The Supply of Information Technology Workers in the United States
Chapter 3: Demand, Constraints, and Consequences
What Are the Dynamics of the Marketplace and the Dangers of Government Intervention in the IT Labor Market?
In most industries, there are boom and bust cycles that affect the respective labor market. Even the IT sector, which overall has had a rapid upward growth for the past half-century, has experienced economic downturns. It is common in any active profession to have occasional mismatches between labor supply and demand because business cycles tend to move up and down more rapidly than changes in supply. Occasionally, supply changes more rapidly than demand, as shown by the growth of 40 percent per year in newly declared computer science majors at research universities the past two years. The invisible hand of the marketplace will often correct for shortages through wage pricing and other adaptations. Especially when there are many employers vying for the labor pool, wages will typically rise enough to attract workers from other fields. Government intervention in a market is generally regarded as advisable either when the free market is unable to operate on its own, or where the costs are regarded as too high. Examples of these costs are the long time it takes for the market to self-correct, the pain caused to individuals or institutions, or risk placed on the national economy or national security. In fact, it is very difficult for government organizations to effectively control labor supplynot to mention that there is little political will for doing so in this era of free markets. It is hard to predict future demand and to collect timely data about the effect intervention is having; as a result, it is easy to over-stimulate a labor pool.
Even when wages rise, the market cannot adjust more quickly than the amount of time it takes to train an adequate supply of workers. In the IT sector, such delays are often quite short. Anecdotal evidence suggests that it takes about six months to retrain a worker for a low- or mid-level IT occupation, assuming the worker already possesses some basic skills on which to build. Some high-level positions, such as management positions or senior research positions in laboratories, may require a longer training period. Sometimes, instead of a shortage occurring immediately, the level of talent filling open positions is gradually lowered. This may be especially true for particular segments of the labor marketfor example, a geographic region, employers who have a rapid increase in demand, or companies that are regarded by workers as somehow less attractive as employers (e.g., because of the nature of the work, the wages paid, or the corporate culture).
The recent history of intervention by U.S. government agencies to meet perceived shortages of scientific and technical workers does not provide an encouraging picture. Perhaps the most notorious recent case of failed policy pronouncements is the warning during the late 1980s from then-senior management of the National Science Foundation (NSF) about looming 'shortfalls' of scientists and engineers. These warnings were based on methodologically weak projection models of supply and demand that were originally misinterpreted as credible forecasts, rather than simulations dependent upon certain key assumptions. The projections yielded numerical estimates of the shortfalls anticipated, eventually reported to be 675,000 scientists and engineers by the year 2006.
Based in part on these worrying pronouncements, Congress agreed to increase funding for NSF science and engineering education programs. Several years later, in 1990, again influenced by the shortfall claims, Congress agreed to greatly expand the number of visas available for foreign scientists and engineers, for both permanent and non-permanent residents. (This bill was the origin of the H-1B visas, among other measures.) Many educational institutions moved to increase the numbers of graduate students in these fields. By the time these larger cohorts of graduate students emerged with their newly earned doctorates, the labor market in many fields had deteriorated badly, and many found their career ambitions extremely frustrated. This experience proved embarrassing, leading to congressional hearings in 1992 and harsh criticism of NSF management from several prominent congressional supporters of science and engineering. A repetition of this experience should be avoided in handling the IT labor market.
What Factors Limit the Ability of the Government, Industry, University System, and Professional Community To Improve the Match Between Supply and Demand?
It may be difficult for companies to recognize that there is a worker shortage, especially if they employ only a few workers in a given IT occupation, or if they are used to taking a long time to fill vacancies (which is common for positions that require a high level of education or training or many years of experience, even in times of market equilibrium). But even if the government, industrial, and academic sectors do recognize that there is an IT worker shortage and decide they want to deal with it, there are factors that limit their ability to do so. The high level of competition and the short product life and product development time often make it difficult for companies to hire new employees who require a lengthy period of break-in training before they can become productive. It also makes it difficult to retrain an existing employee for a significantly different job. Thus companies are sometimes forced, by competitive pressures, to lay off workers of one type and hire workers of another type. Or they may refuse to hire anyone who does not already possess all the needed skills. These employer practices receive harsh criticism at times from labor unions and some government officials, but to some degree this is a rational and perhaps necessary reaction to the realities of the marketplace.
Universities are sometimes criticized for their slow response to market conditions and their reluctance to allocate or reallocate resources to programs with high and growing demand. Perhaps most importantly, it should be noted that the colleges and universities do not control student demand. In this free market, student demand can change quicklycertainly more quickly than most universities can react. It should also be remembered that most universities have limited resources, most of which are tied up in long-term commitments such as buildings and tenured faculty. It is difficult for universities to shift tenured faculty from one subject area to anotherespecially from one department to another, but often even within a given department. Even when such shifts do occur (such as library science faculty becoming management information science faculty) these faculty retreads are often not accepted as full citizens, they may never conduct the kind of research that fits into the new department, and they may not provide good leadership in the new area. However, they do take up faculty slots that might have been assigned to a young researcher trained in the area. Part-time and adjunct appointments are one tool that departments can and do use to respond to rapidly changing market conditions. But a commitment to build up a computer science or information systems faculty (other than with non-tenure-track faculty) means making a long-term commitment, which is almost certainly made at the expense of some other worthy initiative.
