American Outlook Fall 1999

Piled Higher and Deeper

The alleged shortage of highly educated workers in the U.S. is a myth.
In fact, we're suffering from a chronic surplus of Ph.D.s.

Edwin S. Rubenstein

For more than forty years, those in the know have been warning
Americans of an impending shortage of scientists and engineers. It
started with Sputnik, and gained momentum during the race to the moon.
President Kennedy exhorted America's youth to pursue careers in
engineering. President Johnson supported the National Defense
Education Act to provide fellowships in science and engineering.
Educators bemoaned the decline in the number of college students
studying science. Scientific societies launched major programs to
attract more students to scientific careers. And almost everyone
blamed the alleged shortage for declining American competitiveness in
the global economy.

Their efforts paid off all too well. The alleged shortage changed to a
glut in the 1970s, after the Vietnam War and the drop in federal
support for space science following the moon landings. Employment
prospects for Ph.D.s became so poor that some scientific societies
took out ads in professional journals advising students not to pursue
a Ph.D., and anecdotes about Ph.D.s driving taxicabs became popular.

By the late 1980s, the tide had turned again. The scientists who had
received their degrees in the boom years of the 1950s and 1960s were
approaching retirement age. Analysts expected this to create an
unprecedented demand for new Ph.D.s. In Prospects For Faculty in the
Arts and Sciences (1989), William Bowen and Julie Ann Sosa projected
substantial faculty shortages starting around the year 2000, with
particularly severe shortages in the humanities and social sciences.

Today again we hear that America's colleges and universities are
neither attracting nor producing enough scientists, engineers,
programmers, and information workers to meet the needs of business and
universities. With U.S. unemployment at 4.2 percent and the economy
increasingly relying on computers, many believe that the purported
"skills gap" goes beyond high-tech industries. "We are not just
talking about a shortage of qualified engineers and scientists of our
top software [and] semiconductor firms," said Secretary of Commerce
William M. Daley in Congressional Quarterly. "Every nook of our
economy now depends on technology." My Hudson Institute colleagues
agree. Workforce 2020 co-author and Hudson Senior Fellow Richard Judy
predicts that the labor shortage could bring a 5 percent drop in
economic growth by the year 2020.

Executives in high-tech companies claim that they have to scour the
world for suitable talent. They have lobbied vigorously-and
successfully-to increase the number of skilled workers who can enter
the country using H-1B visas. These controversial visas are supposedly
designed to allow employers to fill emergency vacancies quickly on a
temporary basis. Several executives have told Congress that not being
able to import foreign workers forces them to cut back on programming
projects, delay new products, and trim expansion plans. They claim
that the high-tech worker shortage threatens America's technological
superiority. Denying U.S. industry a crack at foreign-born Ph.D.s is
like "sending the first-round draft choices of the high-tech world to
play on other countries' teams," writes T. J. Rogers of Cypress
Semiconductor Corp. About a third of the new engineering graduates
Microsoft hires each year are foreign students, Microsoft Vice
President Michael Murray told the Senate Immigration Subcommittee in
1998. He stated that more than half of all Ph.D. students in
electrical and computer engineering currently at American universities
are foreign-born.

"If companies cannot find homegrown talent, and if they cannot bring
talent to this country, a large number are likely to move key
operations overseas, sending those and related American jobs with
them," said Senator Spencer Abraham (R-MI). Congress responded to the
"crisis" last year by raising the H1-B ceiling from 65,000 to 115,000.

Reality Check

Most H-1B workers, however, are neither creative nor irreplaceable.
"The geniuses are only a tiny fraction of the H1-Bs," says Michael
Teitelbaum, a demographer and former vice-chairman of the National
Commission on Immigration reform. "Most H1-Bs are programmers being
brought in several hundred at a time. They are code writers [and] they
are doing the kind of things any well-educated American with the
proper training can do." Industry claims of a "desperate software
labor shortage" are a myth, according to UC-Davis computer-science
professor Norman Matloff. Microsoft, for example, hires only about 2
percent of its applicants for software writing. This rate is typical
of the industry as a whole: the figure at Deltanet is 4 percent, at
Broderbund 1 percent, and at Ecbridges 2 percent.

Access to cheap labor is the hidden agenda behind the skills-shortage
campaign, Matloff charges in an on-line report on the controversy.
Reports by high-tech trade associations seem to support the notion of
a phony crisis. A study by the Information Technology Association of
America (ITAA) found that high-tech companies subtly discriminate
against older men and women with families because they are perceived
as "less available for the overtime and weekend work." A Silicon
Valley manager told Congressional Quarterly, "The top management of
our company has directed us to focus our hiring on new or recent
graduates only. These are people who have no family and can work long
hours. Yes, salary is a major factor. . . .You work the young ones for
five years and then replace them." (See Kathy Koch, "High Tech Labor
Shortage," Congressional Quarterly, April 1998.)

