March 9, 2004
Lingering Job Insecurity of Silicon Valley
or computer scientists and engineers, the 1990's were close to paradise - until the technology boom collapsed. But even as business has started to pick up again, the job market they operate in has become the toughest ever.
While this group represents a comparatively affluent sliver of the American work force, it illustrates the broader forces - higher productivity, cost-cutting business practices and increased global competition - that have combined to make job growth throughout the American economy so frustratingly sluggish.
The Commerce Department reported Friday that the economy added just 21,000 jobs last month, another disappointing performance, particularly when the economy has been growing strongly since the summer and corporate sales and profit are rising.
Well-educated technology workers have long been at the forefront of American economic growth and innovation, used to working in a field where rapid change is the rule. As markets shift, new technologies emerge and companies die. Yet such changes typically meant little more to these employees than moving rather easily from one well-paying opportunity to the next.
That is no longer the case. An upturn in demand for all kinds of workers, including those in technology, may be just around the corner, economists keep saying, but David Friedman has seen no evidence of improvement yet. Mr. Friedman, an experienced software engineer in Austin, Tex., moved from one job to another during the boom years of the 1990's. But his last job ended in March 2001, shortly before the software start-up where he was working closed.
Mr. Friedman, who holds a Ph.D. in electrical engineering, has found little demand for the kind of software design work that is his specialty. Building software, he observed, is "becoming the equivalent of blue-collar work."
Unemployment has risen sharply in computing, making it more like blue-collar work in that sense. The unemployment rate last year among computer scientists, for example, was 5.2 percent, the highest level since the government began tracking this work as an occupation two decades ago. In most of those years, the unemployment rate for computer scientists was under 2 percent. Similarly, unemployment among electrical engineers last year, at 6.2 percent, was the highest in 20 years, according to the Bureau of Labor Statistics.
By comparison, the unemployment rate for all workers, skilled and unskilled, averaged 6 percent last year, a much smaller increase from the low point of joblessness around 4 percent for 2000, and well below the 7.8 percent jobless-rate peak of the early 90's.
The persistence of record high unemployment among skilled computer engineers suggests that something beyond the usual up-and-down cycle of business is at work.
"You have multiple effects going on: automation, outsourcing and business strategy all playing a role," said Ronil Hira, an assistant professor of public policy at the Rochester Institute of Technology. In the 90's boom years, companies scrambled to invest in new technology and hire technology experts, eager to tap the new markets of the Internet and fearful that dot-com start-ups might put them out of business.
Despite exaggerated claims for the Internet, most companies still operate on the premise that Internet-era technologies can deliver large benefits to their businesses, enabling improved communications with suppliers and customers, better competitive intelligence and quicker responses to shifts in the marketplace. But in a big switch from the past, most companies are now intent on using the technology investments they made in the boom years more efficiently, which means employing fewer technology workers.
"In the last few years, companies have been totally focused on cost-cutting," said Erik Brynjolfsson, a professor at the Sloan School of Management at the Massachusetts Institute of Technology. "The pendulum really swung, and that has led to a lot of the slow job growth."
One way companies have cut costs is to send some computer-programming technical support work to developing nations, like India, where programmers are paid a fraction of American wages.
Lisa Pineau of Plano, Tex., lost her job as a programmer of large mainframe computers in November 2002, as the work was taken over by an overseas contractor. Her $45,000 salary was the second income in her family, but since she lost her job her family has had to refinance its house and sell one of its two cars. Ms. Pineau's husband, Pat, is a manager in the computer center of a bank, and some of its technical work is being sent to an outsourcing company in India. "If Pat loses his job, we're in trouble," Ms. Pineau said.
The reassignment of jobs abroad has become a political issue in this campaign year. Yet the offshore outsourcing trend, industry analysts and economists say, mostly points to a new round of global competition, resulting from low-cost computers, high-speed Internet connections and the entry into the world economy of countries with large, well-educated work forces like India and China.
Assuming that the American work force can upgrade skills and, where necessary, move to new jobs, according to many economists, most people are likely to benefit. And so far, these economists argue, the effect of offshore outsourcing on American jobs and wages in general has not been great.
"The impact of outsourcing is overblown," Professor Brynjolfsson said. "The far larger factor is substituting technology for labor."
As a student programmer, Marc Andreessen and a friend built what became the first commercial Web browser, and he was a co-founder of Netscape Communications, a company that ignited the Internet boom. Today, Mr. Andreessen is chairman of Opsware, which makes software that helps companies run computer data centers more efficiently, with fewer people.
Data centers are high-technology engine rooms of modern commerce, used in handling everything from banking transactions to manufacturing operations to buying supplies to tracking customers. In the 1990's, companies built up their data centers rapidly, adding computers, software and lots of people. The traditional rule of thumb, Mr. Andreessen said, is that a data center needs one human handler, or system administrator, for every 20 machines. With Opsware's software, that ratio can be sharply reduced, to one person for 50 to 150 computers.
In computer data centers, technology - from start-ups like Opsware and big companies like I.B.M. and Hewlett-Packard - is increasingly being substituted for human labor, much as that process has unfolded for decades on factory floors.
"It's very analogous to manufacturing," Mr. Andreessen said.
Such cost savings increase productivity as companies generate more goods and services with fewer workers. And the technology business in general is quite productive, and that seems to be particularly so in the industry's heartland of Silicon Valley.
Doug Henton, president of Collaborative Economics, a consulting firm in Mountain View, Calif., said that the average technology company in Silicon Valley generated about $200,000 in goods and services for each employee last year, up 9 percent from 2002. That is double the roughly $100,000 produced per employee by technology companies nationwide, and the $87,000 generated by the typical American company.
Using that perspective, productivity is the engine of national prosperity and high-paying jobs. A study by the Commerce Department last year found that the average annual wage for workers in information technology industries was $67,440 in 2002, compared with $36,520 for all private-sector workers.
Higher productivity also led to improved profit recently for technology companies. The industry's sales, after a two-year downturn, recovered a bit last year, and total revenue in the United States is projected to grow nearly 5 percent this year, to $394 billion, according to the International Data Corporation, a research firm. Indeed, recent sales figures have been coming in stronger than expected, suggesting that growth could be still higher. "All the numbers are rolling in higher than we expected," Kevin White, an economist at I.D.C., said.
So what might be the ingredients for new hiring, industry growth and profit, appear to be falling into place. Yet as long as companies remain focused mainly on reducing the expenses of their computer operations, job growth may be slow.
"The productivity and cost-cutting are impressive but it means less hiring," said Steven Milunovich, a technology analyst at Merrill Lynch. "What we have not seen is a lot of new technology projects inside corporations."
Yet a shift may be imminent. A survey of more than 450 chief executives worldwide, sponsored by I.B.M. and released last month, found that 80 percent of the executives planned to shift their primary goal this year, from cost-cutting to projects intended to generate new growth.
If so, it ought to be good news for skilled, out-of-work engineers like Mr. Friedman, the Texas software designer, who remains eager to work on innovative new projects.
"Eventually companies are going to realize they still need creative people,'' he said, "not to do coding, but to do high-level design."