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Remember when they were going to take all our jobs?

Posted By Russ Roberts On April 8, 2007 @ 3:47 pm In Trade | Comments Disabled

The AP reports [1] in the Boston Globe (HT: Wizbang [2]) that the IT industry in India has troubles. First problem, not enough workers. That is, trained workers:

Nearly two decades into India’s phenomenal growth as an
international center for high technology, the industry has a problem:
It’s running out of workers.

There may be a lot of potential –
Indian schools churn out 400,000 new engineers, the core of the
high-tech industry, every year — but as few as 100,000 are actually
ready to join the job world, experts say.

Instead, graduates are
leaving universities that are mired in theory classes, and sometimes so
poorly funded they don’t have computer labs. Even students from the
best colleges can be dulled by cram schools and left without the most
basic communication skills, according to industry leaders.

The second problem is rising wages:

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.

Actually, this is a feature, not a bug. When your services are in demand, wages rise. That’s GOOD for India, at least for Indian workers of which there are many. And that won’t in turn cause the Indian IT sector to collapse.

That confuses demand with quantity demanded as in the following exam question. True, false or uncertain: "If demand for Indian workers increases pushing up their wages, the higher wages will destroy the demand for Indian workers." The first part of the statement is true. An increase in demand will increase wages. But that’s a movement along the supply curve to a new equilibrium. The higher wages don’t cause the demand curve to shift back down. An increase in wages causes a reduction in quantity demanded, not a shift in the demand curve.

The problem in India which the reporter, Tim Sullivan recognizes, is lousy schools. (Hmm, I wonder if they’re public or privately run?)

Much of the problem is rooted in a deeply flawed school system.

As
India’s economy blossomed over 15 years, spawning a middle class
desperate to push their children further up the economic ladder, the
higher education system grew dramatically. The number of engineering
colleges, for instance, has nearly tripled.

But the problems have simply grown worse.

India
has technical institutes that seldom have electricity, and colleges
with no computers. There are universities where professors seldom show
up. Textbooks can be decades old.

Even at the best schools — and
the government-run Indian Institutes of Technology are among the
world’s most competitive, with top-level professors and elaborate
facilities — there are problems.

The brutal competition to get
into these universities means ambitious students can spend a year or
more in private cram schools, giving up everything to study full-time
for the entrance exams.

Instruction is by rote learning, and only test scores count.

"Everything
else is forgotten: the capacity to think, to write, to be logical, to
get along with people," Pai said. The result is smart, well-educated
people who can have trouble with such professional basics as working on
a team or good phone manners.

The private response:

The biggest companies have built elaborate training centers. The
Mysore campus, for instance, was little more than scrub-filled fields
when Infosys, India’s second-largest software firm, based in the nearby
technology hub of Bangalore, began building here in earnest three years
ago.

In America, the campus would be nothing unusual. But in
India — with its electricity outages, poverty and mountains of garbage
– the walled-in corporate fantasyland, watched over by armed guards,
is anything but normal.

It has 120 faculty members, more than 80
buildings, 2,350 hostel rooms and a 500,000-square-foot education
complex. There’s a movie complex built inside a geodesic dome. An army
of workers sweeps the already-spotless streets and trims the
already-perfect lawns.

Month by month, it’s getting bigger.
Today, some 4,500 students at a time attend the 16-week course for new
employees. By September, there will be space for 13,000.

Infosys
spent $350 million on the campus, and will spend $140 million this year
on training, said Pai, the human resources chief.

"This is the enormous cost we have to pay to ensure we have enough people," he said.

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URLs in this post:

[1] The AP reports: http://www.boston.com/news/world/asia/articles/2007/04/06/india_high_tech_industry_out_of_workers/?p1=MEWell_Pos4

[2] Wizbang: http://wizbangblog.com/2007/04/07/news-flash-boston-globe-discovers-law-of-supply-and-demand.php

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