$$$$$exyGal's Journal: Teach me economics: Why are tech jobs going to India?

American companies are moving tech jobs overseas to India [more info]. Why? Simple, it's all about money. But how is that so? The article says that Indian programmers make 1/10th that of American programmers. Why do they make so much less?

I'm not an economist, but here's a some possible reasons:

1. There is a larger supply of programmers in India than the demand for those programmers. That makes the price of programmers low. But only 10% of what American programmers make? That can't be the only answer.
2. The cost of living in India is 1/10th the cost of living in the US. Is that true? If I moved to India, would I have 10 times my current buying power (assuming I was able to continue making my American salary) ?
3. Normal economic rules do not apply to India because a) people don't use money there, they are communists; b) programmers do not need money, because non-programmers revere them and supply the programmers with all their wants; c) all programmers in India funnel a tiny fraction of every American banking transaction into their own Indian bank accounts (ala Office Space).
4. Indian programmers are super-smart and only need to program 4 hours a week. The rest of the week, they work as back-breaking rice farmers.

My guess is #2 is the main reason why. Any thoughts? Also, how long can #2 last? Eventually, won't the cost of Indian programmers rise to near American proportions? If an Indian wanted to live an American lifestyle (DVD players, big houses, eating out every night, watching movies on the big screen, multiple computers, TV dinners, big automobiles, Starbucks, DSL, etc etc etc), wouldn't she need to make more money than $6,000 ? How long will it take for this inflation to take place? Globalization is a two-way street, right?

Well...

[loucura!]

(Disclaimer: I'm not an economist, but I play one on Slashdot)

Well, since there is approximately 1.2 billion people in India (this is debatable, but it is above 1 billion), most of whom are subsistance farmers, it seems unlikely that US jobs moving to India would raise the standard of living significantly.

In fact, I'd assume that if the wages of programmers was to increase, there would be instant (supply-side) demand for programming jobs, which would prevent any major wage increases. So, the current crop of Indian programmers would be better off not seeking higher salaries, because it would cause a shift to cheaper labour... uh, like it is. (It's easy to be an arm-chair economist when you're rehashing current economic trends. :P )

Re:Well...

[dagg]

Technology companies in the US have clustered in the largest cities. Specifically, Silicon Valley and Silicon Alley come to mind. Tech workers in those parts of the country have the highest salaries (sometimes double what the same job in a different part of the country would make).

How long before "Silicon Bali" becomes a common term? Do tech workers in India cluster? Will that cause their salaries to increase? How long will it be before Indian tech workers realize they can make even more money by run

My money's on 2, sort of

[intermodal]

I'm guessing more along the lines of 1/7 the cost of living we have. They're used to having less and have less cruft on their expectations (i.e. television and movies are probably not as prevalent as they are here, housing size and quality of construction is likely lower, and cars on the scale of what we have here are unlikely). They also may not even have cars...only in America is a hardcore commute in a private vehicle common or encouraged. Even in Japan public transportation is the norm.

So it's not just lower standards of living, but rather lower expectations out of comparatively higher living.

Re:My money's on 2, sort of

[toofanx]

Living in India (and having lived in the U.S. for a short time), I would agree with you on cars - the cars here are neither as sporty nor as fast as the ones in the U.S. (and the roads are really bad)

Television is a vehement no. With the proliferation of private cable TV, we a huge choice including American programs (but they are outdated by a few seasons). However, Indian TV is very well suited for Indian tastes and there is no way you can get Indian viewers to switch to any other style of television. I

Re:My money's on 2, sort of

[toofanx]

I made a mistake in my earlier post. I don't know why I said 1/10th. What I'm earning now is more like 1/7th (as the initial poster pointed out).

Maybe I can help here...

[ankit]

I was working in India for an american software company before I came to the US for graduate studies. I think I can shed some light on your question.

1. There is a larger supply of programmers in India than the demand for those programmers. That makes the price of programmers low. But only 10% of what American programmers make? That can't be the only answer.


Since the IT bubble burst, this is more and more true. There was a time when there were fewer programmers than the jobs. This made the cost of getting a programmer high (in Indian terms, they were still cheaper than american programmers - see point 2). This made more and more people rush towards anything IT, computers or electronics related. Thousands of computer training institutes and even higher education schools mushroomed all over the country. Everyone wanted to learn computers because thats where all the money was! This meant LOTS and LOTS of programmers. Today when the demand is so low (compared to 2 years back), there are millions of "computer trained" people without a job, ready to work for minimum wages!

2. The cost of living in India is 1/10th the cost of living in the US. Is that true? If I moved to India, would I have 10 times my current buying power (assuming I was able to continue making my American salary) ?

Yes, the cost of living in India is roughly 1/10th the cost of living in the US. If you continue to get an american salary, you would be almost God like in India. If you are getting 50k per year, that is like 2.5 million indian rupees a year. Trust me, you can practically do what you like with that sort of money in India (you are sure to be listed in the Who's who list if you are in a small town for sure!)

