The most recent market hype of a long-awaited recovery in jobs in the U.S. economy should be treated with a heavy dose of salt and skepticism. The core high-skilled information technology (IT) and related software industry is rapidly being hollowed out. The recent opening of India in addition to China in the past several years presents entirely new possibilities and drives a new job-destruction dynamic in the U.S. economy, from finance to industry to medical services.

A comment by Intel chairman and founder Andy Grove underscores the problem in talking about any U.S. economic recovery. The process underway since the IT bubble collapsed in 2001 has been unprecedented in extent and speed.

U.S. high-tech industries are outsourcing offshore at such a pace it is preventing any job recovery growth. More, it is killing qualified high-tech IT and engineering jobs at a rate unprecedented in postwar U.S. experience. This hits at the heart of the real jobless recovery problem. It has ominous implications for U.S. growth.

Grove addressed an international technology summit in Washington last week in which he warned, “I am here to be the skunk at your garden party.”

He confirmed that, while overall U.S. employment may be slowly improving (itself highly suspect given U.S. Labor Department data methods of assuming job growth), high-tech job growth was not improving and was unlikely to do so any time soon.

More than 500,000 high-tech jobs in the U.S. have been permanently lost offshore since mid-2001 Grove estimates. New York Federal Reserve former chief economist Chechetti estimates a total of 5,000,000 jobs lost (in all categories, not only hi-tech) since 2001.

Grove pointed to China and India as chief job threats, adding that India could surpass the U.S. in software and tech service jobs in seven years or less. He predicted the situation was so extreme, that it was likely the U.S. software and high-tech services industry faced the same fate as the U.S. steel industry in the 1980s, when the U.S. went from a 90 percent world market share after the war, down to 10 percent.

The problem is that, apart from anecdotal surveys by Gartner Group or similar private firms, little accurate data is available. Last month in the Silicon Valley region of California, a jobs fair for IT software engineers was held where 2,000 applicants lined up. The jobs were for companies in Mumbai or Bangalore India, a confirmation of the Grove warnings.

These comments follow the June speech of Henry Kissinger of Kissinger Associates to the Las Vegas conference of Computer Associates, in which Kissinger warned that present trends in outsourcing threatened the U.S. as nothing has to date. He noted that the jobs being lost to India or China or abroad were high-paid engineering and technology jobs, warning that this was striking at the heart of the middle class sense of job security, with serious defense and political implications for the U.S.

Kissinger had no alternative. IT industry companies are saving billions a year in outsourcing and are among the most powerful lobbyists in Washington.

A September analysis of U.S. jobless rates took U.S. labor data and concluded actual unemployment in the U.S. is around 9.1 percent not the 6.1 percent often stated in the news. They counted those who had given up looking as unemployed which the government does not. They estimate over 50 percent of youth 16-19 are unemployed and have given up looking.

Most alarming, the NY Fed study estimates most of the jobs lost are permanent, owing to closing entire factories or outsourcing to Asia -- or both.

India presently has perhaps 520,000 IT engineers with salaries starting at $5,000. In five years an estimated 4 million U.S. IT jobs will migrate to India.

Indian universities are presently producing 300,000 software and IT professionals each year, and gearing up from there.

In China, Microsoft will spend $1.1 billion in R&D and outsourcing over three years. In their Beijing R&D facility, one third of Chinese Ph.D.s have their degree from American universities.

What is particularly disturbing to some is the fact that there is no new sector opening up and creating jobs to absorb those being lost offshore in IT and high-tech services. In the 1980s and 1990s the service sector absorbed many unemployed blue collar industrial workers. Now highly-educated white collar professionals, engineers, programmers and consultants are at a career dead end.

The process has taken on a significant acceleration over the past two years, since signing of the Permanent Normal Trade Negotiations with China and WTO membership accession. This is also taking place in the context of entire U.S. industries being forced to shut down. Recently, Pillowtex towel factory in North Carolina laid off 6,500 employees, putting the entire town into depression -- the largest one-day layoff in Carolina history.

In three years, the industrial state of Ohio has lost 160,000 factory jobs, many high-skilled jobs -- one-sixth of total Ohio manufacturing jobs. Chinese competition is the main reason cited. A significant new sector being outsourced are small auto parts suppliers, traditionally the mainstay of the Midwest industrial region.

With India now fully supporting this IT services role in its economy, U.S. companies from Dell to IBM to Rockwell International are significantly increasing job outsourcing in engineering, design and programming as well as more mundane call-center posts. The state of New Jersey recently hired an Arizona call center company to aid social welfare recipients with questions. It turned out Arizona outsourced to Mumbai.

The issue is rapidly becoming one of the hot U.S. election issues, as the scale of outsourcing as a cost factor is just beginning to take off to a real degree these past two years. Five states are considering laws mandating “hire of American engineers” to prefer U.S. software engineers over Indian or other foreign special tech Visa workers. H1-B Visa law is currently allowing as many as 1,000,000 Indian and other foreign software professionals to obtain a U.S. work permit. Naturally to ban them will only accelerate the outsourcing process by U.S. companies. New organizations to protest outsourcing are springing up across the U.S., led by Communications Workers of America, The Programmer's Guild and others.

For its part, Intel has recently begun building a 500-person IT R&D center in Russia, in addition to its large facilities in India and China. U.S. banks, industrial companies and hospitals have all started what will be a snowball of job shedding via outsourcing. It is significantly depressing wage growth and job creation across the U.S. technology industry. This, while still anecdotal, suggests job recovery, despite headline data, is likely to remain depressed for some time at best.

Tony's Note: I first found this op-ed in the Northland Reader Weekly
Thanks to Publisher Bob Boone for handing this column to me