Software Nerd

Friday, June 05, 2009

Reverse Immigration

This is a software-related post. Ignore it if that does not interest you.

Over the 8 years, U.S. salaries in software-development jobs have not risen much. Meanwhile, salaries for similar jobs in India have continued to rise. (The same relative change is probably true across other industries as well.)

Salaries in India can still be 25% of U.S. salaries. However, there are additional costs when the customer is in the U.S. Today, large U.S. companies budget India-based work at about 50% of U.S. based work. An experienced U.S.-based programmer may cost $120k to $140K, when one adds salary, health-insurance, company-paid social-security, and U.S. based infrastructure. An equivalent India-based employee would cost about $60k-$70k, when all costs are considered.

That is still a large difference, but much narrower than it used to be a decade ago. It has been interesting to see how such changes take place. The process is slow, giving companies and employees a fair amount of time to adjust. And, it is slow for "natural" reasons, not because of some government protectionism. A decade ago, many companies were still wary of off-shore development. They began to dabble and test the waters. Then, in the 2000's -- especially with the cost-cutting required after the stock-market bust -- some companies actually set themselves targets: e.g. "in 5 years, 20% of our development must be done off-shore".

The process would have been even slower if the free-market had prevailed. In a free-market, one would have had more immigration from India to the U.S. This would have reduced the wage-differential by lowering U.S.-based costs, while one would have seen India-based cost rise slightly more than they otherwise did. In the end, one would have had significantly more U.S.-based wealth-creation.

Now, with the downturn, companies are again under cost-cutting pressure, and looking to off-shore development as one means.

In February, IBM did something I've never heard of before. While laying of software-developers, they offered to transfer them abroad, to India, China or Brazil (1). IBM would help them move and also help them get set-up. However, once there, the U.S. workers would have to accept local levels of salaries and benefits. I doubt many people took up this offer, but it is good to see IBM being creative about this, and offering their employees a solution that is far better than being jobless.

Reverse immigration would be a true sign of the decline of the U.S. As an immigrant myself, I understand there are costs (in terms of friendships, proximity to family, familiarity with one's environment, and optional cultural values like food) in moving far from home. So, when people vote with their feet, it is a serious indicator. I don't expect this, but nor would I rule it out ... some two decades hence.

(1) Computerworld, Feb 6, 2009 "Workers Losing Jobs at IBM Get Overseas Option"



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