The aftermath of the tech bubble
Sylvia A. Allegretto with research assistance by David Ratner and Yulia Fungard
Technological advances, sharp price declines, and the rapid adoption and widespread use of information technologies resulted in unprecedented growth in IT-producing industries from the mid-1990s into 2001. This ubiquitous expansion and integration of information technology throughout the economy created a swell in demand for IT workers. As a result, the bursting of the tech bubble and the recession of 2001 hit IT workers especially hard, and employment in IT-producing industries has yet to recover significantly. There is, however, some good news on the occupational front as employment levels in some computer related fields, such as computer support specialists, are on the rise.
Following the early 1990s jobless recovery, a strong economic expansion took hold in the mid-1990s, when overall employment growth was sustained and robust. However, employment growth in IT far surpassed the overall average. Figure 1 tracks employment in industries associated with IT and total private-sector employment from January 1990 to May 2005.1 The figure shows that peak-to-peak (July 1990 to March 2001) employment growth in the private sector and in IT industries was 22% and 50%, respectively. In part, the massive expansion in IT was directly related to the formation of the tech bubble. Speculative demand led to over investment in IT workers and contributed to the inflation of the tech bubble, thereby leaving this industry extremely vulnerable to the rapid deflation of the bubble in mid-2000, which was a prelude to the 2001 recession.
The 2001 recession was followed by a lengthy jobless recovery. The private-sector employment trough occurred in June 2003; at that time employment from peak (March 2001) was down by almost 3% or 3.3 million jobs. Employment in IT industries, however, fell much faster and continued to decline all the way into 2004. IT employment bottomed out in February 2004, which represented a 23% contraction or 1.3 million fewer IT jobs in the economy. At its employment peak in February 2001, IT accounted for 5.2% of all private-sector employment, but this share has been on the decline ever since and now represents approximately 4.1% of all private-sector employment.
Figure 2 takes a look into occupations within IT-producing industries—specifically those occupations related directly to computers.2 These data represent recent employment trends in the computer field.3 Unfortunately, occupational coding changes preclude a consistent analysis of this series prior to 2000, so these data start in 2000, just prior to the bursting of the tech bubble. As in the IT industry analysis, a significant decline in employment for those in computer-related occupations is evident through the 2001 recession and well into 2004. Between 2000 and 2004 employment in this composite of those working in a computer field fell by 11%. As for the unemployment rate in the computer field, it jumped almost threefold from 2.0% in 2000 to 5.6% in 2003. While employment levels in 2005 were down 4.5% from their 2000 levels, they are up 7% over the last year. Computer related occupations share of employment was 2.1% in 2005, which is 0.2% shy of its share in 2000.
Given that some measure of the demand for IT workers was inflated by speculation rather than underlying fundamentals, it is unlikely that employment levels will soon regain their recent peak. On the supply side, we have both the surplus of IT workers after the tech-bubble burst, along with the ever expanding global supply available through offshoring. Together, these factors are likely to dampen both employment and earnings growth in the industry. That said, IT remains an integral part of the U.S. economy and continues to play a critical role in the post-1995 productivity acceleration. Moreover, the freefall in IT employment has ceased, and this area is once again growing, though more slowly than overall payrolls.
Cooke, Sandra D. 2003. "Information Technology Workers in the Digital Economy." In Digital Economy 2003. U.S. Department of Commerce, Economics and Statistics Administration.
1. BLS payroll employment data, by industry, were used to determine IT-producing industry employment levels. The compilation of IT-producing industry employment follows from Sandra Cooke’s methodology in the Digital Economy 2003. This grouping represents IT workers across industries. IT-producing industries are those that produce, process, or transmit information goods and services as either intermediate demand (inputs to production of other industries) or as final products.
2. This compilation includes: computer scientists, systems analysts, programmers, and specialists, along with database and network administrators, and data communications analysts. Because these data are not seasonally adjusted, we use data from the second quarter for each year.
3. Approximately 10% of unemployed persons do not report an occupation; therefore they are not included in unemployment statistics by occupation.
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