A call center in India. New U.S. policies against outsourcing jobs overseas will hurt India's IT sector the most. Photo: David Robinson (flickr)

In spite of the global recession's painful effects on most of the world's economies, India has managed to stay stable. The country even expects its economy to grow by 5 percent this year. However, this prediction came before President Obama announced that his administration would be cutting tax breaks and refusing bailout money for companies outsourcing jobs overseas.

Rising unemployment in the U.S. has renewed the political and economic debate over shipping jobs abroad. More than 1,000 U.S. firms that have outsourced jobs abroad are being criticized for taking jobs away from Americans. Countries like India — which gets more than 60 percent of its outsourcing work from U.S. businesses — will likely be hit the hardest by the Obama administration’s protectionist approach to reviving the U.S. economy.

President Obama also announced a hiring ban on foreign workers for companies receiving federal bailout money. Of the 65,000 H1-B work visas that the U.S. issues annually, 21,667 have been for Indian citizens who mostly join the information technology industry. These non-immigrant visas are granted to educated and skilled foreign workers.

But the U.S. is not alone in adopting policies against outsourcing jobs and limiting foreign workers. In Persian Gulf countries like the United Arab Emirates, millions of Indians who are employed in the construction and banking industries have been laid off and forced to return home. In the United Kingdom — where Indians are one of the most prevalent immigrant groups — the government has announced plans to potentially limit foreign workers to sectors of the economy that have documented labor shortages.

New policies against hiring foreign workers in the U.S. may have a long-term impact that policymakers are not anticipating, according to a study by Duke and Harvard researchers. With increased job opportunities in places like India and China, more than 100,000 foreign workers could leave the U.S. for jobs in their home countries. The study found that many Indian professionals in Silicon Valley have already left, and predicts many more will leave to start businesses in India.

This is bad news for the long-term economic recovery of the U.S. because nearly half of Silicon Valley start-ups, including Google, were started by immigrants, the lead Harvard researcher tells BusinessWeek. This long-term “brain drain” will mean that “when we start recovering ... the people we need are going to be in India and China,” according to the researcher, Vivek Wadhwa.

The U.S. has historically welcomed immigrants and their innovative ideas. A reversal of policy could prove to be very harmful — hurting economic growth and limiting the expansion of key industries.

Despite rising unemployment, average hourly wages went up 4 percent in the past year. Photo: James Yu (flickr)

It's tough finding a job in this economy. There have already been 3.6 million job losses since the start of the recession. So would you believe that hourly wages have risen almost 4 percent in the past year?

How can this be? According to an economic theory called "adverse selection," employers are better off increasing wages rather than cutting them. Cutting pay often prompts the most productive workers to look for employment elsewhere, leaving the company with the laziest, most unproductive workers. Higher wages are also good for employee morale. This same wage phenomenon occurred during the Great Depression.

Not all companies are subscribing to "adverse selection" theory — Hewlett-Packard and FedEx are planning to cut worker pay. But as the saying goes, a happy worker is a productive worker, and as the New Yorker notes, productivity is key to a healthy economy.

This week's comment contest winner is anonymous, which is technically against the rules, but we liked the comment anyway.

Anonymous commented on a 2006 article that questions whether China or India will become the dominant global force of the 21st century.

This is a belated comment on the article in June 2006. I believe many Indians these days have moved on from the pre-2006 India Shining or India Poised hype.

I am responding in particular to the comment in the 2006 article that the economy China has only recently overtaken that of Britain despite Britain having a small population and resources compared with China because 'Britain has all of the economic dynamism associated with free societies.'

If that be the case, why is India's economy, being a democracy which adds creativity and dynamism to an economy (according to the author) and not to mention a population which will soon bigger than that of China is not bigger than that of China's or indeed that of Japan's, Germany's, Britain's, France's and Italy's?

As to people in India feel empowered by the ballot box why do so many Indian people choose to live in slums then? Surely such empowered and happy people will choose better than living in slums? Perhaps Indian people need so many religions in their country to tell they really live in a wonderful paradise?

