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SPN Newsletter #11                    High-tech Layoffs: The Other Quiet Crisis                 02/23/03

The popular press continues to provide coverage of the mounting layoffs in many key high-tech sectors. For example, headlines in the Washington Post highlighting the serious unemployment crisis in many high-tech sectors read: "Bankrupt WorldCom to Cut 5,000 Jobs"..."Emergency Jobless Benefits to End: Nearly 800,000 to Stop Receiving 13-Week Extension of Unemployment Aid Today"..."Résumés Outnumber Openings At Fair, Many Area Job Seekers Face Bleak Prospects."  

Yet despite the large number of high-tech layoffs, a "Who's Who" list of academicians, foundation representatives, and members of Congress have all recently added their endorsements to a new article titled the " Quiet Crisis: Falling Short in Producing American Scientific and Technical Talent ."  The "Quiet Crisis" was published in Sept. 02 by BEST-(Building Engineering and Science Talent) , a public-private partnership designed to address the demographic imbalance of the U.S. technical workforce.  The report states that CURRENTLY "our colleges and universities are not graduating enough scientific and technical talent to step into research laboratories, software and other design centers, refineries, defense installations, science policy offices, manufacturing shop floors and high-tech start-ups. This “gap” represents a shortfall in our national scientific and technical capabilities." The list of those endorsing the conclusions of the "Quiet Crisis" included then Maryland Congresswomen Connie Morella and NSF Director Rita Cowell to name just a few. Such science and engineering  (S&E) workforce shortfall claims should sound familiar, though an analogous NSF "study" from the late 1980s was actually later determined by a subcommittee of the US Congress to be "so flawed as to be nearly worthless." Though BEST's goal to include a greater percentage of women and minorities in S&E careers is certainly admirable, there is no mention of the current "quiet crisis" concerning the mounting layoffs of technicians, scientists, and engineers in many high-tech sectors. BEST claims the real "crisis stems from the gap between the nation's GROWING need for scientists, engineers, and other skilled workers, and its production of them."  

In stark contrast to the concern over hypothetical S&E shortages, "reality-based" coverage of  S&E labor markets paints the opposite picture, especially in key high-tech sectors. Journals  such as the Wall Street Journal, The-Scientist, and Business Week provide detailed coverage of the magnitude of the layoffs that have hit certain sectors of the high-tech economy, including  information technology, telecom (fiber optics), and now biotechnology. There are clear indications that several high-tech sectors are suffering from excess capacity, too many high-tech companies for a given demand, all utilizing an abundant supply of S&E labor from around the world. For corporations in these sectors that actually sell products, there is an excess supply of similar goods, resulting in product price cuts and often large operating losses. The PC market is one obvious example. American companies desperate to turn a profit are cutting labor costs further by outsourcing many white-collar science and engineering jobs to foreign countries such as China and India.
 
The number of layoffs is one statistic that is rarely tallied or discussed by most science societies, let alone the National Academy of Sciences (NAS) or the National Academies of Engineering (NAE). The organization unit of the world's largest professional society, The Institute of Electrical and Electronics Engineers, Inc. (IEEE-USA), is a notable exception [1].  The largest number of high-tech layoffs have come in the fiber optics and telecom sector of the economy as discussed previously on the SPN . Though the layoff tally has gotten worse since July 2001, lightreading.com details the magnitude and scope of the layoffs company by company . Large 100,000 plus employee companies; such as Lucent, Nortel, and Corning; have now all laid off two-thirds of their staff and each currently have around 35,000 employees. A large number of companies have gone bankrupt and permanently closed their doors. Two of the relevant optical science and engineering societies, the Optical Society of America and the International Society for Optical Engineering (SPIE), have only mentioned the fiber optic collapse in passing despite the drastic affect on their membership. In fact, the Coalition for Photonics and Optics (CPO), a cooperative activity among societies and associations of the international photonics and optics community, still maintains a website with obsolete (pre-telecom-collapse) discussions of manpower shortages in the optics industry. The CPO website serves as a constant reminder of the fallacy of S&E manpower shortage predictions. [Update: As of December 2003 (8 months after the publication of this newsletter), the member board of the Coalition for Photonics and Optics (CPO) has dissolved the association and the website in question. The dissolution of the coalition came about for a variety of reasons, some market-related.] 

