National Research Council Committee: The basic economic model is the following: Demand for labor relates the number of jobs that are available as a function of the compensation that employers are willing to offer for those jobs. Supply of labor relates the number of people willing to work as a function of the compensation that employers are willing to offer. When demand exceeds supply in a particular occupation, compensation tends to rise relative to compensation in other occupations that require similar education, effort, and working conditions. Rising compensation attracts into a field more people who are willing to work (increasing the current supply), decreases demand for those workers, and signals to those capable of being trained to begin studying for these jobs (increasing the future supply of new entrants).
To the extent that compensation does not rise, the signal is not sent to labor market entrants, and thus the potential labor force for these occupations is sparser than it would otherwise be. Potential workers seeing rising compensation in IT will move preferentially into the IT field by preparing themselves by education (in the case of students selecting courses of study) or by retraining in the appropriate disciplines for IT work (in the case of workers in other occupations). Typically, the greater are the incentives provided by employers to induce workers into the occupation of interest, the quicker and greater will be the response by potential entrants. This phenomenon works to restore equilibrium, and over time, a new equilibrium is reached at a new intersection of the labor supply and demand curves (with higher compensation and more workers).
J. Scott Orr: The Utah-based school is attracting some of America's most driven students with a promise of high-paying jobs in the tech sector upon graduation. Since classes began in 2004, there have been 286 graduates, 94% of whom quickly landed jobs at an average annual salary of $62,000+.
Ron Hira: Let the market work. If technology workers are as scarce as companies claim, then wages would be bid up and talented workers would choose engineering instead of more lucrative and safe fields in finance, medicine or law.
Joe Walker: A new report from the National Association of Colleges and Employers finds that eight of the top 10 best-paid majors are in engineering, with petroleum engineering topping off the list at $86,220.
Computer science was the fourth most lucrative degree, with graduates starting at $61,205 on average. The average salary for computer science majors has increased by at least 5% each year since 2007, said Mr. Koc.
The other non-engineering major in the top ten is information sciences and systems, with an average starting salary of $54,038. [T1]
NACE's salary figures are based on 1,558 job offers received by college seniors at about 180 colleges and universities nationwide. Both December 2009 graduates and May 2010 graduates are included. This is the first of four quarterly reports that NACE will release on the class of 2010.
A major had to have at least 20 job offers to be included in the top ten.
Ron Hira: More recently, we've seen some growth in the wages for newly minted bachelor's degree computer scientists, according to the National Association for Colleges & Employers. Salaries for those entry-level jobs rose from $50,744 in 2006 to $53,051 in 2007, an increase of 4.5%. But those gains were almost completely gobbled up by inflation, which ran about 4.3% in 2007.
Ron Hira: Wages for information technology workers have been relatively flat while the career risks for the profession have skyrocketed.
National Research Council Committee: It is important to point out that data from government and private sources are gathered and aggregated according to different definitions and methods, and—in general—demonstrate different results. Because of differences across surveys in definitions (especially with regard to occupational titles) and methodologies, the committee believes that it is not appropriate to compare salary growth rates obtained by different surveys. However, it is reasonable to draw conclusions from differences among occupations and regions within a given survey.
For example, data from private sources tend to indicate higher rates of annual salary growth for IT workers—especially those in certain occupations—than do government data. Government data sets such as the CPS and OES are based on job titles that are consistent from year to year and provide data that support time-series analysis—an approach that works especially well for long-established industries that change relatively slowly and in which the job responsibilities encompassed by various job titles are relatively clear and stable. However, in a rapidly changing industry such as IT, job titles appear and disappear quickly, and a given job title can cover a broad range of responsibilities. Thus, data on wages for job titles that are consistent from year to year, as in BLS surveys, may well mask wage indicators for different jobs subsumed within those titles. By contrast, private surveys—because they are not intended to support time-series analysis—are more likely to use job titles that are more highly differentiated and more closely reflect the current set of IT occupations, including those that have emerged more recently.