As to the better command of English, of course, India is notorious for poor literacy rate in the world especially amongst the female population. Successful economies like Japan and Germany, of course prove that you need more than being able to speak English to make your a country a success.

Global Envision is offering a $25 cash prize to the weekly comment contest winner. Read more about the contest here, and good luck!

The Chinese government wants to boost rural consumerism by offering rebates on home appliances. Photo: Cassandra Nelson/Mercy Corps

As China rings in the Year of the Ox, its government is encouraging rural residents to splurge — on TVs, washing machines, refrigerators and personal computers — through a new subsidy program aimed to boost domestic demand.

Using funds generally reserved for an ailing export market, the program guarantees Chinese buyers a 13 percent rebate on the purchase of home appliances. The discounts are available to the nearly 800 million people living in rural China, a relatively untapped market in a country that is the leading producer and exporter of household appliances, according to the China Daily.

Some rural Chinese are taking advantage of the bargains. Mongolian herdsman Chaolu showed off his new 26-inch LCD television to a China Daily reporter. "With the money saved, I could buy more than 10kg of mutton. It looks as if the government has sent me a special gift for the Spring Festival."

But the long-term lure of the subsidies is questionable. A two-year pilot program in the rural Sichuan province originally helped boost appliance sales, but now farmers have little cash to pay for these luxury items, Mary Kay Magistad reports on PRI's The World.

Magistad says much of rural families' cash flow comes from migrant workers who've lost their jobs in a slow economy. And in rural communities where few people have access to good health care, retirement pensions and education, household appliances don't necessarily top the list of priorities.

High electricity costs are also a drawback when it comes to running appliances. "The cost is nothing to urban residents," farmer Yan Youqi told China Daily. "But we farmers have to think whether it is necessary to store so little food in refrigerators at such a cost."

Beijing economist Jua Du-Ming told The World that his country's government has good intentions, but needs to refocus its stimulus plan on meeting rural people's basic needs.

"The current economic crisis has really changed a lot of things. I can see that the Central government is … they are indeed trying to solve our problems, but all the conflict of interest is there. But when the general macroeconomic has changed in such a way … they have to do something."

As a result of a huge surplus of petrodollars in the United Arab Emirates (UAE), "a secretive, government-controlled investment fund is helping to shift the balance of power in the financial world," explains the World Business section of today’s New York Times. The Abu Dhabi Investment Authority is investing in markets in every region of the world and quietly playing a role in the success, or failure, of companies on a global scale.

Sovereign funds are state-owned funds that manage state savings for the purpose of investment. Basically, they are pools of money governments use to invest for profit, and, generally, these investments are made in foreign companies. For a more in-depth explanation, see the Council on Foreign Relations' Sovereign Wealth Funds fact-sheet.

Can migrant workers help to improve an economy? An article in the Economist says they can. According to the National Research Council with a high school education a migrant worker can contribute as much as 105,000 dollars in taxes, along with the contribution of their children once they are employed.

Migrants need health, skills, determination, a willingness to take risks and some entrepreneurial nous to take the plunge, which marks them out as special people. Moreover, migrants increasingly alleviate specific labour shortages in rich economies. Some economies could not function without foreign workers.

Cape Verde, Africa is feeling the affects of migration, says The New York Times. With roughly half of its population gone, family relations have become strained, families separated, and skilled workers lost. Its hard to complain, especially when migrant's remittances make up 12 percent of the nation's GDP.

Even as Cape Verdeans struggle to get out, others are migrating in. This, too, is characteristic of the age of migration — most “sending” countries are also “receiving” countries, underscoring how universal the phenomenon is. Nearly half the migrants from poor nations move to other poor nations.“Migration is probably more important to more people than it has ever been,” said Dr. Carling of the International Peace Research Institute, a nonprofit group in Oslo. “But what characterizes the world today is also the feeling of involuntary immobility.”