Taking the measure of IT's pain

Economist Jared Bernstein talks about how the tech economy's rise and fall is changing job prospects for even the most skilled high-tech workers.

Ed Frauenheim
Ed Frauenheim Former Staff Writer, News
Ed Frauenheim covers employment trends, specializing in outsourcing, training and pay issues.
4 min read
There are many anecdotes about how badly high-skilled workers are feeling the tech economy's pinch. Now economist Jared Bernstein has provided a statistical snapshot of the measure of their pain.

Bernstein, who works at the Economic Policy Institute and studies Labor Department data, found that inflation-adjusted wages for professional and technical workers have indeed fallen. Meanwhile, unemployment for mathematicians and computer scientists has risen to its highest level since the Bureau of Labor Statistics started collecting the data in 1982.

Bernstein discovered that the unemployment rate for mathematicians and computer scientists climbed from around 1 percent in the latter 1990s to around 5 percent at the end of 2002--twice that of the increase in the overall unemployment rate.

On the wage front, there similarly wasn't much to write home about. Non-inflation-adjusted wages for professional and technical workers grew 1.7 percent between the fourth quarter of 2001 and the fourth quarter of 2002, Bernstein concluded. That also happens to be the smallest increase since the Labor Department first collected that data in 1976.

Bernstein, a former deputy chief economist at the Labor Department, recently spoke with CNET News.com about his research into the challenges facing IT professionals and other skilled workers in the economy.

Q: You concluded that unemployment is rising and real wages are falling for so-called New Economy workers.
A: The fourth quarter of 2002 was the slowest rate of wage growth on record for the group. In the first quarter of 2003, their wage growth was 1.8 percent over fourth-quarter 2002--that's way behind inflation. Not a pretty picture for these skilled white-collar workers.

The bottom line for me is that in many policy discussions we argued that your skills will insulate you from the ups and downs of the New Economy; this latest downturn has proved that to be a pretty dubious contention. Many highly skilled workers are being battered around pretty good by the economy right now.

What's the cause?
This was a sector that was correctly believed to have fueled faster productivity growth, and accurately credited with delivering high rates of return. So firms began to overinvest. It became a speculative bubble. The bubble burst, and demand sharply dropped for IT goods and highly skilled employees.

What kinds of jobs are included in the "professional and technical workers" category? Does it include lawyers and accountants?
I would think so. Other professionals include engineers, computer scientists, doctors, teachers and scientists.

What percentage of those workers are high-tech employees?
I would say definitely a minority.

What should be done for these workers?
In time, demand for IT will return. It's not like these folks need training. The best thing we can do is get the economy going so they can bring their skills online. As an aside, the Bush plan will not help much. To the extent that it generates growth, it's a long-term plan.

Also, we should extend unemployment benefits. At some point--I'd guess in about a year--demand for IT is going to come back. It won't come roaring back, but it's a key part of our economy. Until it comes back, we need to help those folks meet ends.

To what extent is the trend toward outsourcing IT work overseas behind your numbers?
The results I've been citing are driven by the bursting of the over-investment bubble. At the same time, when IT firms are looking to cut labor costs, a cheap foreign worker looks all the more attractive right now.

IT workers are rightly concerned about the impact of outsourcing. First the pundits told them to get IT skills. Now they're competing with much-lower-wage workers that are a modem call away. They're also worried about the H-1B (guest worker) program.

In the long run, will the impact of overseas outsourcing to countries like India and China shrink the U.S. IT work force?
It will not get smaller. It's going to slow the growth of the sector quite dramatically, but we're going to need a domestic IT sector.

Should the H-1B program be curtailed, or eliminated altogether?
I think it makes a ton of sense to curtail using H-1B workers in the IT sector, since that sector is so oversupplied. Killing the program seems too extreme.

The Meta Group recently found that wages were rising for IT workers, by 5 percent on average. How do you reconcile that with your studies?
It's not impossible. Certainly the anecdotes in the industry (are that) people are taking big pay cuts. That market survey is pretty peculiar given what we know. On the other hand, they may be tapping an early indication that things are improving.