The slow response is also partly due to the decision and review process. This process often seeks out views on major initiatives from many parts of the universityfaculty, administration, and sometimes even students and staff. This deliberative process, which largely precludes a response time that can keep up with industry trends, is part of what universities believe gives them strength. Industry, however, often sees this operating style as a weakness.
There are various factors that limit the government's ability to act. Supply and demand are not regulated by the government; the government can only offer incentives to encourage a student to study a particular field or a company to broaden its hiring practices. It is hard for a government to stimulate labor supply in any discipline by just the right amount: the market is constantly changing, the information about supply and demand is imperfect and is difficult to obtain in a timely fashion, and it is hard to predict the effects that a government initiative might have. Another factor involves state and local versus federal rights. Educational issues, especially at the K-12 level, are considered primarily a local prerogative; but national labor issues require national action, or at least national coordination, of K-12 and higher education. Government organizations also have a limited ability and desire to interfere with the actions of a private organization, such as a company or a university.
For all of these reasons, even when there is a desire to act, there are often impediments to doing so.
What Are the Costs of an IT Worker Shortage?
A substantial shortage of IT workers can incur many different costs. The effects are felt on many levelsthe nation, various industries, individual firms, and consumers:
- A shortage of skilled IT workers in the IT industry and other high-tech industries would slow innovation and product development, which in turn would harm exports and wealth creation in the United States.
- Industries dependent on IT workers would grow more slowly if there were an IT worker shortage, and this would have a negative impact on employment overall. u American companies might become less competitive globally because the up-push of salaries in a tight labor market would have to be reflected in the prices of goods and services produced, or because these companies could not get their products on the market as rapidly as foreign companies that are fully staffed.
- If American talent were too expensive or in short supply, companies would be more likely to move jobs offshore.
- Companies with intensive or company-critical IT functions that were unable to find an adequate supply of qualified IT workers might have to merge with companies that have these talents. While a merger is not a bad thing in and of itself, industry concentration for the purpose of acquiring expertise might harm economic forces and industry efficiency.
- Information technology is leading to enhanced productivity in a number of industries. A lack of IT workers would lead to a slowdown in productivity improvement.28 When salaries are driven up, certain kinds of organizations might be less able to meet industry market salaries and would be affected disproportionately by the shortage of workers. This has been true, for example, of government organizations trying to fix their Y2K problems. This factor has also affected the ability of universities and other nonprofits to attract qualified IT talent.
- IT graduate students and faculty might be attracted away from universities in sufficient numbers to jobs in industry that there would not be an adequate number of teacher-scholars left to train the next generation of IT workers (the so-called "seed-corn" problem). u A shortage of skilled people would mean that in some cases employers would fill positions with people who are less than adequately qualified. This practice could lead to poorer performance, high rates of project failure, a slowdown in delivery, and decreased innovation.
- Software projects, especially large ones, already have a high failure rate (perhaps an artifact of a long history of inadequate numbers of well-trained IT workers). This would likely worsen with a shortage of skilled IT personnel.
- Tight labor markets are often characterized by "churning," the increased movement of the employees from one employer to another. Churning significantly increases recruitment and retraining costs for employers; it also means that the time of technical staff, as well as management and human resources staff, is spent on recruiting, retaining, and retraining employees, rather than on more productive elements of the business.29 New employees are not as productive as employees who have been with a company for some time because new employees need to learn about company projects, processes, skills, and capabilities.
- Workers who are responsible for conceptualization and development lose productivity when there is a shortage of adequate support staff and adequately maintained support systems.
- When there is a shortage of staff, employees who might have been assigned to create new products sometimes are reassigned to maintain existing products or company support systems. This could limit innovation and stifle competitiveness.
- There could be a reduction in the range of products available to both individual Americans and to American companies who use them to improve their own products, services, and well-being.
What Are the International Considerations in Dealing with a National Worker Shortage?
The IT marketplace and the companies in it are increasingly international in scope. Virtually all of the major companies in the IT industry headquartered in the United States offer their products and services around the world. Most have sales offices in many countries, and some have factories and even research laboratories outside the United States. Beginning in the 1970s, American companies began to increase their use of overseas workers to manufacture components and assemble products, as labor costs escalated in the United States. Similarly, IT companies headquartered in other countries have opened foreign offices as they try to expand their markets. A few foreign IT companies have established a substantial presence in this country, and a number of both European and Japanese companies have established IT-related research laboratories here (e.g., Hitachi, Mitsubishi, NEC, Panasonic, Philips, Ricoh, Sharp, Siemens, and Sony).