3. Normal economic rules do not apply to India because a) people don't use money there, they are communists; b) programmers do not need money, because non-programmers revere them and supply the programmers with all their wants; c) all programmers in India funnel a tiny fraction of every American banking transaction into their own Indian bank accounts (ala Office Space).

(a) Indian people generally have a more conservative attitude about spending money than most US people. But this is changing FAST! More and more people, specially those in the IT/computers industry are leading an american lifestyle! They earn a lot (in Indian terms), and also spend a lot. (b) and (c) dont make any sense either.


4. Indian programmers are super-smart and only need to program 4 hours a week. The rest of the week, they work as back-breaking rice farmers.


No substance in this argument either!


My guess is #2 is the main reason why. Any thoughts? Also, how long can #2 last? Eventually, won't the cost of Indian programmers rise to near American proportions? If an Indian wanted to live an American lifestyle (DVD players, big houses, eating out every night, watching movies on the big screen, multiple computers, TV dinners, big automobiles, Starbucks, DSL, etc etc etc), wouldn't she need to make more money than $6,000 ? How long will it take for this inflation to take place? Globalization is a two-way street, right?


I think you are correct in saying that #2 is the main reason. However I dont see that changing anytime soon. IT/Computer professionals are still one of the highest paid people in India. If you look at some of the other industries, people are paid even less! Making $500 a month, you can pretty much live a very good life. Sure, you dont get all the cool electronic toys (big screens, multiple computers etc), but most people are able to afford big houses, eating out, starbucks etc. because they are much cheaper in india. For example, eating out in a five star hotel (one of the best in the city) would cost something like $10 per head!!

Re:Maybe I can help here...

[Cyberdyne]

I agree, it's almost entirely #2 - but while India is much cheaper than the US or Europe, other countries (like China) are cheaper still. Hence, some companies in India have apparently themselves been outsourcing to even cheaper countries

It's a bit like a new supermarket opening in a small town. It beats the little shops on price for commodities (cereal, toothpaste etc) - so if the little shops want to stay in business, they have to move to non-commodity goods, where they can add a bigger markup, and/or s

Re:Maybe I can help here...

[dagg]

Here's another journal entry [slashdot.org] with a link to a perfectly relevant Dilbert cartoon.

Re:Maybe I can help here...

[Scott Lockwood]

I wanted to email you to ask about this. I could use skilled perl hackers that inexpensive!

Re:Maybe I can help here...

[ankit]

Well, getting perl hackers wont be that easy. C/C++/VB/SQL etc. programers are more than plentiful. Perl/PHP/assembly are relatively harder to find. However, you could expect to pay about the same to them aswell. When I was in school I did some perl work for pretty much nothing ($100 for an entire website's work)!!

Re:Maybe I can help here...

[LIOPE]

Marticock's birth was a monumental moment for Reza. Her rolls of fat, pale flesh made it impossible for any doctor to pull Marticock out normally. They had to "go in". Vlad's unemployment and resulting lack of insurance left the Lockwoods with only one choice for natal care - a dirty, feces littered back- alley where a mob doctor practiced ever since a malpractice suit took away his license. Vlad didn't care. All the doctor had to do was cut open that whale and fish out Marticock, then sew her back up.

Office Space

[Phroggy]

c) all programmers in India funnel a tiny fraction of every American banking transaction into their own Indian bank accounts

That sounds familiar... Oh yeah, they did it in Superman III.

hehehe, Office Space rules.

IT-economy in developing nations

[chewy]

I have some insights into this matter I want to share, since I'm a programmer from South Africa.

I agree that it's because of reason #2. In South Africa, for example, the dollar/rand exchange is around 7.5 ZAR for one USD. Your average programmer typically makes around 100'000 ZAR per annum, which compares rather favourably with other jobs. (this is ... erm... *ponders*... less than $13'500 per year!)

You have to take into account living costs and a bunch of other factors to compare it to being a programmer

Simple: same work for less $$ all around

[Ars-Fartsica]

Its not just salary. There are countless benefits and entitlements North American firms are obliged to honor in the US that they are not required to honor overseas.

Also environmental/workplace regulations are lax in these developing economies, so more savings there.

None of this would matter if the work was not being done, and done well, which it is.

third world

[chef_raekwon]

chances are, if you replaced the country in question to just about any developing, or third world country, you would get the same result. Take Peru, for example -- you would pay the same programmer 1/10th of what you would pay someone in North America...
why?
well, it all stems to standard of living. the poverty line is much much lower, than our inflated poverty line -- but it costs nothing to live there...

and ofcourse, this is what you explanation is: 10 times the buying power -- but, 10 times worse the l

Cheap Labour

[ExEleven]

For cheap labour, companies could hold free training courses, and get the students to do there tech support, administration, and other jobs.

And they would have some marketing material "giving somthing back".

Maybe Ill start a company doing this.