Barnow et al. point out that while the CPS weekly earnings series shows only average wage growth among IT workers, other salary surveys and anecdotal evidence on wages of IT workers suggest much higher levels and higher growth in wages, especially among the most highly skilled computer workers. In a survey of compensation conducted for ITAA, William M. Mercer found that average hourly compensation for information technology workers had increased substantially between 1995 and 1996. A survey conducted by Deloitte & Touche Consulting Group revealed that salaries for computer network professionals rose an average of 7.4% between 1996 and 1997. Coopers and Lybrand found that the average salary increases at 500 software companies were 7.7% in 1995 and almost 8% in 1996. Computerworld 's annual survey found that in 11 of 26 positions tracked, average salaries increased more than 10% from 1996 to 1997. According to this survey, systems analysts' salaries increased by 15%, programmer/analysts' salaries were up by 11%, and directors of systems development had salary increases of 10%. In 1997, starting salaries for graduates with bachelor's degrees in computer science had increased to an average of $36,666, while experienced programmers received salaries in the range of $45,000 to $75,000. The wage rates and wage growth reported in the Mercer study are far higher than not only the CPS weekly earnings data but also the data from other private surveys and the BLS employer survey data.
National Research Council Committee: A common view held by those who do not believe that there is a “real” labor shortage of IT workers is that employer difficulties in finding suitable workers stem primarily from an unwillingness to invest more in human capital, both in the form of higher salaries and other compensation and in the form of training (and retraining). They further believe that employers' desires to minimize labor costs lead them to favor younger workers and foreign workers because their services can be acquired less expensively than would be the case if older workers and/or permanent U.S. workers were hired.
Rosenberg: In a market economy, there's really no such thing as a true shortage. If you want more of something, you can pay more and have it. When employers say that there's a worker shortage, what they really mean is they can't get enough workers at the price they want to pay.
The simplest way to gauge whether there's a worker shortage is to look at the price of labor. According to the basic laws of economics, the tighter the supply of labor, the more it should cost. So if the economy were operating with full or near-full employment, we would be seeing an "explosion in labor compensation.
The price of labor, however, is hardly surging. In fact, key indicators of employee costs show they are tracking or trailing inflation. Average hourly earnings are running at 3.9% year over year, and the employment cost index is at 3.5% year over year.
Yardeni: Employee costs are not an accurate yardstick. Workers are currently paid according to how productive they are, and it would be destructive to raise wages "willy-nilly" to attract more workers. That is, employers can only afford to pay workers in keeping with their value, and not solely to fill positions. In a competitive global marketplace, the only way you're going to pay workers more and manage to stay in business is to tie compensation to productivity.
Alan Greenspan: ... imbalances in the labor markets perhaps may have even more serious implications for inflation pressures. While the pool of officially unemployed and those otherwise willing to work may continue to shrink, as it has persistently over the past 7 years, there is an effective limit to new hiring, unless immigration is uncapped.
At some point in the continuous reduction in the number of available workers willing to take jobs, short of the repeal of the law of supply and demand, wage increases must rise above even impressive gains in productivity. This would intensify inflationary pressures or squeeze profit margins, with either outcome capable of bringing our growing prosperity to an end.
National Research Council Committee: In theory, even if all employers did comply with the law, the hiring of H-1Bs could have an effect on wages. To see this, assume that an employer—seeking to comply with the law—does in fact offer an H1-B the same wage that it pays for a domestic worker doing the same job. On the face of it, such an action both complies with the law and is regarded as “fair” treatment.
However, if the H-1B were not available, the employer would have to seek a domestic worker. Under tight labor market conditions, the employer might well have to offer a domestic worker wages or hours or conditions of employment that are better than those for others in the company. If so, the effect of the H1-B program is not necessarily to depress wages and working conditions but rather to keep them from rising as rapidly as they would if the program did not exist.
Unfortunately, the magnitude of such an effect is hard to estimate with confidence. In a study of the economic impact of immigrants, the National Research Council used an empirically based elasticity of demand for labor of about 0.3, suggesting that a 10% increase in the size of the labor force would result in the wage of competing workers being reduced by about 3% below what it would have been in the absence of that labor pool increase. However, this estimate is based primarily on studies that have focused on all foreign-born individuals and not only “highly skilled” foreign workers, such as those with H-1Bs.
