Are STEM Workers Overpaid?

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  • One of the strongest reasons given by those trying to entice more students to enter the STEM education pipeline is the “earnings premium” STEM workers make in comparison to non-STEM workers. Typical is the statement by the U.S. Department of Commerce press release from 2011 that, “STEM workers command higher wages, earning 26 percent more than their non-STEM counterparts.”

    Further, the Commerce Department press release quotes U.S. Secretary of Education Arne Duncan’s plea to prospective STEM students that, “A STEM education is a pathway to prosperity – not just for you as an individual but for America as a whole. We need you in our classrooms, labs and key government agencies to help solve our biggest challenges.”

    However, not everyone is happy as Duncan with STEM workers earning a premium for solving those big challenges, instead believing that the U.S. would be even more competitive and have a more equitable society if the earnings premium disappeared. For instance, former Federal Reserve Bank Chairman Alan Greenspan, speaking at a U.S. Treasury conference on U.S. Capital Markets Competitiveness put it bluntly: “Our skilled wages are higher than anywhere in the world. If we open up a significant window for skilled [guest] workers, that would suppress the skilled-wage level and end the concentration of income.”

    Greenspan, to ensure everyone got the point, added, “Significantly opening up immigration to skilled workers solves two problems. The companies could hire the educated workers they need. And those workers would compete with high-income people, driving more income equality.”

    [For a detailed examination of how effective this policy could be, I strongly suggest you read Eric Weinstein’s National Bureau of Economic Research draft working paper titled, “
    How and Why Government, Universities, and Industry Create Domestic Labor Shortages of Scientists and High-Tech Workers
    ,” on the active suppression of STEM Ph.D. salaries by way of false National Science Foundation claims of a STEM shortage coupled with aggressive changes to STEM guestworker policies in the late 1980s to early 1990s. While the NSF eventually apologized for its misrepresentations to Congress and admitted that there was in fact a surplus of STEM workers, the damage was already done with the fallout continuing into today.]

    Greenspan is not alone in his thinking that STEM worker salaries should look like a lot more like non-STEM worker salaries. In March, over “100 executives from the technology sector and leading innovation advocacy organizations” sent an open letter to President Obama begging that he and Congress would approve the expansion of H-1B visa program beyond the 85 000 visa limit today (including 20 000 reserved for foreign graduates with advanced degrees at U.S. universities) to a minimum of 115 000 per year and possibly as high as 300 000 within a decade (not to mention the granting of permanent legal status to an unlimited number of foreign students who earn graduate degrees from U.S. universities in STEM subjects).

    The  executives, whose companies have spent millions of dollar lobbying on the issue, collectively wrote in their letter that, “One of the biggest economic challenges facing our nation is the need for more qualified, highly‐skilled professionals, domestic and foreign, who can create jobs and immediately contribute to and improve our economy.”

    Four company executives from IBM, Intel, Microsoft and Oracle claimed in the letter they had 10 000 openings that they apparently could only fill with guestworkers. That was, of course, before IBM announced its layoff, or Intel acknowledging that it was going to slow down its hiring as well as cut production at some of its U.S. plants which might lead to workers being let go. It will be interesting to see whether Microsoft CEO Steve Ballmer’s successor decides that the company payroll needs a bit of trimming, like Lou Gertsner did at IBM. And one other company on the letter list is Cisco, which also announced layoffs since the March letter. Maybe the companies can just trade workers.

    While the tech company executives insist that their motive is not to cut payroll costs by increasing the supply of guestworker labor, few STEM workers believe their claims that there exists a “technology skills gap” that only guestworkers can fill, any more than there is a U.S. manufacturing skills gap. For instance, various surveys have claimed there is a skilled manufacturing work force shortage at between 300 000 and 600 000, for example.

    However, others digging through the veracity of those claims like the Boston Consulting Group point out that the manufacturing skills gap is in reality closer to 80 000 and 100 000, and would be even less if employers were to increase their pay or hire less-skilled workers and train them, both of which employers seem highly reluctant to do. As the BCG study states, “Trying to hire high-skilled workers at rock-bottom rates is not a skills gap.”

