The Effects of Outsourcing of Information Technology on the Employment of Computer Professionals in the United States

This research examines the effects of Information Technology (IT) outsourcing on key factors (demand, supply, salary and cost) affecting IT professionals. The relevant data for the research were collected from the United States (U.S.) official statistics over the period 1996-2006. While demand has decreased for computer programmers in the U.S., software engineers and systems analysts continue to show increasing demand. The supply of IT professionals shows a mixed trend. The cost of producing IT workforce appears to be independent of outsourcing and has been increasing. No negative effect of outsourcing on salary was found and average salary continues to increase. The results of the study suggest that more resources need to be allocated, in the U.S. at least, to the training of computer professionals who can add value to their organizations and help the country meet its domestic IT needs. Introduction The availability of international high skilled workers has signaled an opportunity for the United States (U.S.) companies to lower their information technology (IT) costs by contracting work overseas where labor costs are, on the average, one-tenth of those in the U.S. Among diverse IT related occupations ranging from high to low-skilled, the ones that are mainly being outsourced in the high-skilled level are computer programmers, computer software engineers (applications and systems), and computer systems analysts. For the moderate to low skill level, the occupations off-shored are: data entry keyers, billing and posting clerks and machine operators. As more and more IT work is outsourced resulting in a significant loss of certain IT jobs in the U.S., outsourcing and its effects on the U.S. job market has captured the attention of many - researchers, government, and industry. Most of the research on outsourcing has focused on assessing its effects in the manufacturing and service sectors. A large part of research has employed economic theories to model outsourcing under a closed system assumption. Some work has been done on the impact of outsourcing on the IT profession. However, little research shows the impact of outsourcing on demand, supply, and compensation of IT workforce from a holistic perspective. Our research studies how economic theory of demand and supply applies to outsourcing as it affects the demand and supply of IT professionals (programmers, software engineers and systems analysts) in the outsourcing country. For demand and supply in general, decreasing demand adversely affects the price of a product in the event of constant or increasing supply. We want to apply this principle to understand the effect of outsourcing with the assumption that outsourcing affects the demand of IT professionals in the outsourcing country and how that demand, in turn, affects the supply, cost and salary of these professionals. The country of interest in this study is the U.S., the country that accounts for the largest volume of IT outsourcing. Literature Review on Impact of IT Outsourcing on the IT Profession Researchers have shown an interest in the effects that outsourcing may have over wages, productivity, and employment, as well as its influence over many other sectors of the economy. Regarding the effects of the outsourcing of services on U.S. employment, Amiti and Wei (2005) find a small negative effect of less than half percent on US employment once the economy is decomposed into 450 sectors. However, this negative effect disappears when the sectors are disaggregated into just 96 sectors, that is, as the level of disaggregation becomes more narrow. According to the authors, there is a dynamic job market in the developed world in which those who lose their jobs are incorporated into the market of other growing sectors. Similarly, the authors also stress that the levels of unemployment that have been attributed to outsourcing in the developed world have been overestimated. …