In Spite of Offshoring, US Students Can Still Engineer a Career

American mamas: It's OK to let your children grow up to be engineers. You don't have to make them be doctors and lawyers instead. (Apologies to Willie Nelson.)

By 2008, more than half the jobs in engineering could be done anywhere in the world, according to an intriguing new analysis of global outsourcing by McKinsey & Co.'s in-house think tank. Many of them will, in fact, be done in India, China and other low-wage countries.

Yet, in a good illustration of the complex dynamics of the emerging global market for skilled labor, the consulting firm's analysts conclude that engineering still looks like a winning profession for Americans -- in contrast to some other occupations.

"There is this myth that the last thing you should do is go into engineering," says Diana Farrell, head of McKinsey Global Institute. "But the underlying growth of demand for engineers is so great that even when you consider the potential of offshoring, there will be demand in the US"

McKinsey is a cheerleader for globalization, and those who work at consulting firms are more likely than computer programmers or assembly-line workers to win at global competition. But McKinsey's strength (and commercial interest) is its fixation on what companies actually do and its access to their top executives.

In a voluminous report released today, McKinsey quantifies the familiar reality: There are already twice as many young university-trained professionals in low-wage countries as in high-wage countries (even before counting health-care professionals). India has nearly as many young engineers as the US; China has twice as many.

Such figures prompt predictions that rich-country wages are doomed to fall to Chinese competitors. But not all those low-wage engineers are really competing with Americans, Western Europeans and Japanese. And despite all the publicized examples of outsourcing, every Silicon Valley company isn't going to shut its doors and relocate to Shanghai or Bangalore.

So McKinsey attempts to calibrate the supply of talent likely to be available to the global labor market and the likely demand. Raw totals of university graduates are misleading. Interviews with 83 big-company human-resource executives find that they view fewer than one in five engineers in low-wage countries as potential hires. The others don't speak the language, don't live in the right cities or near airports, aren't practical enough or otherwise just don't fit.

The exercise doesn't justify complacency in the US and other high-wage countries. "The potential supply of suitable talent from the 28 low-wage countries we studied exceeds demand for offshore talent from companies in high-wage countries," McKinsey concludes. US, Western European and Japanese professionals should anticipate tougher competition and wages lower than they would enjoy if not for the growing ranks of educated workers elsewhere.

But industries and occupations aren't identical, and extrapolating yesterday's trends isn't always smart forecasting. McKinsey bets that the US will lose 225,000 service-sector jobs a year to offshoring, but that's a very small fraction of the jobs created each year in the US, where millions of jobs are destroyed and replaced annually. While McKinsey expects the global supply of accountants and finance whizzes to overwhelm the demand, it doesn't expect the same for skilled engineers, particularly at the high end. By the end of this decade, demand for engineering talent from the US and U.K. alone could absorb the "suitable supply" of engineers in China, India and the Philippines, it says.

As a consequence, McKinsey foresees not a drop in US engineers' salaries, but significant increases in young engineers' wages in India, China, the Philippines and Malaysia. And, in a reminder of what a globalizing labor market means in practice, higher wages for Asian engineers will bring them up to the levels of engineers in Mexico, Brazil and Poland, encouraging multinational companies to hire there.

It would be simpler for American engineers if they didn't have to worry about all those bright, ambitious folks in China and India. But as Brad DeLong, an economist and blogger at the University of California at Berkeley, puts it: "A world 60 years from now in which Chinese schoolchildren are taught that the US did what it could to speed their economic growth is a much safer world for my great-grandchildren than a world in which Chinese schoolchildren are taught that the US did all it could to keep China poor."

Decrying or trying to stop globalization isn't a winning strategy. Analyses like McKinsey's are a step toward more promising national -- and personal -- responses to global realities. Understand the competition, and then do something you can do better than they can.

Click here for the report, "The Emerging Global Labor Market", by the Mckinsey Global Institute.