Tuesday, June 8, 2004

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How IT salaries are affected by outsourcing

The Boston Globe's Diane E. Lewis reports on the effect that offshore outsourcing is having on IT salaries:

Technology specialists with hot skills continue to command top salaries and bonuses despite the outsourcing of some information technology jobs to India, Russia, Ireland, and other countries, according to a report released today.

Offshore outsourcing has had little impact on the salaries of those with critical skill sets such as senior network architects or senior database management staff, said the report by the META Group, based in Stamford, Conn. Based on a compensation survey of 650 large and midsized firms with at least $200 million in annual revenue, the report includes salary data for 180 information technology positions in 14 industries.

The technology research firm found that technology workers with general skills are more likely to experience stagnant wages than those whose expertise is in demand. The survey also found that 19 percent of the companies polled outsource IT work to foreign countries. Of those, the majority send jobs to India.

Opponents of outsourcing jobs offshore have maintained the practice causes layoffs and depresses salaries in the United States, forcing many full-time IT professionals to seek work in other professions or turn to temporary contract work.

The IEEE-USA, which represents electrical engineers, electronics engineers, and computer specialists, declined to comment on the META Group findings yesterday. The industry group has spoken out against the outsourcing of IT jobs. A spokesman said the organization needed time to study the report.

Maria Schafer, the report's author and a senior program director at META Group, said salaries for IT specialists are starting to return to their 2000 levels.

Read the whole article -- and you can download the executive summary of the META group report by clicking here (registration required).

Given that 2000 was the peak of dot.com hysteria, the salary rebound is pretty impressive.

UPDATE: This elaboration on salary structure comes from page 11 of the executive summary:

1) companies paying staff this much more than others in the organization are very eager to retain these individuals; 2) there is a continuing and strong market for experienced individuals with critical skills; and 3) the job market is picking up. The rate of increase in salaries has slowed, but IT staffs have held onto salary levels because their role is necessary to the organization. There are many more available workers — due to the net effects of continuing vendor-side layoffs in the high-tech sector, fewer opportunities for consulting, and the overall sluggishness in companies of all sizes — yet the issue of quality in the available labor pool is compounded by a continuing lack of some skills (mainly in the highly specialized areas that represent emerging technology needs, such as wireless, security, and data management).

As for the magnitude of offshoring (from page 16):

Of the 20% of organizations that are currently engaged in sourcing (or siting) labor offshore, the percentages vary substantially for how much companies are deploying labor this way. Forty percent of this number have only 5% or less of their total workforce deployed offshore.

posted by Dan on 06.08.04 at 12:30 PM


Look, let's face it. The jobs that are being outsourced aren't the kind that take massive amounts of talent to do. Much like how machines now build cars better than their human counterparts, so can code be generated by outsourced programmers with less skill. If you want to keep your job, improve your skils.

As anyone who is aware of patterns in programming will tell you, if your application components follow any well known pattern (Store & Forward, Factory, etc.), the programming behind it is trivial. Hell, the actual code is simple if you've got a good design. So the trick isn't to have the government stop outsourcing, but to further your own skill set so that you can provide the design which is hard to do overseas (communication is critical to the design phase and time-zone / culture / language barriers are damn near impossible to overcome fast enough).

Or you could be like me. I decided to start looking at other fields of work even though the past 12 years of my life have been devoted to computers. I'm doing my own photography business on the side. It's hard to outsource a photographer for your wedding ;)

posted by: Marble on 06.08.04 at 12:30 PM [permalink]

I don't see the article quite so positively. There's nothing to say what percentage of IT jobs are considered "scarce skills" and part of that overall salary increase. If only 1% or 5% or even 10% of those positions are seeing wage increases and the rest are stagnant or losing ground, that's not a good thing (at least not for the folks in the industry). Rote programming jobs and help desk personnel are not the only positions being offshored (and I would hesitate to denigrate the skills that it takes to do those jobs *well*) - we're also seeing IT infrastructure support jobs and others typically seen as higher skilled going as well. It's all well and good to talk about upgrading your skills - that'll help some few people, but we're not talking about a large number of actual positions for people to move into.

