Tuesday, September 14, 2004

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WashTech's contribution to the outsourcing numbers

The Ford Foundation has sponsored a study by the Washington Alliance of Technology Workers (WashTech), a local of the Communications Workers of America (an AFL-CIO affiliate union), in conjunction with the Center for Urban Economic Development at the University of Illinois, Chicago, on IT employment since 2001.

Their press release paints a grim picture:

The report found that high-tech workers have seen a doubling of unemployment rates in the past three years. The University of Illinois at Chicago conducted the research for the Washington Alliance of Technology Workers, a local of the Communications Workers of America.

The report goes on to analyze job growth and unemployment in six key regional high-tech labor markets. For example, San Jose continued to lose more than 14,000 IT jobs after November 2001, and its neighbor to the north, San Francisco, lost 9,300. The unemployment rate faced by San Jose area technology employees still remains high, going from 1% in 1997 to more than 6% by 2002, and in San Francisco from 1.3% in 1997 to more than 8.8% in 2002, the last year for which data are available.

The other labor markets studied are Boston, Chicago, Dallas, Seattle and Washington, DC. Nearly every labor market mirrored the Silicon Valley's experience, with Washington, DC the only location to show positive job growth in the past year.

The report cited offshore outsourcing as contributing to the lack of strong job creation in this sector. (emphasis added)

Here's a link to the actual report, and here is the AP wire report by Allison Linn.

The sum total of the discussion about offshore outsourcing comes on p. 5 of the report:

While there is a lack of current and reliable information on the extent of job losses due to offshore outsourcing, there is little doubt that it has contributed to soaring unemployment rates in the industry. For instance, UIC-CUED analysis of the Current Population Survey
reveals that national unemployment rates for computer programmers was 6.7% in 2003, two years after the end of the recession, compared to 2.5% in 2001. Incidentally, computer programming is also one of the top occupations sent offshore.

That's it -- lots of data about the unemployment picture, one paragraph on the causal connection between offshore outsourcing and that employment picture.

Certainly, their analysis could be correct -- but I have my doubts. One of them is that it's not clear whether their data are accurate -- a point made in Ed Frauenheim's analysis of the report at CNET.com:

In recent weeks, conflicting information has emerged about the job scene for tech professionals....

A survey by a staffing firm found gradually increasing confidence among IT workers in the job market. But a recent study by the Information Technology Association of America trade group found just a "slight" recovery for the IT job market in 2004.

That report concluded that the number of U.S. IT workers rose 2 percent, to 10.5 million, in the first quarter of this year, but demand for IT workers is dropping.

ITAA's report included workers in the internal IT departments of many types of corporations, while the new study for WashTech is limited to companies in the technology industry, such as Internet service providers and software publishers. (emphasis added)

Why is that last paragraph so important? Because if you look at Frauenheim's story about the ITAA report, you find the following sentence: "ITAA said nearly 89 percent of new jobs came from non-IT companies, despite popular fears over mass job loss to outsourcing and globalization." If one really believes that offshore outsourcing is responsible for massive job losses in the IT sector, that last figure is a puzzling one -- because the line that management consultants continually push is that offshore outsourcing is great for firms that don't specialize in IT services and want to subcontract those operations to the lowest-cost provider out there.

If the UIC/CUED study omitted the strongest source of job creation, that's somewhat problematic.

Even the AP report contains the following:

Sung Won Sohn, chief economist at Wells Fargo Bank, said he has seen some evidence that the high-tech job market began improving in the months after this study was completed. Still, he said, those in the software industry have fared better than those in the computer hardware industry.

Overall, Sohn thinks the high-tech industry will rebound, although the new jobs created might require different skills. That still leaves high-tech workers in better shape than other industries, he said.

"I view the setbacks in tech as temporary," he said, "whereas if you're talking about old-style manufacturing, those jobs are gone forever."

Before angry IT workers start posting comments, let's make it clear that I'm not claiming that it's a rosy jobs situation for IT workers. But some of the unemployment numbers sound a bit overstated. And what this report does not say -- indeed, the quoted paragraph acknowledges that that the authors can't say -- is the extent to which offshore outsourcing is responsible. There's no attempt to parse out the relative explanatory power of each possible cause (dot-com bubble, Y2K overhiring, productivity gains combined with slack demand, offshore outsourcing, etc.)

UPDATE: Some of the press reportage of this study has been very good on pointing out the flaws in the report. Barbara Rose's story in the Chicago Tribune has the following:

The American Electronics Association, which represents high-tech employers, agreed with the report's data but said the industry's outlook is brighter than the study suggests.

The group argued it is misleading to measure losses starting in 2001, when employment was near a historic peak.

"There was so much venture capital being thrown at the tech industry, it was a spike, a bubble, an abnormality," said Matthew Kazmierczak, the association's research director.

He said employment has been growing since January in categories included in the study.

Economist Bill Testa, director of regional programs at the Federal Reserve Bank of Chicago, said he was not surprised the Chicago region lost 16,400 jobs, including 10,200 after the official end of the recession.

"We really did take it hard in that area," he said. "We were late getting going with a lot of new companies being created near the end of the boom, and we went down hard."

The study defines IT employment narrowly, focusing on software firms, Internet service providers, data processing and computer systems design companies. It excludes high-tech manufacturing and the large numbers of IT jobs at financial-services firms and other companies.