"I call it the vampire industry," said a congressional staffer who
worked on the H1-B issue. "Every day they need fresh blood." Not
surprisingly, industry representatives disagree. "It's not an
age-discrimination thing. It's a skills thing. We need people right
away with the latest skills," says Harris N. Miller, president of the
Information Technology Association of America (ITAA.) But if it were a
"skills thing," wages would be rising disproportionately in the
computer industry and other high-tech fields. They aren't. In fact,
the premium paid for Ph.Ds in the computer industry is lower than in
other science specialties (see fig. 1) One reason is the prevalence of
foreign-born computer professionals, who work for salaries 15-20
percent lower than those received by natives of the same age and
experience. (See Norman Matloff, "A Critical Analysis of Arguments
Supporting High Levels of Immigration," March 14, 1999,
http://heather.cs.ucdavis.edu/pub/immigration.)

Insert fig. 1 here

Thus most if not all of the high-tech industry's labor problems are
self-inflicted, created by short-sighted human-resource practices,
especially a stubborn refusal to retain and train experienced workers.
When recruiters "can't find workers," it is usually because they're
looking for them in the wrong places. "You could train a person who is
literate in computer programming but doesn't know a particular
language and he can become proficient in about a month," Teitelbaum
says. "But when you say you'll only take people with two years'
experience in Java, when Java is such a new language, you're not going
to find them." Teitelbaum says there's a "gold mine" of unemployed,
technically oriented Ph.D.s in related fields-such as mathematics and
physics-who could become systems analysts with minimal training. John
Rohde, president of FirsTel Co., a Silicon Valley software firm, says
that he would hire any Ph.D. who walked into his office as long as he
had some computer experience. "Why should I train a new employee?" he
said to Congressional Quarterly.

Numbers, Please

Labor statistics belie the allegations of a high-tech labor shortage.
As figure 2 illustrates, the current production of science and
engineering (S&E) Ph.D.s is at an all-time high-up to 26,515 in 1995
from 18,799 in 1975. Foreign students account for approximately half
the increase. In 1990, more than 50 percent of U.S. engineering Ph.D.s
were awarded to foreign students, and the figures are almost as high
in mathematics, physics, chemistry, and computer science. More than
eight out of every ten foreign graduate students in the U.S. is in an
S&E program, with more than half these students coming from just four
countries: Taiwan, China, Korea, and India. As foreign enrollment has
skyrocketed, native U.S. enrollment has stayed flat, holding at around
13,000 annually over the past twenty-five years.

Insert fig. 2 here

Earning a Ph.D., of course, entails an enormous investment of time and
effort. The median time spent earning earn a science or engineering
doctorate is 6.9 years. Students incur opportunity costs in the
hundreds of thousands of dollars, and a substantial fraction dip into
savings or go into debt to cover tuition and living expenses. In 1995,
85 percent of U.S. students reported some reliance on their families
and personal savings.

This educational investment is a risky proposition. Unemployment among
newly minted math Ph.D.s. has been in double digits for much of the
past three decades, and has only recently fallen below the national
average (see fig. 3). Surveys of science and technology Ph.D.s reveal
both outright unemployment and rampant involuntary temporary
employment (see chart). The latter-the percentage of new Ph.D.s who
can't find a suitable permanent post- is particularly disheartening,
ranging from 6.1 percent in computer science to 34.5 percent in
physics and earth science. Many of these people are employed outside
science and engineering altogether. That is not always a bad thing,
but it is surely not what their expensive educations were designed
for, and it certainly belies the notion of a shortage of highly
educated workers.

Insert fig. 3 here

Degree of Unhappiness: Ph.D.s Without Real Jobs

Involuntary Temporary Average Time

Unemployment Employment to Find a Job

(percent) (percent) (months)

Mathematics 3.8 27.1 5

Engineering 2.7 10.6 4

Biochemistry 4.0 13.4 3

Computer Science 2.4 6.1 3

Physics 1.8 34.5 4

Chemistry 4.6 33.1 6

Earth and Space Science 3.9 34.5 5

Source: Commission on Professionals in Science and Technology. (Survey
reflects

employment conditions of 1996-1997 Ph.D.s as of mid-October 1997.)

Seasoned professionals are faring no better. Matloff reports that 17
percent of computer programmers over the age of fifty are unemployed.
And by that age, most have already left the field. Data from the
National Survey of College Graduates show that only 19 percent of
those with a computer science degree are still in the field twenty
years after graduation, compared with 52 percent in civil engineering.
Matloff notes that Sun Microsystems, a leading advocate for raising
the H1-B quota, classifies as "senior" anyone with six years of
experience-a 28-year old, for example. Employers claim that they shun
such people because their skills are outdated, but, as noted earlier,
any competent programmer can master new software in a month or so. The
real turnoff is that older workers are more expensive. That creates a
"revolving door" through which computer professionals thirty-five and
older cannot fit.

