Outsourcing Contributes To IT Salaries' Downward Spiral

The growing number of companies moving information technology work to low-wage foreign countries has driven down salaries for many IT jobs in the U.S., and the trend is expected to

January 15, 2004

3 Min Read
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The growing number of companies moving information technology work to low-wage foreign countries has driven down salaries for many IT jobs in the U.S., and the trend is expected to continue, a salary research group said Wednesday.

Overall, the premium paid for IT workers with specific skills was 23 percent lower in 2003 than in 2001, and the pay for certification in particular skills dropped 11 percent, Foote Partners LLC said.

The New Canaan, Conn., firm found that while the general economic downturn contributed to salary deflation, outsourcing pushed compensation down even further.

In a yearlong study of 400 Fortune 1000 companies, researchers found that by 2006, the organizations expected from 35 percent to 45 percent of their current full-time IT jobs to go to workers overseas, David Foote, president and chief research officer for Foote Partners, said.

"That showed a definite declining onshore workforce -- fewer jobs for IT people in this country," Foote said.The exodus of jobs has caused U.S. salaries in many IT areas to plummet, particular application development and maintenance, call centers for tech support and some database work. In general, jobs that are related to implementation of IT strategies are the most severely affected.

"What we found is a lot of correlation between a decline in pay for skills and certification in areas that are actually moving offshore," Foote said. "There's no need anymore for premium pay for those skills ... and also, a lot of bonuses have quite frankly been redirected to a very small number of people."

In 2002, the high-tech industry lost 540,000 jobs in the U.S., dropping to 6 million, according to the AeA, formerly known as the American Electronics Association. In 2003, the industry is expected to shed another 234,000.

The economic downturn was the major cause of job loss, but the attraction of lower wages in countries like India was definitely a factor. Back-office work and IT services in India, where a top graduate in electrical or chemical engineering earns about $10,000 a year, is expected to increase fivefold to $57 billion by 2008, according to management consulting firm McKinsey & Co.

There are areas in IT where jobs are expected to remain onshore -- at least for awhile, Foote said. Those jobs tend to require a deep understanding of a company's business processes.Those jobs involve system architecture and prototyping, data and process modeling, and other pre-implementation work. Work related to security and network administration and management also appears safe.

"A lot of people, however, would not qualify (for these jobs). There's only a certain number of people who would qualify for business technologist and analyst jobs and project management jobs," Foote said. "Clearly, people who are pure technologists are probably best to point their careers in the areas of information security."

Over the last few years, security jobs have outperformed the average for overall IT in base pay and premiums paid for particular skills and certification, Foote said.

Nevertheless, as U.S. companies increasingly establish operations in foreign countries, it's just a matter of time that some of the jobs remaining onshore today will be affected.

"You'll see (for example) much more aggressive placement of business process outsourcing, which is just beginning now," Foote said. "It's almost like companies first have to cozy up to the idea that it's OK to offshore before we see more BPO in the days ahead."

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