the specific vehicles it's testing and only for the length of the testing. C&D emphasizes driver appeal and that translates into performance, style and comfort. If a Mercedes-Benz has an entry in the group being tested it usually comes in first place followed by a Japanese brand. If you look at the top 10 highest horse power production automobiles you'll find that 8 of them are Mercedes-Benz models. Mercedes-Benz focuses on a niche market as do most of the European manufactures. Go to any suburban mall parking lot and count the number of BMW, Mercedes-Benz and other European makes and compare that to the number of Toyota, Honda, Nissan, Hyundai, and Subaru's you find. You will quickly find that the Japan/South Korea manufactures have the winning strategy.

Bottom line is that to compete in the free global market the U.S. government has been a major promoter of, U.S. companies must adopt the product focused management strategy. Outsourcing development and production to the lowest paid workers in the world is a losing strategy in the long run. The question is, how long will it take American management and shareholders to figure that out?

Supply/demand and basic eco... (Below threshold)
jp:

Supply/demand and basic economics are such a common sense thing, in addition to be Science, i'm constantly amazed at how stupid the media and dems in this country are. quite frightening for the future of liberty I might add.




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