Ali’s blog

Mostly quant stuff with occasional digressions

The changing structure of employment in the US — and its likely impact on quant work

Posted by alifinmath on December 30, 2007

Here is the link to an interesting piece in WorldNetDaily:

http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=59398

Below are some excerpts:

While the price of a college education has skyrocketed far faster than inflation, many careers for which colleges prepare their graduates are disappearing. U.S. News’ Best Careers guide concludes, “college grads might want to consider blue-collar careers” because bachelor’s degree holders “are having trouble finding jobs that require college-graduate skills.”

Where did the higher-skill jobs go? Both large and small companies are “quietly increasing off-shoring efforts.”

Ten years ago, we were told we really didn’t need manufacturing because it can be done more cheaply elsewhere, that auto workers and others should move to information-age jobs. But now the information jobs are moving offshore, too, as well as marketing research and even many varieties of innovation.

The flight overseas includes professional as well as low-wage jobs, with engineering jobs offshored to India and China. Thousands of bright Asian engineers are willing to work for a fraction of U.S. wages, which is why Boeing just signed a 10-year, $1 billion-a-year deal with a government-run company in India.

But it doesn’t make sense for parents to mortgage their homes, or for students to saddle themselves with long-term debt, to pay overpriced college tuition to prepare for jobs that no longer exist. Tuition at public universities has risen an unprecedented 51 percent over the last five years.

A Duke University spokesman said that 40 percent of Duke’s engineering graduates cannot get engineering jobs.

Now let’s dwell on quant work for a moment. There is no good argument why quant work cannot migrate to lower-cost locations in the same manner as programming work. In fact, there are already quant shops in India that handle outsourced quant work. I expect this trend to accelerate. The choice between a $200,000 quant in the US and a $40,000 quant in India is a no-brainer. But let’s see what the experts say:

“For Citigroup to do high-end work in India is a no-brainer,” says Ravi Aron, senior fellow at Wharton’s Mack Center Mack Center for Technological Innovation. “Citigroup has been doing bond pricing and investment banking work in India for a while.”

In the initial stages, much of the outsourced work was at the “data level,” says Aron, adding that the

business model matures as companies get accustomed to working with their offshore partners and “see that there is a lot more they can do.” That opens the possibilities of outsourcing higher-end assignments such as bond pricing, equity research and financial market analytics.

“Whenever work involved number crunching, quantitative analysis, mathematical formulation, statistical data analysis and numerical calculations, managers in India, Singapore and China would say this is low complexity work,” says Aron. “They could find the people to do those jobs and deliver quality on scale, month after month, year after year.

What I’ve quoted above doesn’t say anything I don’t already know: this is the shape of the future. It’s not just that jobs are moving offshore, it’s that the financial industry is in the throes of major structural changes — and shall remain so for the indefinite future. For instance, the growth in overall employment of quants over the last so many years has probably come to an end. And companies that do need quant work done will probably look ever more keenly at offshore options. Were I a manager with bottom-line accountability, this is certainly what I would do….

Anyone thinking that a US degree will land them a lucrative career in the US is probably grossly mistaken. Even if a lucrative job is available, it may not stay on American shores: there’s no logical reason it should. And I’m talking now of graduates from the best quant programs: Carnegie-Mellon and Haas, for example. For others it will probably be worse.

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