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.”