July 2006

The Outlook for Workforce Demand

By George F. McClure

Now that the national unemployment rate is down to 4.7 percent, and in some areas of the country, 3 percent, the pendulum is swinging from concerns over where currently displaced engineers and computer scientists can find work to how we will meet the future demands for talent. The precarious nature of predicting future demand is a continuing concern of IEEE-USA's Career and Workforce Policy Committee. The state of the economy, the balance of payments, strength of the dollar, interest rates, and capital investment are among the factors that affect demand for workers.

The Department of Labor's Bureau of Labor Statistics (BLS) has issued its biannual update to its 10-year employment forecasts. Eight of the top 30 occupations by growth rate are in engineering and computer science specialties. One in 19 new jobs is projected to be filled by the professional-level information technology (IT) workforce. Projected growth is slightly lower than in the previous forecast, for 2002-2012.

The professional and related occupational group had the highest employment in 2004, at 29 million, allocated as shown in the pie chart [www.bls.gov/opub/ooq/2005/winter/art02.pdf].

Source: Occupational Outlook Quarterly, Winter 2005-06

The total workforce is projected to add 19.9 million jobs between 2004-2014. The professional IT workforce is expected to grow by some 30 percent by 2014, adding about a million new jobs.

The table below ranks growth rates for the fastest-growing technical occupations as well as for three occupations using similar skills.

For a better comparison, annualized demand growth rates (compounded) were calculated for the decade covered by the BLS projections (below). Only the top growth rate technical occupations are shown in the table below, plus engineering specialties that are expected to grow more slowly than for the labor force as a whole.

The second column is the increase in thousands of jobs over the decade by occupation. A few of the categories shown are subsets of others (e.g., all engineers further broken down). Some occupations that require the same skills as engineering are included (actuaries, accounting, financial analysis); there will be a demand for 41,000 more personal financial advisers — a possible alternate path for laid-off engineers.

The new BLS Employment Outlook, 2004-2014 is presented online at www.bls.gov/opub/mlr/2005/11/contents.htm.

The annualized growth rate for the overall workforce is expected to be 1.23 percent. Slower growth in demand is expected for architects and engineers, electrical engineers, computer hardware engineers and electronics engineers (except computer).

Growth at average to twice average rates are expected in demand for engineering managers, all engineers, financial analysts, accountants and auditors, actuaries and personal financial advisers.

Five times as many new environmental engineers as new biomedical engineers will be needed, but both categories fall below the demand for the six IT specialties.

Influence of the Forecasts

As the primary source of occupational descriptions, the Occupational Outlook Handbook [www.bls.gov/oco/home.htm], also issued biannually, is influential. The information is widely quoted in the press. Career Guide to Industries [www.bls.gov/oco/cg/home.htm] is a companion report.

At the same time that demand is expected to grow for IT occupations, the number of computer science majors in the U.S. is not increasing, perhaps because these careers are seen as volatile and unstable.

How Accurate?

Underlying assumptions are crucial in developing these forecasts. Unforeseen developments, such as the end of the cold war, can alter demand in ways not predicted earlier. For example, between 1988 and 2000, demand for electrical and aerospace engineers fell significantly; demand for both had been expected to grow [www.bls.gov/opub/ooq/2003/spring/contents.htm].

Methodology

The underlying economic projections are developed using the quarterly model of the U.S. economy maintained by Macroeconomic Advisors, LLC, in St. Louis.

The model includes 609 variables. Job growth is estimated for about 700 detailed occupations. The numbers also take into account replacements for workers who have died, retired or moved on to other occupations.

In an analysis of the U.S. economy to 2014 in the November 2005 Monthly Labor Review [www.bls.gov/opub/mlr/2005/11/art2exc.htm], BLS's Betty W. Su wrote:

"Under the assumptions used by the Bureau of Labor Statistics in developing projections of the economy, gross domestic product (GDP) is expected to reach $14.7 trillion in chained 2000 dollars by 2014, an increase of $3.9 trillion over the 2004-14 projections span. This translates to an average annual rate of growth for real GDP of 3.1 percent, 0.1 percentage point lower than the historical rate of 3.2 percent from 1994 to 2004. A slowing in the growth of civilian household employment, from 1.2 percent a year during the 1994-2004 period to 1.0 percent annually between 2004 and 2014, is expected to result in an increase of almost 15-million employed persons over the projection horizon, about 1.5 million less than what was noted across the 1994-2004 decade. The unemployment rate is expected to slow down to 5.0 percent in 2014 — 0.5 percentage point lower than that in 2004.

"Following an unprecedented decade-long expansion, the U.S. economy began to slow during 2000 and entered a relatively short-lived recession spanning March to November of 2001. A number of factors helped push the economy into the 2001 recession, including shocks to investment by businesses and households and the unexpected declines in real net exports in 2000, which likely exacerbated the shock to the capital goods sector. After the trough in the fall of 2001, the economy grew modestly through 2002 and for much of 2003, but kicked into higher gear in 2004. Despite sharp increases in oil prices, real GDP grew at a solid annual rate of 4.2 percent in 2004. This recovery has been led by strong growth in consumer spending accompanied by robust housing activity. Business investment lagged behind its pace in prior recoveries until 2004, when an inventory buildup and an upturn in equipment and software purchases allowed this component of GDP to contribute to a strengthening recovery.

"For more than a decade, the United States has grown increasingly dependent on imported goods. However, growth of U.S. exports has not kept pace over the period, leading the current account balance — the broadest measure of international trade and financial flows — to hit a record deficit in 2004, rising to 5.6 percent of GDP in that year. Additionally, the costs of military operations in Iraq and Afghanistan, along with homeland security expenses, pushed the federal budget to a record deficit of $407 billion in 2004."

Some other assumptions used:

• Five percent unemployment rate in 2014

• Labor productivity growth of 2.7 percent per year

• Per capita real disposable income increasing from $27,200 in 2004 to $33,200 in 2014

• Personal savings rate growing slowly from 1.8 percent in 2004 to 3.4 percent in 2014 (but it has been negative in two recent months)

• Improvements (but not elimination) in the federal deficit and current account deficit are expected

• The aging of the labor force will show up in a 4.1 percent projected annual growth of the age-55 and older age group — more than 4 times the rate of the overall labor force.

• Risks of offshoring, especially in the information technology sector, were identified. Although the numbers here do not reflect a change to account for offshoring, BLS says that the forthcoming Occupational Outlook Handbook will adjust demand to reflect offshoring.

For further information, see the Department of Labor employment home page, at www.bls.gov/emp.

Globalized Growth

For comparison, Financial Times, 1 March, notes that for the next five years the growth of the software industry in Asia is expected to be 8.6 percent per year and for India is expected to be 19 percent per year, based on an IDC study sponsored by Microsoft. The report puts North American growth in IT at 4.9 percent per year and European growth at 6.5 percent per year over the same five-year period (2004 to 2009). Asia's IT sector will contribute one million new jobs, $11.3 billion in new tax revenue and add $350 billion to the region's economies over that period.

George McClure is chair of IEEE-USA's Communications Committee, a member of the IEEE-USA Career and Workforce Policy Committee, and technology policy editor for IEEE-USA Today's Engineer. Comments may be submitted to todaysengineer@ieee.org.