As such, the committee has not found sufficient evidence on the magnitude of wage and employment effects to make a judgment about the effects of the program on domestic IT workers.
National Research Council Committee: economic theory implies that an increase in the supply of IT workers, including temporary nonimmigrant workers, will cause the corresponding IT wage rates to be lower than they otherwise would have been. Theory alone does not imply any particular numerical magnitude of this effect.
It is the committee's judgment that the current size of the H-1B workforce relative to the overall Category 1 IT workforce is large enough to exert a nonnegligible moderating force that keeps wages from rising as fast as might be expected in a tight labor market.
Ben Worthen: The average information-technology pro made $78,035 last year, a 4.6% increase from 2007, according to tech job site Dice.com, which surveyed close to 20,000 of its visitors. Security analysts got the biggest raises in 2008, with an average salary increase of 8.4% to $86,778. Software engineers were next, with an increase of 7% to $90,031. Application developers got a 6.6% raise to $84,672.
Overall, IT managers had the highest salaries, raking in $111,998 in 2008. Database administrators made $89,742, and network engineers took home $72,496. System developers were the only group tracked by Dice.com to get a pay cut in 2008, with the average salary dropping 1.3% to $87,211.
IT workers in Silicon Valley were the highest paid, with an average 2008 salary of $97,259. That’s followed by Washington D.C. ($86,841), Los Angeles ($86,766), New York ($85,452), and Boston ($84,627). But it was workers in smaller cities—Charlotte, St. Louis, Pittsburgh, Portland, Ore., and Baltimore—that received the biggest raises.
The survey was conducted between August 27 and November 15, so the salaries don’t necessarily reflect cuts that were made recently. Many businesses have trimmed their IT budgets and cut staff over the last few months.
Phyllis Korkki: According to data from the Bureau of Labor Statistics, employment in Silicon Valley high-tech industries — which were among the most heavily damaged in the storm — fell by 17% from 2001 to 2008. But that doesn’t tell the whole story.
Across the board, though, wages rose — by an average of 36% over the period.
National Research Council Committee: One important indicator of a dynamic labor market with strong demand for workers is rising compensation. Rising compensation levels may indicate strong demand that leads to bidding up of the amount that employers are willing to pay at the margin for labor.
Data from U.S. government and private sources provide evidence that annual salaries —one component of compensation—for IT workers have been growing at a faster rate than employee salaries in the economy generally. As a rule, those employed by IT-producing and IT-intensive firms hold high-wage jobs, and the earnings gap between wages for these jobs and average wages (even of skilled workers) continues to grow. A Department of Commerce study indicates that wages for those employed by IT-producing firms are significantly higher and have grown faster than average wages across all private sector industries, particularly so for workers in the IT software and services industries. Similarly, as shown below, annual salaries for employees in the Category 1 IT occupations as surveyed by the CPS have been increasing faster than employee salaries in the economy generally.
Salary growth rates for IT occupations, however, vary over time, among types of IT workers, and among geographic regions. Of note is that compensation is rising fastest for employees who are able to bring current “hot” skills to their employers.
National Research Council Committee: As a rule, rising relative compensation is seen by economists as the most reliable indicator of tight labor markets or shortages. Current Population Survey (CPS) data indicate average annual wage increases in constant dollars of 3.8 and 4.5% for computer programmers and for computer systems analysts and scientists, respectively, during the period from 1996 to 1999, rates somewhat higher than the average annual wage increases of 3.2% for professional specialty occupations.
Does such an increase in wages over this time period warrant a conclusion of an IT labor shortage? Because there is no universally accepted wage indicator of shortage, this question does not have a definitive answer.
Ron Hira: A key indicator of tightness in any labor market is wages--more specifically, whether wages are rising much faster than the norm. IT worker wages grew by a modest 2.9% in constant dollar terms from 2003 to 2005, according to Department of Labor data compiled by the Commission on Professionals in Science & Technology (CPST). This increase is indeed greater than the average 0.6% growth for all professional occupations, but the gains for IT workers were hardly robust and don't indicate any significant scarcity.
