Where Did All The Jobs Go?
Recoveries are measured in dollars, not in jobs. This one—and even the last recovery in 2003—will produce far fewer full-time jobs in the short run than past recoveries.
That doesn’t mean companies won’t hire great numbers of workers. But much of that will be contract labor. The trend is to not hire full timers until it’s hard to get enough qualified people to do contract work because they’ve all been snapped up by their competitors. That scenario could take several years to unfold.
For the semiconductor industry, this is the latest wrinkle in a sector that is largely built on boom-bust cycles. It took giants like Avnet and Flextronics to sort through the supply chain and make sure there weren’t huge inventory fluctuations caused by double and triple ordering. In fact, if you compare the inventory levels of the 2001 downturn with the 2007 downturn, they were much, much higher in 2001. It wasn’t inventory problems that prolonged this recession. It was a global meltdown and end user demand. Inventory has been under tight control.
Labor, however, was stacked up in 2007 the way inventory was in 2001. There was far too much infrastructure—even in places like China, where the unemployment rate rose significantly. And there simply wasn’t enough demand for goods to sustain those jobs.
From there, it looked like something out of a Quentin Tarantino movie. The axe-people went on a rampage. They’re still swinging, and they’re likely to keep swinging until they run out of people and get thrown out themselves. At that point, companies will begin rebuilding morale and insist this is a new beginning. It isn’t. And for the foreseeable future, until they get their costs under control, most companies will tap the wealth of expertise available in the market on a contract basis. It’s cheaper. You don’t have to pay benefits to contractors, and you can cut them without a severance package if there’s even the slightest blip in demand.
That works just fine when labor is plentiful and jobs are scarce. But as business picks up, the number of contractors who are up to speed on the latest technology, tools and challenges goes down. That means the longer companies wait, the more they have to invest in training when they do come on board. In addition, they also have to pay more in salaries when competition heats up.
In the semiconductor industry, companies used to rely on young graduates to fill in the ranks. They were cheaper and generally well trained. That option is disappearing, however. There will be fewer young graduates coming out of engineering schools in the future. Enrollment is down everywhere. Moreover, no matter how many H1-B visas are issued, employers in other countries are offering similar pay and benefits, when you take into account the cost of living and quality of life.
As if that wasn’t enough, the mass retirement of baby boomers is just beginning. Assuming they didn’t invest their money with Bernie Madoff, a recovery in the stock market will likely mean a recovery of their retirement income. And that will mean fewer qualified engineers across the board.
All of this will take a few years to sort itself out, of course. But by that time, companies may find themselves in a rather bad position—too few contract workers, too few full-time workers, no options for replenishing their ranks and wondering where the next competitive sideswipe will come from.
–Ed Sperling
September 18th, 2009 at 3:17 pm
The sad truth is that the only real option for companies to deal with an inadequate supply of engineers will be to outsource their engineering to other countries which are producing adequate supplies of new engineers (e.g. China, India) and where labor costs are still relatively low. This isn’t new, but the trend is likely to accelerate.
September 18th, 2009 at 6:54 pm
There are other structural issues that need to be fixed before a Silicon Valley recovery happens.
Drive down any commercial street in Silicon Valley and 8 out of 10 buildings are for lease. This just didn’t happen, it’s been like this since about 2002.
I just don’t see new start ups being created. The key factors in my mind are;
1. Sarbanes-Oxley Act of 2002. Why would a VC want to fund ~$1M/year for accounting fees? In most cases that number is a very big percentage of early stage funding.
2. Tax breaks. Asian nations provide aggressive tax breaks or no taxes for up to 10 years. China then loans us money so we can pay for all that crap that ends up in garage sales.
3. California hostile to businesses. Environmental laws in California and the U.S. have pushed semiconductor foundries off shore over the years. As a result, countries like Taiwan have become the environmental sewer pits of the world. Because they can attract key industries with their programs, workers have jobs while suffering the toxic environmental impact on their health.
4. Allegiance to the United States. The vast majority of politicians, our senators and congress people -have no allegiance to the United States. If they did, they would put this country’s interest before foreign interests or their own self interest. I challenge anyone to prove me wrong.
September 23rd, 2009 at 1:25 pm
Tom Kozas pretty much hits the nail on the head. There was a brief period where kids started going back into technical tracks again, but the wonderful world of US Business and the almighty buck keeps allowing the CEOs to move jobs offshore. I wonder when the US will have its first Indian President. Actually, for the salary we pay, we could hire an entire Indian Company. That way, the “president” could be in something like 40 places at once. And no matter who we hire from India, we know they’re not going to do as bad a job as that idiot that’s in the big house now.
September 23rd, 2009 at 1:34 pm
What will we have left?
Let’s see, we can offshore teaching – just put a computer monitor in the front of class. That way we just need someone to sit in front of the class and maintain discipline.
We can offshore all PCPs (primary care physicians), just have remote diagnostics machines hook up to patients and a nurse hook them up. We can even offshore many specialists, just have nurses perform anything the doctor tells them to do.
We can offshore the lawyers – everything could be done by remote video link.
We can offshore, well, we can offshore just about ANYTHING that absolutely does not require a physical presence.
We can’t (yet) offshore the police or fire dept but maybe someday.
What will we have then? The old geezers at the checkout counters in Wal Mart, the young whippersnappers bagging groceries at the supe market, and the people flipping burgers at McDonalds (which will ultimately be roboticized).
What we need is an “offshoring tax” and make it high enough that every dollar that leaves the US to support a job overseas that could be done here is taxed at 125% of the *local US prevailing wage. 100% to pay the person here that doesn’t have the job any longer and 25% for overhead. Many companies (manufacturers mostly) will still offshore because they still won’t have to deal with the EPA.
What else will be left? Well, other than the defense industry, which can’t be done by foreign nationals or companies (at least not yet), not much.