Why sweat a recession? Because three-fourths of economists say there's a 30% chance or higher chance the U.S. economy will slip into recession, the <a href="http://online.wsj.com/article/SB118954072982324112.html?mod=hps_us_whats_news"> Wall Street Journal reports </a>, citing its poll of 52 economists. The economists overall peg the recession risk at 36%, up from 28% a month ago.

Chris Murphy, Editor, InformationWeek

September 25, 2007

6 Min Read

Why sweat a recession? Because three-fourths of economists say there's a 30% chance or higher chance the U.S. economy will slip into recession, the Wall Street Journal reports , citing its poll of 52 economists. The economists overall peg the recession risk at 36%, up from 28% a month ago.In the last recession, tech jobs were pounded. So here are some factors affecting the U.S. IT job market, and a theory on whether each would have better or worse impact on jobs than during the last downturn, which began in 2002.

Staffing levels: Heading into 2001, before the economic downturn, cutting the IT budget was almost out of the question. Just 5% in our annual Outlook surveyplanned cuts, while 72% planned increases. By 2003, just 40% planned increases and 25% planned cuts. Since then, companies have kept IT on a shorter leash: many CIOs have kept their IT budgets flat or close to it, delivering cost savings that offset the cost of new IT initiatives. It's true that hiring has picked up, and U.S. IT employment is higher now than it has been this decade --3.58 million IT pros employed, based on second-quarter Bureau of Labor Statistics, compared with a previous high of 3.46 million in 2001 and a low of 3.29 million in 2004. In our just-published InformationWeek 500 research, 62% of those companies plan to increase spending, 23% to keep it flat, and 15% to decrease. Spending has edged up, but staffs haven't gotten fat. Impact: Better

Salary Levels: Through 2001, raises had been soaring--average base salaries up 10% that year and average pay with bonuses up 20% among those participating in our Salary Survey. Bluntly put, companies were thrilled to knock some of those ballooned salaries off the books. Salaries also rose last year, up on average about 6% among respondents to our Salary Survey, after three years in lockdown mode. IT managers reported an average 4.2% raise, amid IT unemployment of around 2%. Experienced pros with big salaries always feel like a target in a downturn, but the motivation won't be as strong to clear out big salaries as the last downturn. Impact: Better

The Skills Shift: The U.S. IT industry went through a wrenching skills shift early this decade: the economy lost one-quarter of the programmer jobs it had in 2001, almost 200,000 jobs, according to BLS data. A number of factors likely fed that shift, from the end of Y2K remediation, to the growth of off-the-shelf software over customized apps, to the growth of offshoring of programming. That appears to have leveled off -- programmer employments has been reasonably stable the past three years. Meanwhile, other categories have picked up the growth, most notably computer software engineers and IT managers. It's possible we could face another such tectonic shift in what IT people do, say if swathes of administrator jobs are knocked out by increased automation. But it seems unlikely to come with the fury and speed that slammed programmers. Impact: Better

Offshoring: Offshoring's still plenty popular and will continue to be. Two-thirds of companies in our InformationWeek 500 use offshore outsourcing for IT work, up from 43% in 2004. Offshore services have gotten better since the early part of the decade and sales keep rising. Offshore outsourcing "is getting hardened," said Denis O'Leary, a consultant and investor who's the former CIO of JPMorgan Chase, at the InformationWeek 500 Conference last week. "It works, and it's here to stay." Companies have gotten smarter about how and where they use offshore IT, and U.S. IT pros have been positioning their careers to be less at risk of offshoring. Companies are wary of the turnover and rising pay in hotspots such as India and have learned there's considerable management challenge to offshoring. Still, offshoring has become standard practice at many companies, and there's an incentive to put staff in growing, emerging markets. So the global competition won't ease up for U.S. IT pros, but companies are less likely to see offshoring as easy money if a cost-cutting frenzy hits. Impact: Neutral

H-1Bs: The number of new H-1B visas available to the private sector was at 195,000 in 2001 going into the last downturn, increasing labor supply just before jobs shrunk. Congress cut visas to 65,000 for fiscal 2003. Today the number's 85,000, including those reserved for U.S.-educated foreign workers, with lobbying pressure to increase it to more than 100,000. There's a critical debate over whether the U.S. hurts its IT industry with today's H-1B limits, and it's a very real risk. But if a recession hit today and jobs shrunk, there would be fewer H-1B visa slots open to foreign competitors than earlier this decade. Impact: Better

New entries: There are fewer entry-level people coming into the field than there were going into the last downturn. Early this decade, a surge of new computer science grads were moving into the workforce, as students chased the get-rich-quick career path amid the dot-com bubble. That bulge entered the workforce just as U.S. IT employment declined for three years (2002, 2003, and 2004). The number of new computer science majors declined for five straight years after 2000 at PhD-granting schools, from 15,958 in fall 2000 to 7,952 in fall 2005, according to UCLA's Higher Education Research Institute. Decling computer science enrollment is hardly something to celebrate, since long-term a lack of young talent's one of the biggest risks to the U.S. IT profession. But this lower supply would help workers short term -- at least until companies respond by moving work to larger labor pools elsewhere, or automating. Impact: Better-briefly

Automation and Software-as-a-Service: For several years I've been expecting a surge of CIO interest in IT automation. Hasn't happened, though a number of big-name vendors (HP among them) are ramping up the sales pitch around IT automation, particularly for data center operations. In a recession, it'd be hard for CIOs to get investment dollars these projects take, thought this still seems a direction the industry will move. Related, software as a service isn't automation per se, but it too can have the impact of smaller in-house IT staffs. Impact: Worse

Of course, the severity and length of any recession or slowdown would likely be the most powerful factor on tech jobs. Last downturn, IT unemployment was worse than business professionals overall--IT unemployment limped along above 5% even as professionals overall were around 3% during 2004's jobless recovery.

Please share your thoughts -- and let's hope an economic growth spurt keeps this whole discussion theoretical.

About the Author(s)

Chris Murphy

Editor, InformationWeek

Chris Murphy is editor of InformationWeek and co-chair of the InformationWeek Conference. He has been covering technology leadership and CIO strategy issues for InformationWeek since 1999. Before that, he was editor of the Budapest Business Journal, a business newspaper in Hungary; and a daily newspaper reporter in Michigan, where he covered everything from crime to the car industry. Murphy studied economics and journalism at Michigan State University, has an M.B.A. from the University of Virginia, and has passed the Chartered Financial Analyst (CFA) exams.

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