Some of the most desirable office jobs are leaking overseas, and no one seems to know how to plug the hole in the employment dike. If the globalization trend continues as expected, it could dampen demand for commercial development and affect economic development strategies throughout California, especially in the Bay Area.

Several recent reports by academics, economists and other analysts have identified common trends. Companies are moving technology and “back office” jobs from the United States to India, China, the Philippines, Ireland and other foreign companies.

But it is not any one sector of the economy that is moving overseas. Rather, the sorts of jobs at risk have similar qualities, according to a study released last fall by the Fisher Center for Real Estate & Urban Economics at University of California, Berkeley. According to the Fisher Center study, these jobs:

• Involve no face-to-face customer service
• Create mostly information
• Rely heavily on the telephone and Internet
• Require little social networking
• Can be set up easily elsewhere
• Pay far more in the United States than overseas.

The Fisher Center estimated that as many as 15% of the jobs in the Bay Area are at risk, a higher percentage than elsewhere in the state or nation because of the region’s predominance of technology, office and service workers. The Bay Area’s extraordinarily high pay scales also are a factor. Where a computer programmer in Silicon Valley often makes $70,000 to $80,000 annually, a person doing the same work in India makes about $10,000 — a difference that more than covers any increase in travel and long-distance communications costs.

The Fisher Center study arrived on the heels of a study by Forrester Research, which does market analysis for large companies. Forrester estimated that 3.3 million service industry jobs would move offshore by 2015.

More recently, a study prepared for the Urban Land Institute and Columbia University’s Paul Milstein Center for Real Estate suggested that jobs are moving overseas even faster than Forrester estimated. Mirroring the Fisher Center report, the ULI/Columbia study said that a number of business processes are going offshore, such as bill processing, medical transcription, loan servicing, tax return preparation, and almost anything involving data collection and manipulation.

The report, by M. Leanne Lachman, an executive-in-residence at Columbia, laid out implications of the trend, namely, continued high office vacancy rates, little development of new offices, and a potential dearth of jobs for well-educated workers.

“The baby boom echo generation, which is almost exactly the same size as the boomer cohort, is now entering the labor force and will help to replenish the supply of potential workers,” Lachman wrote. “Those relatively well-educated young people are the ones for whom meaningful entry-level jobs must be created — a priority that should be one of America’s highest, particularly as entry- and mid-level software development, data processing, financial analysis, due diligence and other procedural jobs are offshored.”

Even biotechnology and nanotechnology companies — which have been cast as potential saviors of the California economy — are setting up research and development shops in China, Russia and India, countries were scientists and engineers receive a fraction of the salary they command in the United States.

However, there is a lack of consensus about how big the “problem” is and whether there is anything policymakers and economic development professionals can do. “This is very controversial, politically,” said Jack Kyser, chief economist for the Los Angeles Economic Development Corporation.
Still, there is little doubt that the affected jobs are some of the most highly prized in a community.

“What I hear from people is that this is the ‘next manufacturing,’ and we’ve lost hundreds of thousands of manufacturing jobs,” said Jeff Finkle, president and CEO of the International Economic Development Council (formerly the Council for Urban Economic Development). “As we are starting to watch back office operations disappear, it’s a concern. I don’t think many of us conceived of Dell Computer or CompuServe moving their back office jobs to India. But they have. If you have a question about your CompuServe account, you talk to someone in India who speaks pretty good English.”

For years, economic development professionals fought for back office operations, especially in the Midwest and East. But communities in California’s Central Valley and rural areas have also tried to lure back office jobs as stable employment not based on natural resources or agriculture. For example, two years ago the City of Redding provided about $700,000 worth of fee subsidies to attract a 400-employee Blue Cross claims processing center from nearby Red Bluff.

A few years ago, call centers were hot prospects in much of California, but many call centers have since moved overseas, noted Kyser.

Kyser somewhat downplayed the impact on the Los Angeles region of office jobs going overseas. “We’ve seen offshoring going on in manufacturing for a long, long time, and yet we still have a very low industrial property vacancy rate, at least in L.A. County,” he said.

What is changing in Southern California is “the profile of the office space user,” Kyser said. Larger companies are consolidating, and smaller companies are leasing space in the urban core. No one seems sure why the evolution is occurring or how to respond, Kyser said. But, he added, “The business of economic development has to shift.”

Back office operations, call centers and, to some extent, technology research and development facilities have often been located in suburban environments. Still, Dave Feehan, president of the International Downtown Association, is watching the offshoring trend.

“There are towns that have really made their living in the last 10 years by being back office centers,” Feehan said. Offshoring could lead to a shortage of entry-level or lower-level professional jobs in cities, he said.

Urban centers can avoid a major hit easier than suburbia, though, because downtowns are more “elastic,” Feehan said. Downtown spaces can be converted to a variety of commercial or residential uses, while a suburban business park really has only one use, he said.

The trends are enough to force economic development professionals to reconsider assumptions. “It’s a confusing time for many communities,” said Finkle.

Contacts:
Jeff Finkle, International Economic Development Council, (202) 223-7800.
Dave Feehan, International Downtown Association, (202) 393-6801.
Jack Kyser, Los Angeles Economic Development Corporation, (213) 236-4820.
Urban Land Institute/Columbia University report, “The New Exports: Office Jobs,” http://research.uli.org/content/Reports/PolicyPapers/IPS_Lachman.pdf
Fisher Center for Real Estate & Urban Economics report, “The New Wave of Outsourcing,” http://repositories.cdlib.org/iber/fcreue/reports/1103