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July 20, 2005
Future of US software jobs
Over the last few days, Business Week Online has run a couple of optimistic stories of the software labor market. According to "A Hire Power Blesses Tech":
The job market for tech professionals, clobbered in the 2000 stock market crash, finally is starting to come back. A new survey compiled by Dice, an online job-listing service for engineering and tech professionals, shows a vastly improved employment picture.According to the Scott Melland, Dice president and CEO, the hot markets are the financial sector in New York and the defense sector in Washington. He downplays the concern over outsourcing:
the total number of jobs outsourced to other countries is about 400,000. Only 100,000 of those jobs are pure tech jobs. The rest are call center-type jobs. When you consider that there are 10 million tech jobs in the United States, outsourcing is really a very small part of the overall market. Outsourcing is growing, and it makes sense for a lot of companies, but it's still very small.
One of the reasons for all this optimism is the belief that the US is still the spot for high-end programming jobs. As BW relates in "Home Is Where The Work Is":
The latest data from the Bureau of Labor Statistics contain a pleasant surprise: The ranks of "computer and mathematical occupations," which include many programmers, actually rose in the second quarter by a robust 7.5%, to 3.2 million, compared with the previous year. While software companies themselves boosted jobs by a modest 3.3%, employment at establishments providing custom programming services increased by 5.6%. By contrast, tech manufacturing jobs were up just a tad and telecoms are still cutting staff.
Why the shift? A couple of reasons. High-end programmers' skills are in demand as corporations and tech companies adopt a slew of new technologies from wireless computing to Web services -- pieces of software that fit together like Lego blocks. That makes it easier to add new features and to integrate one program with another. A second factor: While Indian service firms and their Western rivals are hiring lots of programmers overseas, they're also recruiting people with design skills and business knowledge close to their clients in the U.S. and Europe. "You always need programmers on site or nearby," says analyst Gregory Smith of Merrill Lynch & Co.
Not so fast, says Ron Hira, co-author with Anil Hira of Outsourcing America: What's Behind Our National Crisis and How We Can Reclaim American Jobs. Ron is a realist on the outsourcing issue: he believes that outsourcing will continue but that we can create strategies to adapt (see yesterday's posting Confronting Offshoring) I asked Ron for his comments about the future of US software jobs. First of all, on the increase in software jobs:
The quarterly data by occupation is noisy. It is based on the Current Population Survey rather than the Establishment Survey. Having said that, I do think the labor market has gotten better from last year, which was horrible. I am hearing that people are getting positions, but I wouldn't call the hiring robust in any sense. And let's put the numbers in some perspective. Military spending and computer security spending have kicked in increasing demand. The IT tech/product cycle may be picking up, which has little or nothing to do with offshoring.
On the assertion that Indian companies are hiring locally in the US:
All of the Indian IT majors (Wipro, Infosys, Tata, and Satyam) as well as US based Cognizant, which has the same business model, hire foreign nationals on H-1Bs and L-1s for their on-site delivery to clients in the US and Europe. Just look at the financials. Infosys has ~5,050 people in the US on-site - all on H-1Bs and L-1s. They have a few hundred US citizens and permanent residents. Tata has about 7,200 in the US on H-1Bs. Accenture is increasingly using this business model also.
This is a critical part of their business model and they have enlisted the Indian government to negotiate through the WTO GATS as well as bilaterally to lift the H-1B cap and to eliminate other US worker protections like the prevailing wage requirement.
Ron did point out one irony in the BW article - which points to the success of one of the 3000 new programs hired by Accenture in the last nine months:
And Accenture just announced that they are going to hire 30,000 (that's not a typo) people in India, China and the Philippines. And look at how much hiring all of the Indian IT majors have done recently. Also Accenture is increasingly hiring H-1B workers too. They hire "Chief Computer Programmers" at $25,113 per year on H-1Bs.[Note: another source puts the number of Accenture's planned overseas hires at 50,000.]
Finally, Ron on the future of software jobs:
Of course the top people in their professions will do fine - they generally do. The problem is not with the top 5% or 10%, the problem is what happens to the 90% of the rest of us.
I do think that the market has gotten better based on my discussion with many IT workers and engineers. But we aren't seeing any robust job growth. Plus, we're just at the beginning of the offshoring trend. Companies are moving from pilot stage to full deployment. They will figure out how to send more high-level positions offshore.
Ron also pointed out that just yesterday, Morgan Stanley downgraded its investment rating of Cap Gemini, partly because of its relative lack of offshoring.
According to an article in The Economic Times of India, "It's desi giants Vs IBM, Accenture now", Indian companies and Multi-National Companies (MNCs) are both expanding their offshoring capabilities:
Even as Indian companies race to global markets to expand their offshore model, MNCs are racing to low-cost destinations to realign their cost structures. According to outsourcing consultant, TPI, out of the deals tracked in 2004, 40% of IT services had an offshore component. TPI has seen a 10-fold jump in value outsourced to Indian offshore vendors over the last two years.
As that article points out:
the IT outsourcing environment is changing, and the changes may favour the offshore players. For example, the dollar-billion plus IT outsourcing mega deals, where the likes of IBM, Accenture, and EDS played exclusively, are on the decline. Indian companies didn't have the expertise and balance sheet sizes to compete for these deals, which required expertise in working with running businesses. Now the customers are splitting the deals into smaller parts, and selectively doling them to the vendors. And Indian companies are benefiting, since they are strong candidates for the offshoring part of any deal, which happens to be the juiciest.
The Indian companies may be behind in the most sophisticated software areas, but that doesn't mean the work is being done in the US. The big US MNCs are shipping the work to many places:
Some are positioning India as one of the destinations, and not the only destination. For example, EDS is investing in other low-cost geographies like Brazil and Argentina. IBM delegates a lot of work to its Brazil Global Delivery Centre and Accenture sends a lot of its work to Manila.
All of this means continued international competition in the software labor market. The BW story did contain one note of warning:
The pressure is still on to avoid getting stuck in routine programming jobs that can easily be moved offshore, and many likely will be in coming years. "This is going to be a less and less attractive occupation for people with entry-level skills," says David Garlan, director of software engineering programs at Pittsburgh's Carnegie Mellon University.
But, as Ron asks:
How do undergraduate students gain more than entry-level skills?
If there are no jobs with entry-level skills, how does one enter the labor market? Sounds like we are setting up the old Catch-22 that has always hurt the lower end of the labor force: to get a job, you need significant work experience; but you can't get work experience unless you can get a job.
And Bill Gates laments decreasing interest in programming and wonders why young people are going into to the field? As Ron pointed out in response:
Among the statistics he cited: The U.S. unemployment rate for computer occupations was 4.3 percent in 2004, noticeably worse than the 2.8 percent unemployment for all professional occupations in the same year, according to an analysis of federal employment data by the U.S. division of the Institute of Electrical and Electronics Engineers.
In that context, Gates' assertion seems "pretty implausible," Hira said, adding that part of the problem may be Microsoft's specialized requirements for candidates: "I think they reject a lot of people that may, frankly, be well qualified for the positions."
Clyde Prestowitz may have the ultimate story about the fear that permeates the software community. In his new book, Three Billion New Capitalists, Prestowitz relates a 2003 conversation with his son, a high-level software developer about investing in a Tahoe snow removal company:
"But what on earth are you doing," I exclaimed, "going into something as mundane as snow plowing?"
"Dad," he said, "they can't move the snow to India."
I wonder what Bill Gates' and Business Week's response is to that.
Posted by Ken Jarboe at July 20, 2005 8:19 AM
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