Washington — A controversial report suppressed for two years by the Bush administration provides what critics claim is the most exhaustive look yet at the outsourcing of U.S. high-tech jobs. The congressionally mandated report, compiled by the Commerce Department's Technology Administration, also contains stark predictions about the future of U.S. chip design as many more U.S. engineering jobs emigrate to low-cost locations like India.

The 356-page report--details of which were first reported last week by the newsletter Manufacturing & Technology News--was written in July 2004. But it was withheld during a presidential election year, after political wrangling between the White House and Democrats on the House Science Committee failed to reach a compromise on terms of its release. A 12-page summary published at the time omitted many of the final report's controversial findings. This spring, Science Committee members finally reached a deal to pressure the Bush administration to release the full report.

It provides "an in-depth analysis of the ongoing loss of U.S. high-tech jobs and represents the most complete analysis to date on offshoring of U.S. jobs," said Rep. Bart Gordon (D-Tenn.), the ranking minority member of the House Science Committee, who pressed for the report's release.

While U.S. chip-manufacturing jobs are expected to continue declining in response to outsourcing and offshoring, the report singles out chip design as the next U.S. industry sector to feel the pinch. Leading-edge design work has not moved offshore, but U.S. design engineers "are facing stiff competition from designers in India who work for lower wages and whose experience and quality [are] quickly improving," the final report warns.

The study notes that IC design, along with new fab construction, has become the most expensive part of chip making. "The primary driver of offshoring in semiconductor design is to reduce costs and shorten the time-to-market," the report found, noting that fixed design-engineering costs are 10 times higher than comparable manufacturing costs. Reducing labor costs is the key driver, the report added, noting that design engineers in China or India, among other locales, are paid as much as 80 percent less than U.S. engineers.

"Offshoring of design work can also impose downward pressure of U.S. wages and reduce the demand for U.S. design engineers," the report warned. "As the number of overseas design centers increases, it may [also] draw foreign talent from the United States."

Citing Semiconductor Industry Association (SIA) estimates, the report states that the number of engineers employed offshore by U.S. chip makers climbed by more than 10,000 between 2000 and 2003. U.S. engineering employment de- clined by 4,000 during the same period. According to the study, "Most of the 4,000 to 5,000 employees of U.S. companies in India represent jobs lost to the U.S. economy."

Outsourcing proponents, such as the Information Technology Association of America (ITAA), have argued that U.S. high-tech companies are hiring more foreign engineers to work in Asian design centers not only to reduce labor and operational costs but also to serve a growing local customer base, especially in India. The Commerce Department analysts disputed that claim.

Offshore design engineers "are not, for the most part, working on country-specific applications, working for Indian clients, working with clients in the same time zone, or engaged in 24/7 design," the report said.