National Research Council Committee: Another reason for paying comparable wages rather than higher ones —whether to incoming domestic workers or to foreign workers—is that they may well influence the wages that must be paid to others in the firm.
National Research Council Committee: There are several practical difficulties with using wage data to determine the existence of a labor shortage. For example, raising wages may be one of the last things employers do to respond to a shortage, so the evidence for tightness in today's labor market may not be reflected in the data cited. An employer may be reluctant to raise wages for incoming workers because of concerns over equity and morale within the firm. Most serious, though, is the fact that [DoL's] BLS wage data are incomplete.
In particular, BLS data on base wages do not reflect the complexity of compensation packages—they do not reflect variable pay such as project bonuses, hiring bonuses, overall company bonuses, or senior personnel retention bonuses. Respondents to the BLS questionnaire may—or may not—report total cash payments rather than wages, and there is no way to disaggregate these responses. Furthermore, because the wage signal of increasing tightness in the labor market is a trend of increasing compensation (implying comparisons over time), BLS data themselves cannot signal trends if cash payments other than base wages constitute a changing fraction of total compensation. Similar comments apply to stock options and equity stakes, which the BLS data also do not include, and which are also important elements of compensation in much of the IT sector and in some IT-intensive firms as well. Indeed, for individuals highly motivated by financial incentives, stock options and equity stakes are far more likely than wages to be the road to riches.
Some data on total compensation packages are provided by a private survey, which indicates that nonsalary cash awards and long-term incentives such as stock options range from 23% of total compensation (6% cash awards, 17% long-term incentive) for technical staff such as software design engineers, software operating systems engineers, and research scientists to 48% (6% cash awards, 42% long-term incentive) for managerial staff such as software engineer managers and research scientist managers. Further, data from this private survey, suggest that the growth rates in base salary for technical staff in the software sector are approximately consistent with the growth in wages as indicated in the BLS data. However, growth rates in total compensation are higher than growth rates in base salary by 40% (2 percentage points) for technical staff. (Technical staff are approximately those represented in the BLS job titles of computer scientist, systems analyst, and computer programmer.) In addition, growth rates in base salary and total compensation are significantly higher for managerial staff in the software sector than for technical staff. This information would suggest that tightness in the managerial labor market is significantly higher than tightness in the technical labor market.
The committee notes that the bias induced by the lack of data on nonwage compensation is likely to be larger for smaller companies where, at least until recently, many workers have taken equity stakes or stock options in lieu of greater base pay. Such a bias would tend to understate compensation for workers in this category, who tend to work in the smaller companies. By contrast, some larger, more established firms report increasing pressure to raise base salaries rather than stock options, indicating a different trend from that generally seen in the compensation pattern of small companies. Many new workers at the larger companies view the large gains in stock prices of the past as unsustainable and thus value them less as part of the compensation package. Thus, at some very successful companies new entrants are demanding higher salaries, but total compensation may not be higher.
National Research Council Committee: Another component of compensation widely associated with IT workers is the opportunity to exercise stock options. Data from the National Center on Employee Ownership indicate that computer programming and software firms may provide for their technical staff options on stock whose average value is higher than that of the stock made available to employees by other industry groups. Similarly, according to the NCEO data, just one other industry group in addition to “computer programming/software” provides more of its stock options to nonmanagers than to managers.
National Research Council Committee: The behavior of wages, a common indicator of labor shortages, presents a mixed picture. Base wages for Category 1 workers (apart from those in hardware, about which little is known) have been rising at a rate of about 4% per year in constant dollars. However, this overall behavior masks much more rapid wage growth in certain subspecialties and less rapid growth in others.
Furthermore, the presence of unexercised and/or unvested stock options and equity stakes in the compensation of workers in a relatively new and growing industry may help to explain the fact that mean wages in the IT sector have risen only somewhat more rapidly than wages in other sectors of the economy. Because stock options and/or equity stakes that represent deferred compensation are an increasing part of worker compensation packages in IT, as suggested above, wages alone become a poorer measure of total compensation as time goes on. Thus, the omission of stock options and equity stakes is problematic in comparing wage trends in IT versus those in other sectors.