How State Legislation Can Protect Consumers and Keep Call Center Jobs in New York and New

Jersey

June 2012

A Center for Working Families Report

About the Author:

Nathan Newman is a fellow at New York Universitys

Information Law Institute and the founder of Tech-Progress.org, an organization dedicated to promoting economic growth and public accountability in the new information economy. Newman has a Ph.D. from the University of California-Berkeley and a J.D. from Yale Law School. His book Net Loss: Internet Prophets, Private Profits and the Costs to Community was described by the Harvard Business Review as a provocative case for business civic-mindedness. Newman has written about technology policy issues for over 20 years. Newman served as Policy Director and Executive Director of the Progressive States Network where he oversaw the Broadband Buildout and Technology Investments program, as well as Program Director at NetAction, a consumer watchdog group.

Introduction Call centerscentralized offices that handle large volumes of telephone calls for the purposes of providing consumer support, conducting telemarketing and collecting debts, among other functionsare a major source of employment in the United States. About four million people are employed in the call center industry, or three percent of the U.S. workforce. Improved telecommunications infrastructure now allows companies to more easily offshorethat is, to move their call centers to countries where they pay lower wages, face weaker oversight (particularly in relation to consumer privacy standards) and avoid state and federal taxes in the U.S. In this report, the Center for Working Families, an independent, unaffiliated research and advocacy group, reviews the problems caused by offshoring of call center jobs and proposes policy solutions. The report draws heavily on previous research conducted by the Communications Workers of America.1 Accurate, timely data on offshoring are scarce. Still, its clear that residents of New York and New Jersey have reason to worry about loss of call center jobs: By one estimatean examination of Bureau of Labor Statistics data, which charts employment changes by occupationNew York State lost 8,930 call center industry jobs between 2005 and 2010.2 By the same measure, 18,110 jobs have been lost in the New Jersey call center sector. In other words, New York and New Jersey lost over 27,000 call center jobs combined from 2005 to 2010. (See graph on next page.) The finance industry, which is a bulwark of New Yorks economy and important to New Jerseys, is expected to move 15 percent of its operations overseas by 2015, with information technology (and therefore call centers) comprising a large portion of offshored work.3 Verizon, one of the states large employers and a major operator of call centers, has been shedding jobs overseas for over a decade. Over 4,500 Verizon call center jobs were lost in New York between 2000 and 2012. In New Jersey, the company has eliminated 2,370 high-tech customer service jobs.4

Indeed, offshoring continues nationwide, as companies look to increase profits by decreasing overhead and wages. Yet federal and state governments still award public subsidies and contracts to companies that send their jobs out of the country. In response, in December 2011, a bipartisan group of over 130 congressional representatives, led by Tim Bishop (D-NY-01) and David McKinley (R-WV-01) introduced The U.S. Call Center Worker and Consumer Protection Act (H.R. 3596) to make companies that offshore ineligible for federal loans and grants. As of March 2012, five state legislatures had introduced broad legislation to help keep call center jobs in the U.S. New Yorks elected leaders have begun paying attention to this issue. In August 2011, Governor Cuomo signed a narrowly targeted offshoring bill that requires state-licensed telephone gambling call centers to be located in New York.5 In November 2011, New York State Comptroller Tom DiNapoli rejected a $21.6 million procurement contract, in part because it involved offshoring of New Yorkers personal medical information.6 Additionally, New York Assemblymember Jeffries and Senator Kennedy introduced a state bill (A.9809 / S.6918) to limit offshoring. In New Jersey, similar legislation (A.2651 / S.1920) was sponsored by Assemblymembers Wagner, Benson, Eustace and Ramos, Jr. in the Assembly and Senators Gordon and Weinberg in the Senate. The Assembly

verision passed with broad, bipartisan support in March and awaits further action in the Senate. To protect consumers and retain jobs, New York and New Jersey should pass bills like the ones mentioned above in order to accomplish the following: Collect detailed data: Require companies that are offshoring a significant number of call center jobs to register this information with the state. Given poor data collection on service jobs generally, this information will assist policymakers in better evaluating the problem and crafting further solutions. Withhold public subsidies and state business from offshoring companies: Bar companies that offshore more than 30 percent of call center jobs from receiving state economic development subsides. Similarly, recipients of state procurement contracts should not be allowed to offshore. Scarce job creation dollars should be focused on companies that invest locally.