This means that there is increasing worldwide competition for IT contracts; if U.S. companies cannot provide the service and products, increasingly there are other options. This surely could lessen the demand for IT workers in the United States; but it could also prove to be an opportunity for U.S. companies to build up their world business. It was long thought that American industry would maintain control of both the national and worldwide IT industries because of its large civilian and military domestic markets, strong higher educational system, good research laboratories, and domination of software development. But there have been pressures against the American companies. For example, in the 1980s, a globalization of the software industry began, driven by a search for talent. So far, the United States still dominates the software industry, perhaps because the capacity of foreign labor sources is strictly limited by the numbers of highly educated individuals and by the educational infrastructures in other countries. However, it is hard to know how long this domination will last.
The flow of IT work and workers is not limited by national boundaries. It is not uncommon for IT workers from one country to work for a few years or even their entire careers in another country, although no statistics are available on the numbers. Anecdotal evidence indicates that the United States is by far the destination of choice for IT study and work. Roughly half the graduate students and one-tenth of the undergraduates in IT-related departments are foreign nationals; and foreign-born students who earn science and engineering (S&E) doctoral degrees from U. S. academic institutions are staying in this country after graduation in increasing numbers. A recent NSF study indicates that 63 percent of foreign-born students who earned S&E doctorates from U.S. institutions between 1988 and 1996 said they planned to locate here, compared to 50 percent or less of those previously studied. Two-thirds of those who planned to stay had firm plans for further study or employment.30
One might think that the influx of workers and students would help meet the strong demand by American companies for IT workers. Indeed, it does help. However, it is fairly clear that foreign sources of labor is not the long-term solution to IT labor needs in the United States. The supply of foreign workers is limited by numbers, resources, government policies, and demands for them in their home and other countries. A number of countries are reporting their own shortages of IT workers and are placing pressures on or providing incentives to their indigenous IT workforce to stay at home or return home. These countries are also in competition with the United States for workers from those few countries, such as India, that have a surplus of IT workers.31
28 In the early 1990s some economists questioned the productivity added by information technology, but this attitude seems to be changing, coming into line with long-standing anecdotal evidence that this technology can provide significant productivity gains.
29 For a reflective article on the issue of job churning, see Robert W. Lucky, "Job Churn," IEEE Spectrum, November 1998, p. 17.
30 See "Statistical Profiles of Foreign Doctoral Recipients in Science and Engineering: Plans to Stay in the United States" (http://www.nsf.gov/sbe/srs/nsf99304/start.htm)
31 Some examples of reports on IT worker shortages and worker levels in countries other than the United States:
Canada: "Software and National Competitiveness, 1995 Update," Software Human Resource Council. (hard copy). Also see http://www.shrc.ca/index.html; Update to the Human Resource Study of the Software Industry, Human Resource Development Canada, 1995 (hard copy), but also see http://www.hrdc-drhc.gc.ca/hrdc/corp/stratpol/arbsite/research/rsctoc_e.html and http://www.hrdc-drhc.gc.ca/hrdc/corp/stratpol/arbsite/publish/bulletin/contents.html)
The Netherlands: Advisory Council for Science and Technology Policy, Report 31. The structural need for computer scientists, February 1998. (PDF, in Dutch) Also see http://www.awt.nl/en/advlist.html
India: "The Software Industry in India 1997-98: A Strategic Review," NASSCOM, Also see http://www.nasscom.org/ and A. Barr and S. G. Tessler, "The Globalization of Software R&D: The Search for Talent," http://www-scip.stanford.edu/scip/avsgt/cfr1296.pdf and "Software R&D Strategies of Developing Countries," http://www-scip.stanford.edu/scip/avsgt/cfr197.pdf
United Kingdom: "Skills Alliance Lists Projects That Need Help. Computerweekly (UK) article about study sponsored by Department of Trade and Industry. http://www.computerweekly.co.uk/news/20_11_97/08622625264/C6.html
Israel: "Information Technology in Israel: Human Capital & IT." Gives a count of IT workers only: http://gurukul.ucc.american.edu/mogit/dz9586a/humapage.html. Forecast of a shortage (article refers to study done by Ministry of Industry and Trade): "Israeli Software Firms Meet Needs by Training, Hiring Yeshiva Pupils," Jerusalem Post Service, http://www.jewish.com:80/bk970919/ifirms.htm
Belgium: Insea (a Belgian professional association) report (1997) counts the number of Belgian workers and forecasts worker shortage and spiraling wages. "Informaticiens Rois."
Worldwide headcount: Several years ago The Economist offered a chart of the number of software workers in various countries, based on some estimates of the META group. These numbers were not necessarily based on government reports by country, but are a starting point. "The Importance of Being American" (from Survey of the Software Industry) The Economist, May 25, 1996. Counting new graduates entering the workforce (outside of the US) is even tougher. But productivity and headcount are two different things. There are estimates of two million for the number of technical professionals in Russia, but their productivity is inhibited for a number of reasons. Some of those reasons are mentioned in A. Barr and S.G. Tessler, "Software R&D Strategies of Developing Countries," http://www-scip.stanford.edu/scip/avsgt/cfr197.pdf
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Document last modified on Wednesday, 04-Apr-2012 06:51:20 PDT.