Cost of keeping jobs in America

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: When New Jersey state government tried to prevent a call centre for unemployment services from relocating to India, it lost $71,000 per job. The state’s taxpayers ended up paying an additional $9,00,000 to save 12 jobs. Robert Kennedy, director of the Global Initiative at University of Michigan's Ross School of Business takes the argument further and points out that saving such 1,400 jobs would cost the state $100 million or $71,000 per job.

Experience of “saving jobs” at Indiana was not much different. TCS won a software development contract from Indiana. Contract was cancelled, when state legislators discovered that contract was to be serviced from India. It was rebid with a condition that work had to be done in the US. TCS offered to work from its Phoenix development centre and won the rebid. The entire process resulted in an extra baggage of $8 million for exactly the same service.

Clearly, good politics does not always make business sense. ‘Buy American’ or ‘Hire Americans’ might strike a cord with Americans worried about the mounting job losses in the country, but it is an expensive proposition. “Protectionism can be expensive for America. It may cost a great deal to save jobs and these costs to the treasury can often exceed the benefits of retaining few jobs,” asserts Kennedy.

Costs of keeping jobs in America are not tough to compute. “Offshoring advantage in the arbitrage equation is 40-60% at the total cost of ownership level. Billing rates are about half of that in the US in a typical case. Even the new taxes can partially blunt this advantage and the overall business equation will continue to be very positive,” says Everest India country head, Gaurav Gupta.