Offshoring kills good jobs in New York, New Jersey and the U.S. Job loss in New York and New Jersey Poor data collection makes it difficult to track the loss of call center jobs, but one estimatewhich uses Bureau of Labor Statistics data to chart employment changes by occupationsuggests that, from 2005 to 2010, New York lost 8,930 call center related jobs and that New Jersey lost 18,100 call center related jobs. There are indications that residents of New York and New Jersey should worry about losing even more call center jobs to offshoring. First, the finance industry, a bulwark of New Yorks economy and an important part of New Jerseys, is expected to move 15 percent of its operations overseas by 2015, with information technology (and therefore call centers) comprising a large portion of offshored work, according to a 2010 New York Department of Labor report.7 Second, Verizon, one of the states large employers and a major operator of call centers, has been shedding jobs overseas for over a decade. Over 4,500 Verizon call center jobs in New York were lost between 2000 and 2012, according to Bob Master, Political Director for Communications Workers of America District One. (To get a sense of Verizons economic power, consider that last summers strike caused New York Citys unemployment rate to rise a tenth of a percent.8) Most recently, the company offshored 1,000 New York State high-tech customer service jobs. In New Jersey, the company has eliminated 2,370 high-tech customer service jobs. Much of this work is now being done in the Philippines, India and Mexico, according to Communications Workers of America (CWA) and the International Brotherhood of Electrical Workers (IBEW), the two labor unions most familiar with this work.9 Job loss in the U.S.

At minimum, job losses in New York and New Jersey have mimicked discouraging national trends. Across the U.S., offshoring picked up during the recession and continued even as corporate profits rebounded. This has led some economists, such as Julia Coronado of BNP Paribas, to cite offshoring as a key culprit of the jobless recovery.10 Take the example of Perot Systems Corporation, a Texas-based information technology company. In 2008, as the recession deepened, the company announced it would hire 9,000 more workers in India, where a third of its global workforce was already located.11 The following year, the company laid off hundreds of U.S. workers.12 Other U.S.-based information technology companies that expanded into India during the recession are Computer Sciences Corporation (based in Virginia) and Convergys (based in Ohio). Convergys announced the layoff of 300 workers at its Baton Rouge call center facility in March 201213 and Computer Sciences Corporation laid off over 100 Ohio workers in 2011 and 2012.14 Future U.S. job losses will likely be significant. At the low end of estimates, Forrester Research, a private global research and business advisory firm, predicts that by 2015, 3.3 million U.S. service sector jobs will be moved offshore. At the higher end, Alan Blinder, former Vice Chairman of the Federal Reserve and a member of President Bill Clintons Council of Economic Advisors, argues that as many as 42 to 56 million U.S. jobs are at risk of being sent overseas in the next two decades. Data on offshoring is incomplete Poor data collection practices make it difficult respond effectively to offshoring. Specifically, federal law does not require employers to report the number of jobs they offshore to other countries and employers themselves often refuse to provide this information voluntarily. A 2010 report by the New York State Department of Labor explains the national scope of the problem and concludes that government legislation may be required to collect these data.
Currently, there are no official sources of reliable comprehensive statistics on the number of jobs outsourced offshore by U.S. businesses. There are no publicly or privately funded national surveys that systematically collect information on the number of jobs that are moved offshore. Reports of offshore outsourcing by the media are incomplete since many firms avoid disclosing their reasons for closure or transfer of specific operations. In addition, small or incremental relocations of jobs offshore may go unnoticed by the media. 15

One helpful survey of U.S. call centers was conducted by a British firm, ContactBabel, in 2006. ContactBabel conducts analyses of contact industriesindustries that manage customer contacts via telephone, Internet and email. The 2006 survey estimated 3.07 million contact agents in the U.S. and approximated that 3.7 percent of employed workers in the U.S. worked in this industry. In New York, the proportion was even higher: the industry provided 436,041 jobs including 256,495 contact center agent positionswhich employed 4.9 percent of the

states workers. New Jersey had 199,334 call center agent jobs, which accounted for 4.7 percent of that states workforce.16 ContactBabel has not updated the survey, however, so there is no way to know how these numbers have changed since 2006. The Save New Jersey Call Center Jobs Act of 2012 (A.2651 / S.1920) and the Save New New York Call Center Jobs Act of 2012 (A.9809 / S.6918) would ensure better tracking of data on significant offshoring in the future. Offshoring firms benefit from public subsidies and state contracts During the 1990s and 2000s, many elected officials looked to call center employers and other service industry firms to replace the blue-collar manufacturing jobs that had moved overseas. Desperate to attract these jobs, they committed millions in taxpayer dollars to fund incentivessuch as cash grants, property tax abatements and loans for employee trainingfor companies opening call center facilities in their area. Evidence suggests that many of the companies that benefited from state business and public subsidies were already offshoring U.S. jobs or did so soon after receiving benefits. Verizon has over $5.9 million in active New York State contracts with the Department of Transportation (mostly for infrastructure and construction work), despite having eliminated 4,500 New York call center jobs between 2000 and 2012.17 Wells Fargo received $25 billion in TARP money from the federal government, yet its cutting off the lifeline to its call center workers here in the U.S.18 T-Mobile USA has taken over $61 million in subsidies from states and cities across the country, including $6.6 million for a call center in Oakland, ME, where it subsequently eliminated jobs.19

