Friday, September 26, 2003

The jobless recovery has been in the news a great deal lately. I've been thinking about how this relates to my industry, software/computers. Part of the blame for the job losses is attributed to this industry because the astounding productivity gains (annual rate of 6.8%) come in part from much improved communication and publishing software. It's hard to put a finger on exactly what is improving productivity, but clearly tools allowing virtual meetings on the Web cut down on travel, and the still-spreading use of the Web to allow people to do paperless and people-less paperwork (like my latest car license renewal online) must be making a difference.

Ironically, the software/computer industry is suffering from the jobless recovery too. Although I don't know many peers currently out of jobs, it's not as easy to find a job as it was during the boom, even though (anecdotally) quite a few peers seem to have left the industry to return to school or to jobs in other fields. You'd think that if companies were buying software products to fuel their productivity improvements, then the software business would recover quickly from the bust and be hiring again by now (this may soon happen in telecoms). On the other hand, perhaps the productivity improvements affect this field more than any other (techies are more likely to be able to use Web sites to complete paperwork, and more likely to be able to use videoconferencing to reduce travel). And the current attitude of economists seems to be that job recoveries will usually lag economic growth: "Companies lag in rehiring laid-off workers or in hiring new workers until they see concrete, undeniable evidence that their own businesses are growing." (ref).

Are there any other factors? I've been looking for evidence to either prove or disprove my hypothesis: that techie salaries rocketed too high during the boom. Companies hired at unsustainable salaries, compared to the benefits these programmers were generating. Now, due to a ratcheting effect, salaries have not yet dropped to a reasonable level. If salary expectations dropped some, perhaps we'd see a more vigorous job market for techies again. That would require that the demand for techies is elastic with respect to salary, so one of the things I'm looking at is whether anybody has looked at labour elasticity for the tech labour market. Pointers from readers are welcome, or stay tuned for more posts on this subject.

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