One reality-based look at both the human and economic toll of the telecom and fiber optics downturn can be found in a Wall Street Journal article titled,  " Telecom Bust is Taking a Heavy Human Toll ." The article discusses the seriousness of the layoffs in the fiber optics sector: "Like the massive declines in the nation's steel, oil and automobile industries in decades past, the disintegration of the telecom business is leaving deep wounds in the U.S. work force. But labor historians say telecom stands out for the unprecedented speed of the boom-and-bust cycle. After telecom was deregulated in 1996, it quickly expanded by some 331,000 jobs before peaking in late 2000. Since the downturn started, though, companies have announced layoffs that have wiped out all those new jobs and more -- a total of well over 500,000 workers, according to a tally by The Wall Street Journal. By contrast, it took two decades for the ranks of the United Auto Workers to fall to 732,000 from 1.5 million, as the auto industry was forced to become much more efficient in the face of foreign competition...And the economic and human cost of the telecom bust far exceeds that of the highly publicized Internet crash, which by and large involved smaller companies."

"Some laid-off telecom workers are even turning up in local homeless shelters."

"Telecom has turned into one of history's biggest bubbles because so much money poured into the industry during the stock-market boom, creating some $470 BILLION in debt and a vast glut of capacity. Once a sleepy industry known for its modest growth, telecom took off like a rocket in the late '90s as companies rushed to lace the world with ultra-fast fiber-optic networks to carry an expected onslaught of Internet traffic. But after a frenzy of spending and hiring, it suddenly became clear in mid-2001 that the Internet wasn't growing nearly as fast as the 1,000-fold annual increases originally predicted. The huge run up has now been replaced by a merciless ride down."

The anatomy of the telecom collapse is discussed in a Washington Post article titled, " Fiber-Optic Overdose Racks Up Casualties ": "The problem traces its origins back to Wall Street, where lenders and investors, eager to get in on the next Microsoft, simply provided too much money to too many companies to build too many competing networks...Considered separately, the plans for each of these businesses may have been defensible. What few realized, however, was that with so many companies following roughly the same strategy, it was unlikely that all that capacity would be needed or that any one company would achieve the critical mass necessary to survive and prosper."

The question now is to what extent has (or will) similar economic realities of excess S&E capacity, lack of product deliver, and investor awareness of stock market hype and outright fraud hit other high-tech sectors, like the biotech industry for example?

For starters, according to a table in the Washington Post , 11 of 13 top biotech companies reported losses ranging from 0.5 to 186 million dollars.

The economics of excess capacity for biotech tool makers is discussed in an article in the Boston Business Journal titled, " CEOs: Consolidation looms for biotech tool maker ": "While drug makers and medical device companies have fared better than other industry sectors, executives at local companies that build the technical tools used by the industry say they are headed for a year of upheaval marked by a spate of mergers, layoffs and squeezed budgets...the signs of a coming industry shakeout are piling up - slumping sales, public markets indifferent to new stock offerings, an oversupply of companies serving a small market and growing uncertainty among drug companies of their ability to quickly turn genome data into revenue-producing drugs...Still, an estimated 3,000 tools companies are vying for a market estimated to be worth, at best, $700 million and, at worst, $100 million. Most bioinformatics companies are not profitable: Many are selling services very similar to those offered by competitors, thereby forcing down their prices and intensifying the battle for an ever-diminishing market."

Further evidence of an economic downturn in biotech can be found in a recent article in The Scientist titled, " A Winter of Discontent for Industry Scientists: Capital shortfalls lead to closings, consolidation, and job losses ." The article highlights the "spottiness" of the biotech job market: "The lack of new investment has forced companies to lay off employees, sell promising projects, or close their doors...For companies that are hiring, there are needs for specific talent. Jo Norton (director of workforce development at Genzyme in Cambridge, Mass), for example, is particularly interested in protein chemists and people with a background in neuroscience. Nancy Arnosti (a human resources consultant in Chadds Ford, Pa.) says there appears to be a glut of molecular biologists who trained for the field several years ago in the euphoria over the human genome project. "I was surprised to see the number of folks at job fairs with that background. I felt badly. They were excellent candidates; it's just that there were so many of them."