Offshoring threatens consumer privacy Offshoring doesnt just hurt U.S. workers. The privacy of U.S. consumers is also at risk. Two recent examples: A 2012 investigation by Londons Sunday Times found that individual financial data, culled from offshored call centers in India, was being peddled in a black market. Half a million British consumers, including customers of major international financial institutions like HSBC and NatWest, were affected.20 This followed the U.S. Federal Trade Commission announcement that it would shut two U.S.based companies that had used an Indian call center to defraud U.S. customers of over $5 million.21 Reasons for security breaches in other countries may include a lack of rigorous background checks of call center job applicants,22 weak consumer privacy laws23 and difficulty expanding the security infrastructure to match rapid industry growth. (In India,

the business process outsourcing industry, known as BPO, has grown at a rate of 30 percent annually.) India has worked to strengthen security laws, but BPO industry opposition has made implementation difficult. New rules, proposed in 2011, would have required call centers to seek permission from clients before collecting sensitive information, but industry lobbyists were able to carve out exceptions. Similarly, the Senate of the Philippines passed a consumer privacy law that was modeled on the EU Data Protection Directivesignificant since that country is a popular destination for offshored call center jobs. However, new protections do not fully apply to personal information collected from residents of foreign countries.24 The problem of privacy breaches has provoked some response in in the U.S.: In November 2011, New York State Comptroller Tom DiNapoli rejected a $21.6 million procurement contract, in part because it involved offshoring of New Yorkers personal medical information.25 In 2011, California enacted legislation requiring companies to inform consumers when personal data is sent overseas for processing.26 In June 2011, a federal class action against American Express raised a different privacy concern. It charged that American Express use of foreign call centers violated consumers fourth amendment rights by exposing them to intrusive, warrantless snooping by the U.S. government. A similar lawsuit was brought against Bank of America in August of the same year.27

Conclusion State legislation to improve data collection and limit subsidies and benefits to offshoring companieslike A.9809 / S.6918 in New York and A.2651 / S.1920 in New Jersey would help retain jobs in New York and New Jersey, protect consumer privacy and provide for more effective data gathering. Lawmakers in both states should act immediately.

End Notes
1

Communications Workers of America, Why Shipping Call Center Jobs Overseas Hurts Us Back Home: Updated Report (March 2012). Retrieved on June 13, 2012 from http://files.cwaunion.org/national/News/Misc/20111215-offshore-callcenter.pdf. 2 The occupational categories inevitably include work not related to call centers and also exclude work that does qualify as call center activity. However, it is one measure of call center industry job losses. 3 New York Department of Labor, The Offshore Outsourcing of Information Technology Jobs in New York State (Sept. 2010). Retrieved on June 12, 2012 from http://www.labor.ny.gov/stats/PDFs/Offshore_Outsourcing_ITJobs_NYS.pdf. 4 Interviews with Bob Master, Political Director for Communications Workers of America District One, May 30, 2012 and June 8, 2012. 5 News release, Governor Cuomo Signs Law Requiring Racing and Wagering Call Centers to be Located in New York State (August 16, 2011). Retrieved on June 12, 2012 from http://www.governor.ny.gov/press/08162011CallCentersinNewYorkState. 6 Kenneth Lovett, State Comptroller Thomas DiNapoli rejects outsourcing of patient records at SUNY Downstate(NY Daily News, Nov. 8, 2011) Retrieved on June 12, 2012 from http://www.nydailynews.com/life-style/health/state-comptroller-thomas-dinapoli-rejects-outsourcingpatient-records-suny-downstate-article-1.974046#ixzz1xbvEb4zZhttp://www.nydailynews.com/lifestyle/health/state-comptroller-thomas-dinapoli-rejects-outsourcing-patient-records-suny-downstate-article1.974046. 7 New York Department of Labor, The Offshore Outsourcing of Information Technology Jobs in New York State (Sept. 2010). Retrieved on June 12, 2012 from http://www.labor.ny.gov/stats/PDFs/Offshore_Outsourcing_ITJobs_NYS.pdf. 8 Patrick McGeehan City Unemployment Rate Ticks Up to 8.7% (New York Times, September 15, 2011) Retrieved on June 12, 2012 from http://cityroom.blogs.nytimes.com/2011/09/15/city-unemployment-rateticks-up-to-8-7/. 9 Interviews with Bob Master, Political Director for Communications Workers of America District One , May 30, 2012 and June 8, 2012. 10 It used to be that recoveries were led by manufacturing. Manufacturing would rehire those workers and that would be the jumpstart for the economy. Now a recession is a catalyst for offshoring and outsourcing even more jobs, argued Economist Julia Coronado to Bloomberg. See Transcript: Interview with Julia Coronado, Chief Economist For North America, BNP Paribas. Bloomberg: Surveillance Midday. December 5, 2011. 11 Ruchi Hajela, Selective Hiring Goes On In It, Despite Meltdown. (Hindustan Times. October 29, 2008). Retrieved on June 13, 2012 from http://www.hindustantimes.com/NewsFeed/sectorsinfotech/Selective-hiring-goes-on-in-IT-despite-meltdown/Article1-347567.aspx. 12 Perot Systems profit flat, layoffs planned (Austin Business Journal, October 30, 2009). Retrieved on June 12, 2012 from http://www.bizjournals.com/dallas/stories/2009/05/04/daily13.html And Dell acquisition target making layoffs (Austin Business Journal, May 5, 2009) Retrieved on June 12, 2012 from http://www.bizjournals.com/austin/stories/2009/10/26/daily29.html. 13 Television news story, WAFB Convergys announces shut down, hundreds of layoffs (March 27, 2012). Retrieved on June 12, 2012 from http://www.wafb.com/story/17267559/convergys-to-lay-off-hundreds-ofbr-call-center-workers.

