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IT software demand exceeds previous peak, employment still lags

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Snapshot for June 2, 2004.

IT software demand exceeds previous peak, employment still lags

It is by now well known that workers in information technology sectors have suffered to an unusual degree during the latest recession and recovery. This poor labor market performance has added greatly to anxieties over the extent of white-collar offshoring—the movement of well-paid jobs that were once insulated from foreign competition—to nations like India, Ireland, and the Philippines.

Direct data on offshoring are hard to come by, but one piece of evidence that suggests employment in IT software sectors may be more internationally “leaky” than in previous years can be found by looking at trends in IT software employment relative to demand for IT software.* Many observers have correctly noted that the bursting of the IT investment bubble was a significant source of the labor market distress for IT professionals; this, however, does not mean that  IT labor market woes stem solely from reduced investment.

While reduced investment in IT software following the bursting of the IT investment bubble has surely been a contributing factor to declining IT employment, real (inflation-adjusted) spending on IT software has actually exceeded its 2000 peak. Still, employment in IT software industries remains well below its peak level. The figure below presents trends in IT software employment and investment in recent years: real software investment is currently over its 2000 peak, while employment remains well below the peak it reached in 2001.

Employment in IT software industries compared to software investment, indexed (1994-2004)

Rising productivity growth in IT software and equipment-producing sectors probably explains a good portion of the wedge between investment and employment growth, but this still leaves substantial room for offshoring to be contributing to the continuing labor market slack for IT workers.

*IT employment is defined as employment in the following industries, using North American Industry Classification System (NAICS) codes:
516: Internet publishing
518: ISPs, search portals, and data processing
5112: Software publishing
5415: Computer systems design and related services

This Snapshot was written by EPI economist Josh Bivens.

For a more detailed analysis of the issue of white-collar offshoring, see EPI’s Offshoring Issue Guide.

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See more work by Josh Bivens