Examples of companies that are laying off hundreds of biotech workers is discussed in an article in the San Francisco Business Times titled, " Biotech firms hand out the pink slips: Uncertainty over future funding is prompting firms to thin their ranks now ": "Biotech companies, viewed by many in the Bay Area as the economic engine to supplant the sputtering technology sector, seem instead to be taking a cue from it: An increasing number are laying off employees...In recent weeks Applied Biosystems Group of Foster City announced it would cut 400 staff and 100 contract and temporary employees. Incyte Genomics said it would cut 260 jobs or 37 percent of its staff and Deltagen Inc., which in October said it would slash 130 jobs, slated another 120 positions for elimination bringing its total to 250, or about 55 percent of the company."

It appears bench scientists in biotech will be particularly hard hit as discussed in an article in The-Scientists titled, " Restructurings Target Researchers : Once a buttress for biotechnology, basic science is now sacrificed to product development." The article states that bench biotech researchers doing basic science will be the first to go at many companies: a biotech job recruiter "says he still receives hiring orders for scientists, but basic researchers are no longer in demand. Companies now want people with 10 to 15 years of product development experience, as clinical teams scramble to get blockbuster products to market before their companies' cash runs out."

The aggregate employment numbers for biotech scientists appear to be declining:  "In 2000, the last year for available statistics, the pharmaceutical industry employed 57,488 technicians and scientists, 339 more than in 1999. Nevertheless, the industry has lost jobs, mainly among clinical researchers, whose numbers fell from 14,402 in 1999 to 11,999 in 2000."  [Source: The Scientist, " The Scientist at Work in Big Pharma: Abundant research resources soothe the routine and frustration of drug discovery work. "

The doubling of the NIH budget over the last 5 years, and the concomitant increase in the number of new PhDs and postdocs trained in basic biomed research, will only add more resumes per biomed job opening, placing unemployed researchers with industry experience in competition with recent science graduates.

Fierce cost cutting in the high-tech sector has also led to the expansion of outsourcing of many white-collar S&E jobs to foreign countries such as China and India where salaries can be one-tenth what they are in the States. The Feb. 3rd, 2003 edition of Business Week contained a series of articles detailing the scope and magnitude of foreign outsourcing and the likely impact on the job market. 

The lead article titled, " The New Global Job Shift " states that "the next round of globalization is sending upscale jobs offshore. They include basic research, chip design, engineering--even financial analysis. Can America lose these jobs and still prosper? Who wins? Who loses? [2] As these articles show, S&E workers in India and China are paid anywhere from one-fifth to one-twentieth the cost of hiring the same worker in the U.S.: "Architectural work is going global, too. Fluor Corp. (FLR ) of Aliso Viejo, Calif., employs 1,200 engineers and draftsmen in the Philippines, Poland, and India to turn layouts of giant industrial facilities into detailed specs and blueprints."...For example, "200 young Filipino engineers earning less than $3,000 a year collaborate in real time with elite U.S. and British engineers making up to $90,000 via Web portals."

An excess supply of S&E workers is nothing new. Acute S&E job shortages (or excess labor supply) occurred throughout most of the 1970s and again in the early 1990s. The key question, is where have all these S&E workers gone over the years? According to the NSF's Science and Engineering Indicators-2002 [3], a majority become an NSF statistic for "S&E" workers NOT working in S&E occupations : "In 1999, the total number of scientists and engineers (S&Es) employed in the U.S. was 10,981,600, although more than half (7,440,800) were not employed in S&E occupations. Altogether, approximately 3.5 million individuals held S&E occupations in 1999." Such data indicate an excess supply of S&E workers in the US since 2/3 of those with S&E degrees move on to non-S&E employment occupations over time for a variety of reasons.  

This trend is accelerating as discussed in an article titled, " A short circuit for US engineering careers : Faced with foreign competition and an ever-faster pace, many engineers are dropping out of a once-safe field." "Dissatisfaction with the field is growing rapidly. Layoffs, the influx of foreign workers, and offshore outsourcing of jobs have caused the pocket-protector set to either leave the profession in large numbers or seek new careers after being laid off."