    Likewise, tech companies are definitely not interested in paying higher wages, something they were unhappily forced to do during the dot-com boom period (and which some tried to avoid afterwards as well by tacitly agreeing not to poach employees from one another until they got caught). The fact that thousands of these unfilled jobs stay unfilled for long periods of time also seems an indication that they are not nearly as critical or valuable as the companies make them out to be. Netflix, for example, pays its 700 software engineers 10 to 20 percent above its competitors in Silicon Valley, allowing it to “hire just about any engineer it wants.”  As Netflix clearly demonstrates, an expanding U.S. company in a competitive marketplace that needs technology workers can get the U.S. technology workers it wants, if it really wants them.

    Anuj Srivas, the technology and business reporter of the Indian paper The Hindu, pointed out earlier this year that despite all the rhetoric, the “H-1B visa farce” as he calls it is indeed “about the profit margins of Indian and American IT companies,” something that Vivek Wadhwa, an academic and entrepreneur who advocates more H-1B visas, has acknowledged. Wadhwa candidly wrote in 2008 that, “I know from my experience as a tech CEO that H-1Bs are cheaper than domestic hires. Technically, these workers are supposed to be paid a ‘prevailing wage,’ but this mechanism is riddled with loopholes. In the tech world, salaries vary widely based on skill and competence. Yet the prevailing wage concept works on average salaries, so you can hire a superstar for the cost of an average worker. Add to this the inability of an H-1B employee to jump ship and you have a strong incentive to hire workers on these visas.”

    Exactly how many “superstar” H1B guestworkers are working in the U.S. is in some doubt. For example, currently the majority of H1B guestworkers are Indian (pdf). Yet, Indian companies themselves complain over the cost of making the vast majority of engineering graduates employable (pdf).  Back in 2006, when India graduated some 350 000 engineers, employers there estimated that about 10 percent to at best 25 percent were employable by multi-national companies.  In 2012, however, there were over 850 000 graduates from Indian engineering colleges. It is doubtful that the quality of engineering education in India has been maintained to even 2006 levels given the huge increase in graduates and engineering schools.

    Given the long standing complaints by tech company executives of a skill shortage and the need for more guestworker labor (e.g., in 1983, John Calhoun, the director of business development at Intel testified to the U.S. Congress in regard to the need for more technology worker immigration, “The problem is absolutely one of a shortage and not one of lower-cost labor. We in the industry have been forced to hire guestworkers in order to grow.”), it is interesting to see how engineering and computer professional salaries have risen. The reason I say risen is that rising wages is usually considered the best indications of a shortage, according to the RAND Corporation.

    Using data from a Northwestern University 1995 study (pdf) that provided starting engineering graduate salary information from 1950 to 1994 and normalizing it to 2011 U.S. dollars, you see that average starting salaries peaked around 1970 at $61 200 and then dropped slowly but surely to $52 470 in 1995. The engineering class of 2011 average starting salary (pdf) was $59 590, thanks in part to the dot.com demand, which pushed starting salaries about a decade ago.

    This is shown in the IEEE-USA published salary survey data. In 1972, the median salary was $101 300 in 2011 dollars, whereas in 1975, the median salary had dropped to $98 460.  By 1992, median salaries had fallen to $91 823. Median salary recovered during the mid to late 1990s, and hit a peak of $122 315 in 2002. The 2011 IEEE survey data shows the median salary to be $115 790.

    For computer professionals, the last ten years have also shown little change in salary as well. Compiling a decade’s worth of published DICE salary data, the average salary in 2011 constant dollars was $86 823 in 2001, and was only $83 858 last year. According to a story from CNN at the time, a software developer’s average salary in 1990 ranged from $84 750 to $101 600 in 2011 dollars.

    It is hard to see from the salary data that there has been a huge spike in engineering salary over the last thirty plus years—the same period that tech executives have been claiming that they have been faced with a tech skill shortage, the same period during which numerous tech companies apparently succeeded and made pretty decent profits. They may have had somewhat of a case to whine about in the mid to late 1990s in regard to engineering jobs, but the study by RAND found little evidence of one even then. The salary data definitely doesn’t indicate a STEM shortage is occurring now.

    As an EPI analysis in April which found no STEM worker shortage in the US noted, “policies that expand the supply of guestworkers will discourage U.S. students from going into STEM, and into IT in particular.”

    If that happens, and then foreign STEM workers decide to stay home because the salaries they are also earning wages in the U.S. approach those of non-STEM workers, U.S. high tech executives and the government will have no one to blame but themselves.

    Photo: Muharrem Oner/Getty Images

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