Ph.D. Machine

Economists, of course, will tell you that a permanent glut of Ph.D.s
is impossible. If markets are operating properly, the price of
anything in oversupply will fall. Hence a Ph.D. glut should reduce
salaries paid to Ph.D.s, thereby reducing the number of entering grad
students and thus increasing the relative demand for their services.
Eventually the glut will be soaked up.

Unfortunately, the Ph.D. market is far from perfect, because
universities influence both supply and demand. An August 1995 Rand
Corporation study of the academic labor market found that the number
of doctoral students admitted to American colleges and universities
depends less on the private labor market than on the needs of graduate
departments to provide teaching assistants for undergraduate courses.
(See William F. Massy and Charles A. Goldman, "The Production and
Utilization of Science and Engineering Doctorates in the United
States," RAND Institute for Education and Training and the Alfred P.
Sloan Corporation.) The graduates' future employment prospects are not
a consideration. Academic departments admit as many grad students as
needed for their own internal teaching and research needs, expanding
the supply by accepting increasing numbers of foreign students into
their graduate programs and subsidizing their tuition with federal R&D
grants and state-subsidized tuition.

Meanwhile, universities are reducing the number of career, "tenure
track" positions, the report says. The academic labor pool has been
wracked by state and federal budget cuts, curtailed defense spending,
and legislative bans on mandatory retirement for professors. As few as
38-40 percent of faculty appointments made in recent years are
traditional full-time tenured positions. Between 1987 and 1992, the
number of part-time faculty grew by 47.7 percent; part-time faculty
now comprise approximately 45 percent of all teaching staff.

The use of "gypsy scholars" saves the schools money but creates a
wasteful overproduction of Ph.D.s and underconsumption of scholarship.
This keeps Ph.D.s' salaries low and makes graduate education less
attractive, especially for U.S. natives. The Rand study suggests that
too many doctorates are being produced in engineering, math, and some
sciences. Indeed, the Rand model of the Ph.D. market indicates that
approximately 22 percent of new science and engineering Ph.D.s will
fail to find suitable employment (will involuntarily work outside
their fields).

Liars Figure

To some extent, the high-tech labor-shortage scare is the work of
special-interest groups whose well-being depends on maintaining the
perception of such a shortage. The National Science Foundation is a
major offender. Peter House, head of NSF's Policy and Research
Analysis Division in the 1980s, performed NSF's first shortage study,
projecting a shortfall of 600,000 scientists by the year 2000. House's
methodology was criticized both inside and outside the NSF, and the
agency's Office of Legislative and Public Affairs refused to approve
the study for formal presentation as an NSF document. Much of the
criticism focused on the highly dubious notion of using a peak period
of past supply as a measure of future demand.

NSF's prediction, say many young scientists, was self-serving,
intended mainly to nudge Congress into providing more funding for the
agency. Also, Matloff notes that the NSF wants to preserve the sense
of science as a "calling" and believes that low salaries ensure that
only truly dedicated individuals will enter the field. "The National
Science Foundation" Matloff writes, "actually planned this to happen,
planned to bring in foreign students to hold down salaries. Moreover,
the NSF realized that this would discourage all but the most
idealistic American students from pursuing doctoral work, an irony in
view of the much lamented reluctance of American students to pursue
advanced degrees in science and engineering."

Some young scientists are so embittered by the job market that they
believe the time and effort invested in pursuit of their degree was
pointless. "The only thing clear is that there are fewer jobs for
physicists because there is less economic need for physicists," Murray
Arnow of Skokie, Illinois, wrote in a letter to Physics Today. "The
current commitment of the American Physical Society to promote science
education is almost folly given the declining demand for physicists."

High-tech employers agree. Virtually all will tell you that their
ideal workers have just a BS or MS degree. There are only a small
number of industry jobs requiring a Ph.D., and many commercial
laboratories that once employed full-time scientists now prefer
postdoctoral students working as temporary employees. "What surprises
me is that even those young people with outstanding research records
are having difficulty finding permanent employment," writes Kevin
Aylesworth, a physics postdoc, in Physics Today.

Somehow Japan manages to generate as many patents as we do while
having only a miniscule number of S&E Ph.D.s. And although eager to
become a major player in the high-tech arena, Taiwan is actually
reducing its graduate programs. Yet the U.S. continues in the opposite
direction. The difference is that Japan and Taiwan are making their
graduate-education decisions based on national interest, whereas the
U.S. policy is quite evidently set by special interest groups in
industry and academia.

The continuing oversupply of Ph.D.s is no accident. It is the result
of deliberate policy choices made by the federal government and the
science establishment. It has been a boon to many employers. Science
and engineering firms and higher-education institutions have saved on
wages, benefits, and commitments. But it is bad public policy.

Edwin S. Rubenstein is an economist and Director of Research for the
Hudson Institute.