What is most disturbing is that the " Quiet Crisis" has been circulated at the highest levels on Capitol Hill without critical review of its methodology or mention of high-tech layoff and foreign outsourcing trends discussed above. The cornerstone of BEST's case is a chart based on obsolete labor force projections from the Bureau of Labor Statistics (BLS) from FIVE years ago. According to BEST, the BLS estimated in 1998 that "Six Million Job Openings Are Projected for Technically Trained Talent" over the next TEN years, from 1998 to 2008, in computer science or information technology (1.6 million-or 160,000 per year), in the medical professions and for health technicians (2.5 million), engineers (0.5 million-or 50,000 per year), life scientists (100,000-or 10,000 per year), and physical scientists (100,000-or 10,000 per year). Excluding the medical and health professions,  recent labor statistics, newspaper and magazine articles seem to indicate that the magnitude of this projection per year was probably about right, only the sign was wrong: The number of UNEMPLOYED S&E workers has totaled about 250,000 per year over the last two years in telecom, computers, and electronics alone. See the chart in, " EE Unemployment on the Rise in the U.S. " in IEEE's Spectrum. The 1998 BLS data in question did not anticipate the recession, the events of Sept. 11th, the crash of the high-tech job markets (such at the dot-coms, telecom, or biotech), or the expansion of outsourcing of technical jobs to foreign countries, to name just a few of the missing variables. In fact, the 5-year-old BLS data quoted by BEST is not even consistent with recently accumulated BLS statistics concerning mass layoffs . [The Department of Labor and the BLS are the sources quoted in the chart previously quoted in the, " EE Unemployment on the Rise in the U.S. " article in IEEE's Spectrum.] Recent trends on outsourcing of tech job to foreign countries such as India and China indicate that new high-tech jobs will be created by American corporations, just not necessarily in the U.S . Updated BLS S&E "projections" are currently in progress, but with so many rapidly changing variables the accuracy, assumptions, and methodology of such predictions should be closely scrutinized, especially for extrapolations over 10 year periods.

Dr. Cowell appearing at a Sept. 26th, 2002 meeting on Capitol Hill to discuss the BEST article and the "Quiet Crisis"  seems to be unaware of the "other Quiet Crisis" (the massive round of high-tech layoffs): "And yet, as noted in The Quiet Crisis, the source of U.S. innovative capacity and technological ability is thinning. A quarter of today's S&T workforce is more than 50 years old. Their research fueled the economic boom of the 1990s. But as they retire, will we be able to replace them? We are not currently replacing our high-level scientific and technical talent in sufficient numbers."

In contrast to the "looming mass S&E retirements" specter that has been discussed by science policy makers for the last 15 years, many reality-based articles point out that high-tech unemployment is especially acute and of longer duration among older (more expensive) engineers in their 40s and 50s. For example, an article in the IEEE Spectrum titled, " EE Unemployment on the Rise in United States : Graduating electrical engineers and computer scientists face rough sledding" discusses the frustration felt by many older engineers:  "Not only has the economic downturn dramatically reduced demand for engineers, but many recently let-go engineers find themselves competing against college graduates and non-U.S. guest workers for the same jobs. "I consider the situation rather bleak," says 44-year-old software engineer Mark Scoville, who was laid off in November...Scoville considers his years of experience and higher salary demands a factor in his continued unemployment. "There are people who are very well equipped coming out of schools," he says. "They're fresh, with quick minds, and they're inexpensive entry-level people as opposed to someone like me who has been in the industry for 18 years and demands a higher salary."

Ironically, less than a month after the meeting on Capitol Hill to discuss the BEST article and the shortage of technical talent, Institute of Electrical and Electronics Engineers, Inc. (IEEE-USA) President LeEarl Bryant was also lobbying Congress, only concerning the issue of record unemployment among its engineering membership .

Many in the higher echelons of academia are justifiably concerned that the educational system in the US needs considerable improvements in K-12 science education.  However, the recent economic collapse of several high-tech sectors indicates that an enhanced educational experience in basic economic theory, especially labor economics, and training in the ability to analyze labor statistics is warranted for all concerned, especially those in senior science policy positions.  

References:

[1]. IEEE-USA is an organizational unit of The Institute of Electrical and Electronics Engineers created in 1973 to promote the careers and public-policy interests of the more than 235,000 electrical, electronics, computer and software engineers who are U.S. members of the IEEE. The IEEE is the world's largest technical professional society. Click here for more information . http://www.ieeeusa.org.

[2]. Figure in Business Week showing where the jobs are going:
http://www.businessweek.com/magazine/content/03_05/b3818005.htm

Business Week: Summary chart of trend, who, what where....
http://www.businessweek.com/magazine/content/03_05/b3818008.htm

[3]. See:  http://www.nsf.gov/statistics/

http://www.nsf.gov/statistics/seind02   [The two-volume "Science and Engineering Indicators - 2002" is available on the web]

http://www.nsf.gov/statistics/seind04

http://www.nsf.gov/statistics/seind06/