The last couple of grafs of the article are worth noting, including

"However, hiring managers have not stepped up their recruitment efforts significantly despite demand and the improving economy. As a result, IT employees report low morale due to increased hours and work levels and not enough people on staff."
''The number of positions for which they are hiring continues to be far from robust," said META Group. ''It is a positive trend that the overall loss of employees seems to be slowing, though there is no real gain in the net number of new employees."
This is not to say that offshoring is inherently bad (although it sure as heck sucks for those affected by it), but I would say that my interpretation of the article is a bit different than Dan's. I did not read the META report itself, so it's certainly possible that there is data there that would change that opinion, but personal experience is telling me that IT salaries are generally flat (due IN PART to offshoring and outsourcing) and I don't see any real upward pressure yet except in some VERY specialized areas.

posted by: Tony Plutonium on 06.08.04 at 12:30 PM [permalink]

The only thing is that IT consulting rates have plummetted in the last three years. I keep seeing signs that there might be a modest recovery, but I have experienced that, myself. I have seen a drop of more than 40%, and with the resistence to overtime, that has actually been more like 50%. Don't say that there has been no effect, as it is not true.

posted by: Jim Bender on 06.08.04 at 12:30 PM [permalink]

What are we missing here? This phrase gives us a clue: senior network architects or senior database management staff.

Note the "senior" there. They didn't become "senior" without becoming "junior" first. If we outsource many of the *junior* jobs, there won't be *seniors* in the future. The senior network architects or senior database management staff will be in India or China.

-- A TrUe ChRiStinA FaN who resents having had his joke comment in the JLo thread deleted.

posted by: The Lonewacko Blog on 06.08.04 at 12:30 PM [permalink]

Marble writes:

1. "let's face it. The jobs that are being outsourced aren't the kind that take massive amounts of talent to do."


2. "I decided to start looking at other fields of work even though the past 12 years of my life have been devoted to computers. I'm doing my own photography business on the side. It's hard to outsource a photographer for your wedding ;)"

So. on one hand outsourcing is not a problem for people with talents slightly above average. On another hand, our friend Marble is going into photography.

A fairly typical logic from a moronic FreeTradeUberAlles true believer.

posted by: BrooklynBridge on 06.08.04 at 12:30 PM [permalink]

I was thinking the same thing as lonewacko... Senior people in this field dont exactly emerge from the groud fully formed... You have to be a junior programmer somewhere before you're a senior one, and its getting a lot harder for US programmers to land that junior position. (Of course this is merely based on me and my friends who recently graduated with CS degrees... Out of my 4 closest freinds with the same degree, only I am now actually in a job related to that field)

posted by: Ryan Frank on 06.08.04 at 12:30 PM [permalink]

I manage an IT consulting form. Since '99, we have seen consulting rates fall approximately 25% for IT security and enterprise management.

We have also seen utilization rates fall due to the shift in projects from very long term (clients were afraid of losing a scarce resource) to very short (clients are counting ever dollar. This causes a variation of frictional-unemployment for our firm.

We are currently seeing small but hopeful improvements in both areas. That is, improvements for us. Our clients may not see it an an "improvement" that they are paying more. ;-)

What hasn't changed in the last four years is competition. We have to compete with independent 10-99 consultants, with potential W-2 employees, with off-shore consulting firms, and with other IT consulting firms like ourselves.

Competition drives down price and drives up quality. This is good for my customers and it is good for their customers.

Some people seem to feel that they should not have to compete. They feel that the government should protect them from competition, especially when they might lose. I do not feel that way.

Life is about competition -- get to it.

posted by: Will Spencer on 06.08.04 at 12:30 PM [permalink]

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