14

John Nolan Computer Sciences begins layoffs involving Air Force project (Dayton Daily News Sept. 22, 2011) Retrieved on June 12, 2012 from http://www.daytondailynews.com/business/computer-sciencesbegins-layoffs-involving-air-force-project--1257792.html . 15 New York State Department of Labor and Empire State Development, The Offshore Outsourcing of Information Technology Jobs in New York State: A Report to David A. Paterson, Governor and The Legislature of the State Of New York. September 2010, p. 16. 16 Steve Morrell, North American Contact Centers in 2006: The State of the Industry. ContactBabel. August 2006., p. 10. 17 Contract information is from the NYS Office of the Comptrollers Open Book website: http://wwe1.osc.state.ny.us/transparency/contracts/contractsearch.cfm. Verizon job loss numbers are from interviews with Bob Master, Political Director for Communications Workers of America District One , May 30, 2012 and June 8, 2012. 18 ProPublica, Eye on the Bailout: Wells Fargo. Retrieved on June 13, 2012 from http://projects.propublica.org/bailout/entities/518-wells-fargo. 19 Good Jobs First Report, Money on the Line: State and Local Economic Development Subsidies Received by T-Mobile Call Centers (September 2011). Retrieved on June 13, 2012 from http://www.goodjobsfirst.org/sites/default/files/docs/pdf/tmobile_sep2011.pdf. 20 Mazher Mahmood.Our Secrets For Sale At 2P. The Sunday Times of London. March 18, 2012. 21 Catherine New. FTC Cracks Down On Indian Call Center, Fraudster Debt Collectors. (Huffington Post, Feb. 21, 2012). Retrieved on June 12, 2012 from http://www.huffingtonpost.com/2012/02/21/ftcindian-call-center-fraud-debt-collectors_n_1289751.html. 22 One call center security officer informed the BBC that 10 to 25 percent of applicants at call center provide aliases and other incorrect information, and that without centralized criminal data, its hard to respond appropriately. See Zubair Ahmed. Outsourcing exposes firms to fraud. BBC. June 16, 2005. http://news.bbc.co.uk/2/hi/business/4094894.stm 23 New York Department of Labor, The Offshore Outsourcing of Information Technology Jobs in New York State (Sept. 2010). Retrieved on June 12, 2012 from http://www.labor.ny.gov/stats/PDFs/Offshore_Outsourcing_ITJobs_NYS.pdf. 24 Hunton & Williams LLP, Philippines Passes Omnibus Data Protection Law. Privacy and Information Security Blog. March 22, 2012. 25 Kenneth Lovett, State Comptroller Thomas DiNapoli rejects outsourcing of patient records at SUNY Downstate(NY Daily News, Nov. 8, 2011) Retrieved on June 12, 2012 from http://www.nydailynews.com/life-style/health/state-comptroller-thomas-dinapoli-rejects-outsourcingpatient-records-suny-downstate-article-1.974046#ixzz1xbvEb4zZhttp://www.nydailynews.com/lifestyle/health/state-comptroller-thomas-dinapoli-rejects-outsourcing-patient-records-suny-downstate-article1.974046. 26 ESR News Blog, Larger Background Screening Companies Continue the Move to Offshore Processing of Background Check Reports, May 2, 2012. 27 Courthouse News, June 2011. Retrieved on June 13, 2012from http://www.courthousenews.com/2011/06/06/AmEx.pdf.