The study identifies 47,000 information technology jobs in greater Chicago. By contrast, a University of Minnesota study identifies 347,000 IT workers in the Chicago area.

"It all depends on the methodology," said Paul O'Connor, executive director of World Business Chicago. "There's still been demand for skilled IT people."

This is from Diane Lewis' Boston Globe story:

Staffing agencies and recruiters in the Boston area said demand is up for individuals with project management experience or unique IT skills but not necessarily for those with basic skills. They said the demand appears to be in the financial services sector.

"A lot of what we are seeing is some demand for software engineers in the financial services area and stronger demand for the infrastructure people," said Aaron Green, president of the Professional Staffing Group, an employee staffing agency in Boston. "We have not seen a lot of demand for software outside of financial services."

posted by Dan on 09.14.04 at 04:56 PM


if i cannot out program an another person no matter what country they come from then they deserve my job.

posted by: cube on 09.14.04 at 04:56 PM [permalink]

Well, I know 3 Bill Joy class software engineers who spent three years between 2001 and 2004 sending out 100+ applications a month and only getting a number of interviews among them countable on one finger (and that company went out of business before his start date). If there was a job to be had one of them would have gotten it, I assure you. The short of is that during that period, if you were out of work, and you didn't already have a Top Secret/SCI microscope up your nether regions security clearance then there were no jobs to be had anywhere in the country (and probably not outsourcing happening either) and if you had a job there was no way short of death you were giving it up. On the other hand if you had one of those security clearance you could practically name your price because there was such an undersupply of cleared people.

posted by: patriotBoy on 09.14.04 at 04:56 PM [permalink]

if i cannot out program an another person no matter what country they come from then they deserve my job.

In many cases, it's not a matter of "out programming" someone, it's a matter of underbidding them. Oh, and please don't comment any code I have to end up reading.

posted by: The Lonewacko Blog on 09.14.04 at 04:56 PM [permalink]

There is something significant happening to the IT field. Job opportunities are limited and pay rates have been at least halved in the last 3 years.

The problem is NOT with outsourcing, although it is a factor, disregarding work sent offshore. A certain type of IT work can be sent to India, but much of what has been sent there has been a failure (at least based on word of mouth). For example, a certain telecom equipement maker had been an InfoSys customer, but they backed off and have been sending work to Chinese employees of the company. The work had to be sent offshore to save money, regardless of how well it got done. This was driven by upper management who were driven to cut costs.

Much of what is happening seems to be driven by the desire or need to cut costs, even if there are impacts on the business.

In regional markets, there has been something like a depression in the IT field. Dallas is a good example. We just got the bad news about the massive EDS layoff.

The question remains as to the reason for what has happened. Is it all due to the economic downturn? Is it also partly due to Sarbanes-Oxley and the damage done by Elliot Spitzer?

posted by: Jim Bender on 09.14.04 at 04:56 PM [permalink]

I'm in Sys/Net admin, the kind of stuff that is supposed to be much less likely to be outsourced. Compared to admin, programming jobs are plentiful in the Chicago market. It's just started to turn around in the last few weeks for admins. The idea that this is an outsourcing issue is ludicrous. If it were, Admin demand would have been steady with programming being the lagging indicator.

posted by: TM Lutas on 09.14.04 at 04:56 PM [permalink]

All you have to do is go to the BLS and look at employment in informations services. It tried to bottom earlier this year, but has now turned down again. It is now at 3.1 million vs. the 3.7 million peak in March 2001.

posted by: spencer on 09.14.04 at 04:56 PM [permalink]

I work in a mid-sized IT shop. All you have to do is open your eyes; our shop looks like the United Nations. This was not true 5 years ago, and this is predominantly the case in all of the shops I am familiar with in this area (a significant majority). Try finding a job, and you will see what effect outsourcing has had. Perhaps productivity has has an effect, but how can you explain the vast majority of new people appearing in our shop being non-American? Further, can anyone argue that the majority of our manufacturing has been outsourced? You people need to wake up.

posted by: Dan P on 09.14.04 at 04:56 PM [permalink]

“if i cannot out program an another person no matter what country they come from then they deserve my job.”

I’m such a mean person. Let’s have some fun:

if i cannot out program an another person no matter what state they come from then they deserve my job.

if i cannot out program an another person no matter what city they come from then they deserve my job.

if i cannot out program an another person no matter what street they come from then they deserve my job.

We all outsource! You almost certainly, for instance, did not manufacture the automobile sitting in your driveway.

posted by: David Thomson on 09.14.04 at 04:56 PM [permalink]

“Further, can anyone argue that the majority of our manufacturing has been outsourced? You people need to wake up.”

We should focus our concern on the consumer. Are they paying less for their products and services? If that’s the case---then everything is working out fine. All economic improvements result in some people being hurt. These impacted folks must simply find another way of earning a living. At the most, we perhaps should assist them in this endeavor.

posted by: David Thomson on 09.14.04 at 04:56 PM [permalink]

The thing that amazes me about all this is that all these people are just skipping right past the obvious.

Jobs follow the economy by 12-18 months, remember? Well in this case, tech jobs followed the NASDAQ market bubble by ~14 months (NASDAQ was the principle capital market that funded expansion, not GDP). Look at the data yourself.


Information Jobs

See a pattern? duh

posted by: Ursus on 09.14.04 at 04:56 PM [permalink]

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