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Robert Reich on Technology's Impact on Job Loss in America

September 22, 2003 — CIO — I.T. employment is down 20 percent since early 2001. Salaries are down too. In 2000, senior software engineers earned up to $130,000. The same job now pays no more than $100,000. In 2000, entry-level computer help desk staffers earned about $55,000; now, $35,000.

The main reason is the lousy economy. First came the loud pop of the high-tech bubble, then 9/11, then corporate fraud. Since the start of 2001, 2.6 million private-sector jobs have disappeared in America. It’s been the longest job-market downturn since the Great Depression.

Add in productivity gains that have been growing much faster than the economy, especially in technology sectors, and you’ve got even less need for labor. Machines can do more. The enormous productivity gains brought on by IT itself has, ironically, reduced the need for many midlevel project managers. Economic output has expanded at an annual rate of 2.7 percent since the fourth quarter of 2001. During the same period, worker productivity (output per hour of work) has expanded at a rate of 4.2 percent. That gap between economic output and productivity is the widest yet. Until growth catches up with productivity gains, don’t expect a lot of jobs to return.

But there’s a third reason: the trend toward the global outsourcing of IT. This year, more than half of all Fortune 500 companies are outsourcing some software development. It’s estimated that by 2005, more than 80 percent of such companies will join the trend. American financial services companies expect to transfer half a million jobs—9 percent of financial services employment—to foreign nations during the next five years. U.S. technology companies now pay foreign organizations $10 billion a year to handle data entry, analysis, customer service and computer programming.

Don’t get me wrong. Global outsourcing is a small factor relative to the bad economy and the productivity gains wrought by automation. The number of IT jobs sent abroad still accounts for a tiny proportion of America’s 10-million-strong IT workforce. But there’s no doubt that the trend is gathering steam.

The reason is that foreigners can do a lot of IT jobs just as well and much more cheaply than they can be done in the United States. The starting salary of a software engineer in India is around $5,000. Experienced engineers get between $10,000 to $15,000. Top IT professionals might earn up to $20,000.

Their numbers are growing. India, where the bulk of foreign IT jobs are, already has 520,000 IT professionals. It’s adding 2 million college graduates a year, many of whom are attracted to the burgeoning IT sector.

 

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